Test bank with answers for financial accounting 6e by libby chapter 13

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Chapter 013: Statement of Cash Flows

True / False Questions
1. The only difference in presenting a statement of cash flows using the direct method rather
than the indirect method is the details given for investing activities.
FALSE

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 1

2. Only investments with original maturities of less than three months qualify as cash
equivalents.
TRUE

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 1

3. The payment of interest on a note payable is a cash flow from an operating activity.
TRUE

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 1

4. Collection of principal on a note receivable is a cash flow from investing activities.
TRUE

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 1

13-1
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Chapter 013: Statement of Cash Flows

5. Very few companies use the direct method for disclosing their cash flows from operating
activities.
TRUE

AACSB Tag: Communications
Difficulty: Easy
L.O.: 1

6. When accrued liabilities increase from the beginning to the end of the year, it means cash
was not expended for some of the company's operating expenses so the increase would be
added to net income to convert to cash flow from operating activities under the indirect
method.
TRUE

AACSB Tag: Analytic
Difficulty: Medium
L.O.: 2

7. Under the indirect method, an increase in accounts receivable during the year will be
deducted from net income to convert to cash flow from operating activities.
TRUE

AACSB Tag: Relative Thinking
Difficulty: Easy
L.O.: 2

8. If sales revenue was $1,800,000 and accounts receivable decreased $40,000 while unearned
revenue increased $10,000 during the year, then cash collected from customers equals
$1,840,000.
FALSE

AACSB Tag: Analytic
Difficulty: Hard
L.O.: 2

13-2
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Chapter 013: Statement of Cash Flows

9. A growing difference between net income and cash flow from operations can be a sign of
management manipulation of earnings.

TRUE

AACSB Tag: Relative Thinking
Difficulty: Hard
L.O.: 3

10. The quality of income ratio can only be interpreted based on knowledge of a company's
business operations and strategies.
TRUE

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 3

11. When a company purchases equipment, the cash outflows would be classified as financing
activity.
FALSE

AACSB Tag: Relative Thinking
Difficulty: Easy
L.O.: 4

12. Only long-term investments in other companies' stocks and bonds would be disclosed in
the investing activities section, while short-term investments would be in the operating
activities section.
FALSE

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 4

13-3
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Chapter 013: Statement of Cash Flows

13. From 2009 to 2010, Canadian Beer had a capital acquisitions ratio of 7.49 which means its
net income exceeded its cash investment in property, plant and equipment by almost 7.5
times.
FALSE

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 5

14. A low capital acquisitions ratio could indicate a higher need to obtain outside financing to

expand property, plant, and equipment assets.
TRUE

AACSB Tag: Relative Thinking
Difficulty: Easy
L.O.: 5

15. Free cash flow measures the sufficiency of cash flow from operating activities to cover
both capital expenditures for property, plant and equipment as well as the payment of
dividends.
FALSE

AACSB Tag: Relative Thinking
Difficulty: Easy
L.O.: 5

16. When a company both borrows $150 million during the year and repays $120 million of
notes, the company can disclose the $30 million net cash inflow in of borrowings net of
repayments in the financing activities section of the statement of cash flows.
FALSE

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 6

13-4
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Chapter 013: Statement of Cash Flows

17. When a cash dividend is declared, it would affect the balance sheet but not the statement
of cash flows.
TRUE

AACSB Tag: Relative Thinking
Difficulty: Easy
L.O.: 6

18. Wish Corporation acquired a computer for $15,000 and paid for it in full by issuing 1,000
shares of its own common stock, par $10 (current market price $15 share). This transaction
should not be reported on the statement of cash flows because cash was neither paid out nor
received.
FALSE

AACSB Tag: Relative Thinking
Difficulty: Medium

L.O.: 7

19. A transaction that does not cause an inflow or outflow of cash should be reported on the
statement of cash flows only if it is an adjustment to convert net income on an accrual basis to
cash basis.
FALSE

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 7

20. When using the indirect method, a loss on the sale of equipment should be added to net
income to derive cash flows from operating activities.
TRUE

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: Sup A

13-5
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Chapter 013: Statement of Cash Flows

Multiple Choice Questions
21. The statement of cash flows reports directly on the
A. financial position of the business.
B. accrual basis in accordance with GAAP.
C. causes of the inflows and outflows of cash.
D. financial operating performance of the business.

AACSB Tag: Communications
Difficulty: Easy
L.O.: 1

22. Which of the following transactions would not create a cash flow?
A. The company purchased some of its own stock from a stockholder.
B. Amortization of patent for the period.
C. Payment of a cash dividend.
D. Sale of equipment at book value (i.e. no gain or loss).

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 1

23. Which of the following transactions is not a direct use of cash?

A. Acquisition of inventory for cash.
B. Exchanges of bonds payable for land.
C. Purchase of treasury stock with cash.
D. Cash dividend paid.

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 1

13-6
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Chapter 013: Statement of Cash Flows

24. The statement of cash flows should be dated as follows:
A. December 31, 2010.

B. For the Year Ended December 31, 2010.
C. At Year-End December 31, 2010.
D. At December 31, 2010.

AACSB Tag: Relative Thinking
Difficulty: Easy
L.O.: 1

25. Which of the following transactions is not a typical use of cash?
A. Payment of short-term debt with cash.
B. Purchase of treasury stock for cash.
C. Acquisition of a building for cash.
D. Sale of equipment for less than book value.

AACSB Tag: Relative Thinking
Difficulty: Easy
L.O.: 1

26. Which of the following would not be a cash flow from investing activities?
A. Purchase of long-term investments.
B. Sale of a patent.
C. Collection of principal of a note receivable.
D. Collection of interest revenue on a long-term note receivable.

