1. Which of the following statements is TRUE regarding a statement of cash flows?

A. A statement of cash flows measures the profitability of a company using the cash basis of accounting.

B. Two different methods may be used to compute the net cash flows from operating, investing, and financing activities.

C. Noncash investing and financing activities need to be disclosed under "other activities."

D. The statement of cash flows reports the changes in cash and cash equivalents.

2. Which of the following is a cash equivalent?

A. Accounts receivable

B. Certificates of deposit that mature in less than three months

C. Certificates of deposit that mature in one year or less

D. Prepaid expenses

3. Which of the following activities is an operating activity?

A. Payment on the principal portion of a bank loan

B. Collection of cash from issuing stock

C.Payment of interest on a bank loan

D. Payment of cash dividends

4. Which of the following activities would NOT be considered an investing activity?

A. Issuance of common stock

B. Purchase of used equipment

C. Sale of land

D. Sale of a long-term investment

5. Which of the following activities is a financing activity?

A. Purchase of land by issuing stock

B. Payment of cash dividends

C. Purchase of land for cash

D. Purchase of inventory for cash

6. On a statement of cash flows, the net increase in cash was $24,000. Cash provided from operations was $30,000. If the net cash outflow from investing activities was $7,000, then what was the net cash flow from financing activities?

A. A net inflow of $1,000

B. A net outflow of $1,000

C. A net inflow of $13,000

D. A net outflow of $13,000

7. Using the following information for Stewart Auto, Inc., calculate the net cash flow from operating activities using the indirect method.

Net income $150,000

Depreciation expense 10,000

Increase in accounts receivable 4,000

Decrease in inventory 5,000

Increase in accounts payable 8,000

Loss on sale of equipment 7,000

The net cash provided by operating activities is:

A. $142,000.

B. $144,000.

C. $160,000.

D. $176,000.

8. Which of the following statements is TRUE regarding the indirect method of preparing a statement of cash flows?

A. A decrease in inventory is subtracted from net income.

B. A loss on the sale of an investment is added to net income.

C. Depreciation expense is subtracted from net income.

D. An increase in wages payable is subtracted from net income.

9. Which of the following statements is TRUE regarding the direct method of preparing a statement of cash flows?

A. Depreciation expense is added as a reconciling item.

B. It is easier and less costly to prepare than the indirect method.

C. A supplementary schedule reconciling net income to the cash basis must also be provided.

D. All of the statements above are correct.

10. Which of the following is an example of noncash investing and financing activity that is disclosed in a supplementary schedule accompanying the statement of cash flows or in a footnote to the financial statements?

A. Selling goods on credit

B. Paying the amount due a creditor

C. Purchasing equipment in exchange for a long-term note

D. Gain on the sale of land