Multiple Choice
1. If a company issues a balance sheet and an income statement with comparative figures from last year, a statement of cash flows
a. Is no longer necessary, but may be issued at the company’s option
b. Should not be issued
c. Should be issued for each period for which an income statement is presented
d. Should be issued for the current year only

2. Selected information from Brook Corporation’s accounting records and financial statements for 2007 is as follows:
Net cash provided by operating activities ........$1,500,000
Mortgage payable issued to acquire land and building .....1,800,000
Common stock issued to retire preferred stock ........500,000
Proceeds from sale of equipment ..............400,000
Cost of office equipment purchased ............200,000
On the statement of cash flows for the year ended December 31, 2007, Brook should disclose a net increase in cash in the amount of
a. $1,700,000
b. $2,400,000
c. $3,700,000
d. $4,200,000

3. In a statement of cash flows (indirect method), the amortization of patents of a company with substantial operating profits should be presented as a (an)
a. Cash flow from investing activities
b. Cash flow from financing activities
c. Deduction from net income
d. Addition to net income

4. The net cash provided by operating activities in Seat’s statement of cash flows for 2007 was $8,000,000. For 2007, depreciation on fixed assets was $3,800,000, amortization of patents was $100,000, and dividends on common stock were $2,000,000. Based on the preceding information, Seat’s net income for 2007 was
a. $2,100,000
b. $4,100,000
c. $8,000,000
d. $11,900,000

5. The retirement of long-term debt by the issuance of common stock should be presented in a statement of cash flows as a
Cash Flow From Cash Flow From
Financing Activities Investing Activities
a. No ..........No
b. No ..........Yes
c. Yes ............No
d. Yes ............Yes

6. The net income for Mountain Corporation was $4,000,000 for the year ended December 31, 2007. Additional information is as follows:
Depreciation on fixed assets ......$2,000,000
Proceeds from sale of land .......200,000
Increase in accounts payable .......300,000
Dividends on preferred stock .....400,000
The net cash provided by operating activities in the statement of cash flows for the year ended December 31, 2007 should be
a. $6,000,000
b. $6,100,000
c. $6,300,000
d. $6,500,000

7. Which of the following need not be disclosed in a schedule accompanying the statement of cash flows as an investing and financing activity not affecting cash?
a. Acquisition of fixed assets in exchange for capital stock
b. Dividend paid in capital stock of the company (stock dividend)
c. Retirement of a bond issue through the issuance of another bond issue
d. Conversion of convertible debt to capital stock

8. The following information on selected transactions for 2007 has been provided by the Smith Company:
Net income ..............$20,000,000
Proceeds from short-term borrowings ......1,200,000
Proceeds from long-term borrowings ....4,000,000
Purchases of fixed assets ...........3,200,000
Decrease in inventories ...........8,000,000
Proceeds from sale of Smith’s common stock ..2,000,000
Depreciation expense .............500,000
What is the net increase in cash for the year ended December 31, 2007 as a result of the preceding information?
a. $32,500,000
b. $25,700,000
c. $16,500,000
d. $12,500,000

9. The following information was taken from the accounting records of Oregon Corporation for 2007:
Proceeds from issuance of preferred stock ......$4,000,000
Dividends paid on preferred stock ...........400,000
Bonds payable converted to common stock ......2,000,000
Payment for purchase of machinery .........500,000
Proceeds from sale of plant building ........1,200,000
2% stock dividend on common stock .........300,000
Gain on sale of plant building ............200,000
Oregon’s statement of cash flows for the year ended December 31, 2007 should show the following amounts for investing and financing activities, based on the preceding information:
Net Cash Flows From Net Cash Flows From
Investing Activities Financing Activities
a. $700,000 .......$3,600,000
b. $700,000 .......$3,900,000
c. $900,000 .......$3,900,000
d. $900,000 .......$5,600,000

10. A company reports sales of $200,000 and interest revenue of $17,000 for the current year. During the year accounts receivable increased by $21,000 and interest receivable decreased by $3,000. Under the direct method, the company would report cash inflows from operating activities of
a. $235,000
b. $193,000
c. $241,000
d. $199,000