Multiple-Choice Questions 1. Which of the following is not a use of the statement of cash flows?

Question:

Multiple-Choice Questions

1. Which of the following is not a use of the statement of cash flows?

a. Aids in the prediction of future cash flow

b. Helps estimate the amount of funds that will be needed from creditors or stockholders

c. Provides insights into the quality and reliability of reported income

d. Provides a measure of the future obligations of the company

2. Which of the following would be classified as a cash outflow from an operating activity?

a. Purchase of an investment

b. Payment of goods purchased from suppliers

c. Payment of dividends

d. Purchase of equipment

3. Which of the following is an example of a cash inflow from an operating activity?

a. Collection of an account receivable from a credit sale

b. Collection of cash relating to a note receivable

c. Sale of property, plant, and equipment

d. None of the above

4. Which of the following is an example of a cash outflow from a financing activity?

a. Payment of interest on a note payable

b. Payment of cash dividends to stockholders

c. Payment of wages to employees

d. Issuance of common stock for cash

5. Which of the following is true?

a. A decrease in cash may result from an increase in liabilities

b. An increase in cash may result from a decrease in stockholders’ equity

c. An increase in cash may result from an increase in noncash assets

d. An increase in cash may result from an increase in liabilities

6. Which of the following statements is true?

a. Many companies prefer the indirect method because it is easier and less costly to prepare.

b. Cash flow from operating activities must be prepared using the indirect method.

c. The indirect method adjusts sales for changes in noncash items to produce net cash flow from operating activities.

d. The FASB prefers the indirect method.

7. Mullinix Inc. reported the following information: net income, $45,000; increase in accounts receivable, $10,000; increase in accounts payable $8,000; and depreciation expense, $3,000. What amount did Mullinix report as cash flow from operating activities on its statement of cash flows?

a. $24,000

b. $30,000

c. $40,000

d. $46,000

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