EX 8 1. Which of the following statements does NOT correctly describe an issue pertaining to the comparability of the cash flow statement across firms? A. The proportion of leases treated as operating leases versus capital leases varies substantially across firms. B. GAAP requires computer software development companies to expense all software development costs until the software reaches technological feasibility. However, GAAP does not have any criteria for determining technological feasibility which therefore allows companies flexibility with respect to this determination. C. Companies selling their accounts receivable at year-end are distorting their cash flows in the current year relative to their competitors that do not sell their receivables at year-end. D. Companies that aggressively manage their working capital cant easily manage the short-run appearance of their operating cash flows relative to those companies that do not aggressively manage their working capital. 2. Which one of the following items is the most common adjustment to the cash flow from operating activities under the indirect method because cash does not increase or decrease? A. Change in receivables B. Depreciation expense C. Change in fixed assets D. Change in cash 3. Cash flows arising from the purchase or sale of marketable securities are cash flows from _____ activities. A. investing B. operating C. financing D. research 4. Cash flows that arise from transactions of a firm related to the production and delivery of goods and services to customers are cash flows from _____ activities. A. investing B. operating C. financing D. research 5. When the year-to-year changes in comparative balance sheet accounts do not coincide with the changes implied from amounts reported on the statement of cash flows, the analyst may find useful information for reconciliation in notes to the financial statements and the: A. operating activities section of the cash flow statement. B. capital stock account. C. balance sheet. D. investments account. 6. Which one of the following would be reported in the cash flow from operating activities section of the cash flow statement under the direct method? A. Increase in taxes payable B. Interest and dividends received C. Issuance of common stock D. Cash payments made on short-term notes 7. The FASB decided that the allocation of income taxes paid to operating, financing, and investing activities would be complex and arbitrary, and relied on which one of the following justifications for its decision? A. Materiality constraint B. Historical cost C. Cost-benefit constraint D. Revenue recognition principle 8. An increase in accounts receivable of $6,000 for the year: A. decreases cash flow from operations by $3,000. B. increases cash flow from operations by $3,000. C. decreases cash flow from operations by $6,000. D. increases cash flow from operations by $6,000. 9. The cash flow statement of the United Company is in process for 2015. The United Company is reporting the following balances: 12/31/14 12/31/15 Equipment $ 100,000 $ 170,000 Loss on sale of equipment 0 10,000 Accumulated depreciationequipment 75,000 95,000 During 2015, United sold equipment costing $30,000 for $12,000 and made several purchases of new equipment for cash. Equipment purchases in 2015 were: A. $ 30,000. B. $ 70,000. C. $ 100,000. D. $ 120,000. 10. Which of the following transactions would NOT be reported within the financing activities section of the cash flow statement? A. The payment of a cash dividend B. An issue of preferred stock in exchange for cash C. An issue of common stock in order to retire a bond liability D. The payment of cash to acquire shares of common stock to be held as treasury stock 11. Accrual accounting net income can differ from operating cash flows for all of the following reasons EXCEPT: A. dividend declaration and payment dates. B. useful lives of assets. C. future pension and healthcare benefits. D. estimates of uncollectible accounts. 12. Which of the following transactions would be reported within the financing activities section of the cash flow statement? A. An issue of preferred stock in exchange for a parcel of land B. The accrual of a cash dividend C. The cash payment of interest associated with bonds payable D. The sale of treasury stock for cash 13. The cash flow statement of the United Company is in process for 2015. The United Company is reporting the following balances: 12/31/14 12/31/15 Equipment $ 100,000 $ 170,000 Loss on sale of equipment 0 10,000 Accumulated depreciationequipment 75,000 95,000 During 2015, United sold equipment costing $30,000 for $12,000 and made several purchases of new equipment for cash. Depreciation expense for 2015 is: A. $ 8,000. B. $ 20,000. C. $ 18,000. D. $ 28,000. 14. The cash flow statement of the United Company is in process for 2015. The United Company is reporting the following balances: 12/31/14 12/31/15 Equipment $ 100,000 $ 170,000 Loss on sale of equipment 0 10,000 Accumulated depreciationequipment 75,000 95,000 During 2015, United sold equipment costing $30,000 for $12,000 and made several purchases of new equipment for cash. If these were the only investing activities, the cash flow from investing activities is a net cash: A. outflow of $12,000. B. inflow of $12,000. C. outflow of $88,000. D. inflow of $88,000. 15. Autumn Company uses IFRS to prepare its external financial reporting. During 2015, Autumn Company had the following information related to cash flows: Dividends paid 16,000 Interest paid 20,000 Interest received 42,000 With regard to the above information, which of the following is acceptable as part of preparation of the statement of cash flows? A. Cash from operating activities Cash from/(used by) investing activities $0 ($42,000) B. Cash from operating activities Cash from/(used by) investing activities $26,000 ($20,000) C. Cash from operating activities Cash from/(used by) investing activities $(20,000) $26,000 D. Cash from operating activities Cash from/(used by) investing activities $0 ($46,000) 16. Autumn Company uses IFRS to prepare its external financial reporting. During 2015, Autumn Company had the following information related to cash flows: Dividends received 16,000 Interest paid 20,000 Interest received 42,000 With regard to the above information, which of the following is acceptable as part of preparation of the statement of cash flows? A. Cash from operating activities Cash from/(used by) investing activities $0 $42,000 B. Cash from operating activities Cash from/(used by) investing activities $58,000 ($20,000) C. Cash from operating activities Cash from/(used by) investing activities $0 $38,000 D. Cash from operating activities Cash from/(used by) investing activities $(20,000) $58,000 17. Which of the following statements concerning IFRS and the statement of cash flows is correct? A. When large foreign companies that follow IFRS prepare the statement of cash flows they overwhelmingly use the direct method to prepare the cash flow from operating activities section. B. IFRS permits companies to classify interest paid, interest received, and dividends received as part of either investing or operating activities. C. IFRS rules permit firms that use bank overdrafts repayable on demand as part of their normal cash management activities to include those amounts as a component of cash and cash equivalents. D. IFRS rules require firms that use the direct method to also provide a reconciliation of net income to cash flows from operating activities (essentially the indirect method). 18. For a firm using the indirect method, which of the following statements does NOT correctly describe an adjustment to net income when determining cash flows from operating activities? A. An increase in wages payable will be added to net income. B. A decrease in accrued interest payable will be deducted from net income. C. Amortization of bond discount will be added to net income. D. Patent amortization expense will be deducted from net income. 19. The following information has been provided to you by your controller: Net income $100,000 Decrease in accounts payable $38,000 Decrease in inventory $7,500 Increase in accounts receivable $8,000 Decrease in bonds payable $75,000 Amortization of bond discount $9,400 Depreciation expense $20,000 Increase in income taxes payable $6,000 What is the net cash flow from operating activities? A. $ 96,900 B. $ 97,900 C. $112,900 D. $ 94,100 20. Which of the following statements does NOT accurately describe issues pertaining to preparation of the cash flow statement? A. The retirement of a fixed asset that is not fully depreciated resulting in a loss equal to the retired assets book value creates a discrepancy with respect to changes in the balance sheet relative to what is reported in the investing activities section of the cash flow statement. B. Simultaneous non-cash financing and investing activities such as the purchase of a building by incurring a mortgage do not need to be reported within the investing and financing activities sections of the cash flow statement. C. Changes in working capital accounts and fixed asset accounts will always have to correspond with the changes in these accounts within the statement of cash flows. D. The increase in the fixed asset accounts due only to a translation adjustment resulting from the fall of the dollar will not create an investing cash flow within the investing activities section of the cash flow statement.