FINANCIAL ACCOUNTING AND REPORTING 3

MULTIPLE CHOICE

9. When preparing a statement of cash flows using the direct method, amortization of goodwill is a. shown as an increase in cash flows from operating activities. b. shown as a reduction in cash flows from operating activities. c. included with supplemental disclosures of noncash transactions. d. not reported in the statement of cash flows or related disclosures. 10. In preparing a statement of cash flows (indirect method), cash flows from operating activities a. is calculated as the difference between revenues and expenses plus the beginning cash balance. b. is always equal to the sum of cash flows from investing activities and cash flows from financing activities. c. can be calculated by appropriately adding to or deducting from net income those items in the income statement that affect cash and accruals for current assets and current liabilities. d. can be calculated by appropriately adding to or deducting from net income those items in the income statement that do not affect cash. 11. In preparing a statement of cash flows, which of the following transactions would be considered an investing activity? a. Sale of a business segment c. Purchase of treasury stock b. Issuance of bonds payable at a discount d. Sale of capital stock 12. In a statement of cash flows (indirect method), depreciation is treated as an adjustment to reported net income because depreciation a. reduces the reported net income but does not involve an outflow of cash. b. reduces the reported net income and involves an inflow of cash. c. is an inflow of cash to a reserve account for asset replacement. d. usually represents a significant portion of operating expenses. 13. Cash equivalents would not include short-term investments in a. money market funds c. commercial paper b. available-for-sale securities d. certificates of deposit

14. In preparing a statement of cash flows, sale of treasury stock at an amount greater than cost would be classified as a(n) a. transfer activity c. investing activity b. operating activity d. financing activity 15. In a statement of cash flows, receipts from sales of property, plant, and equipment would be classified as cash inflows from a. liquidating b. operating activities c. investing activities d. financing activities. 16. A decrease in accounts receivable should be presented in a statement of cash flows (indirect method) as a. an inflow and outflow of cash c. a deduction from net income b. an outflow of cash d. an addition to net income 17. Which of the following statements regarding cash equivalents is correct? a. A one-year Treasury note could not qualify as a cash equivalent. b. All investments meeting the FASB's criteria for cash equivalents must be reported as such. c. The date a security is purchased determines its "original maturity" for cash equivalent classification purposes. d. Once established, management's policy for classifying items as cash equivalents cannot be changed. 18. Using the indirect method, cash flows from operating activities would be increased by which of the following? a. Gain on sale of investments c. Decrease in accounts payable b. Increase in prepaid expenses d. Decrease in accounts receivable 19. Cash inflows from investing result from a. decreases in liabilities c. decreases in noncash assets b. increases in liabilities d. increases in noncash assets 20. In a statement of cash flows, proceeds from the sale of a company's own bonds or mortgages should be classified as cash inflows from a. leveraging b. operating activities c. investing activities d. financing activities.