1. The primary purpose of the statement of cash flows is to provide information about the:
A.Entity's ability to generate future cash flows.
B.Reasons for the difference between net income and net cash flow from operating activities.
C.Entity's cash receipts and cash payments during a period.
D.Entity's ability to pay dividends and meet obligations.


2. Activities involving the cash effects of transactions that enter into the determination of net income are:
A.Financing activities.
B.Investing activities.
C.Noncash investing and financing activities.
D.Operating activities.


3. The information to prepare the statement of cash flows comes from all of the following sources except:
A.Comparative balance sheets.
B.Current income statement.
C.Retained earnings statement.
D.Selected transaction data.


4. Determining net cash flow from operating activities includes the elimination of:
A.Earned revenues from net income.
B.Incurred expenses from net income.
C.Noncash expenses from net income.
D.Noncash revenues and noncash expenses from net income.


5. The method of calculating net cash flow from operating activities that results in the presentation of a condensed cash receipts and cash disbursements statement is the:
A.Reconciliation method.
B.Indirect method.
C.Direct method.
D.Cash flow method.


6. The method of calculating net cash flow from operating activities that adjusts net income for items that affected reported net income but not cash is the:
A.Adjustment method.
B.Direct method.
C.Indirect method.
D.Income statement method.


7. The reconciliation of net income to net cash flow from operating activities is reported under:
A.The direct method only.
B.The indirect method only.
C.Both the direct method and the indirect method.
D.Neither the direct nor the indirect method.


8. All of the following adjustments are added to net income in calculating net cash flow from operating activities except:
A.Amortization expense.
B.A decrease in accounts receivable.
C.An increase in accounts payable.
D.An increase in inventory.


9. All of the following adjustments would be deducted in determining net cash flow from operating activities except:
A.Amortization of bond premium.
B.Decrease in future income tax liability.
C.Gain on sale of plant assets.
D.Increase in accrued liabilities.


10. Under the direct method, cash payments to suppliers equals cost of goods sold:
A.Plus increases in inventory and accounts payable.
B.Minus decreases in inventory and accounts payable.
C.Minus an increase in inventory and plus a decrease in accounts payable.
D.Plus an increase in inventory and minus an increase in accounts payable.


11. Under the direct method, cash payments for operating expenses equals operating expenses:
A.Plus increases in prepaid expenses and accrued expenses payable.
B.Minus a decrease in prepaid expenses and plus a decrease in accrued expenses payable.
C.Plus a decrease in prepaid expenses and minus an increase in accrued expenses payable.
D.Minus decreases in prepaid expenses and accrued expenses payable.


12. Which of the following adjustments would be deducted in calculating net cash flow from operating activities?
A.Amortization expense.
B.Amortization of bond discount.
C.Depreciation expense.
D.A net increase in the investment account when the equity method is used.


13. Acquiring assets by issuing equity securities would be:
A.Included in investing activities.
B.Included in financing activities.
C.Included in both investing and financing activities.
D.Excluded from the Statement of Cash Flow.


14. Which of the following statements related to a work sheet used for preparation of the statement of cash flows is incorrect?
A.Accounts with debit balances are listed separately from those with credit balances in the balance sheet accounts section.
B.Inflows of cash are entered as debits and outflows of cash are entered as credits in the reconciling columns.
C.The reconciling items shown in the work sheet are entered in a journal and posted to appropriate accounts.
D.All of the options are correct.


15. The last step in the preparation of the statement of cash flows work sheet is to enter the:
A.Balance sheet accounts and their beginning balances in the balance sheet accounts section.
B.Balance sheet accounts and their ending balances in the balance sheet accounts section.
C.Data which explains the changes in the balance sheet accounts in the reconciling columns of the work sheet.
D.Increase or decrease in cash at the bottom of the work sheet.



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