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 1

27. Which of the following would not be a cash flow from financing activities?
A. Issuance of common stock.

B. Borrowing on a long-term note payable.
C. Collection of a cash dividend.
D. Repayment of principal on a long-term note payable.

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 1

13-7
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Chapter 013: Statement of Cash Flows

28. Which of the following is a cash flow from operating activities?
A. Purchase of merchandise for resale.
B. Sale of a piece of land no longer used in operations.

C. Sale of long-term investments in common stock.
D. Payment of a note payable.

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 1

29. Which of the following would least likely be a cash equivalent?
A. A $10,000, 30 day certificate of deposit.
B. 500 shares of IBM stock.
C. A three-month Treasury bill.
D. A ten-year Treasury note purchased two months before maturity.

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 1

30. A cash inflow from financing activities includes
A. proceeds from selling investments in equity securities of another company.
B. proceeds from selling equipment.
C. proceeds from issuance of bonds payable.
D. receipt of interest payments.

AACSB Tag: Relative Thinking
Difficulty: Easy
L.O.: 1

13-8
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Chapter 013: Statement of Cash Flows

31. For an investment to qualify as a cash equivalent, it must be readily convertible to a
known amount of cash and
A. it must be identified as a cash equivalent on the income statement.
B. must be sufficiently close to its maturity date so that its market value is relatively
insensitive to interest rate changes.
C. the investment must have a known foreign exchange rate.
D. it must mature within 4 months.

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 1

32. A cash inflow from operating activities includes
A. collection of the principal of a loan.

B. receipt of interest on an investment.
C. proceeds from issuance of notes payable.
D. collection of sales of equipment used in operations of the business.

AACSB Tag: Relative Thinking
Difficulty: Easy
L.O.: 1

33. Which of the following statements about the statement of cash flows is correct?
A. A company with a net loss on the income statement will always have a net cash outflow
from operating activities.
B. A purchase of equipment is classified as a cash inflow from investing activities.
C. Cash dividends received on stock investments are classified as cash flows from operating
activities.
D. Cash dividends paid are classified as cash flows from operating activities.

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 1

13-9
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Chapter 013: Statement of Cash Flows

34. Which of the following items about the statement of cash flows is correct?
A. Non-cash expenses such as depreciation are deducted from net income with the indirect
method in computing cash flows from operating activities.
B. Cash equivalents are highly liquid investments with maturities at the date of purchase of
less than three months.
C. The acquisition of land by issuing bonds payable would not appear on the statement of
cash flows.
D. Cash paid for interest on debt would be classified as a financing cash flow.

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 1

35. Kela Corporation reported 2009 net income of $450,000 including the effects of
depreciation expense, $60,000 and amortization expense on a patent, $10,000. Also, cash of
$50,000 was borrowed on a 5-year note payable. Based on this data, total cash inflow from
operating activities for 2009 was
A. $440,000
B. $470,000
C. $520,000
D. $570,000

AACSB Tag: Analytic
Difficulty: Medium
L.O.: 2

36. Allen Company's 2009 income statement reported total revenues, $850,000 and total
expenses (including $40,000 depreciation) of $720,000. The 2009 balance sheet reported the
following: accounts receivable—beginning balance, $50,000 and ending balance, $40,000;
accounts payable—beginning balance, $22,000 and ending balance, $28,000. Therefore,
based only on this information, the 2009 net cash inflow from operating activities was
A. $126,000
B. $166,000
C. $174,000
D. $186,000

AACSB Tag: Analytic
Difficulty: Hard
L.O.: 2

13-10
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Chapter 013: Statement of Cash Flows

37. Creston Company gathered the following data to prepare its 2010 statement of cash flows:

Based only on the above data, the net cash inflow from operating activities during 2010 was
A. $83,000.
B. $89,000.
C. $91,000.
D. $97,000.

AACSB Tag: Analytic
Difficulty: Medium
L.O.: 2

38. Newton Company reported total sales revenue of $55,000 total expenses of $45,000 and
net income of $10,000 on its income statement for the year ended December 31, 2009. During
2009, accounts receivable decreased by $4,000, merchandise inventory decreased by $6,000,
accounts payable increased by $2,000 and depreciation of $8,000 was recorded. Therefore,
based only on this information, the net cash flow from operating activities for 2009 was:
A. $10,000.
B. $18,000.
C. $19,000.
D. $30,000.

AACSB Tag: Analytic
Difficulty: Medium
L.O.: 2

13-11
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Chapter 013: Statement of Cash Flows

39. Drake Company reported total sales revenue of $150,000 total expenses of $152,000 and a
net loss of $2,000 for the year ended December 31, 2009. During 2009, accounts receivable
decreased by $1,000, trade payables increased by $5,000, wages payable increased by $3,000,
and $18,000 in depreciation expense was recorded. Assuming no other adjustments are
needed, the "net cash flow from operating activities" for 2009 was (parentheses indicate net
cash outflow)
A. $29,000.

B. $25,000.
C. $23,000.
D. ($1,000).

AACSB Tag: Analytic
Difficulty: Medium
L.O.: 2

40. Thomas Company reported sales revenue of $500,000 and total expenses of $450,000
(including depreciation) for the year ended December 31, 2009. During 2009, accounts
receivable decreased by $5,000, merchandise inventory increased by $4,000, accounts
payable increased by $6,000, and depreciation expense of $10,000 was recorded. Assuming
no other data is needed, the net cash inflow from operating activities for 2009 was
A. $44,000.
B. $51,000.
C. $60,000.
D. $67,000.

AACSB Tag: Analytic
Difficulty: Hard
L.O.: 2

13-12
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Chapter 013: Statement of Cash Flows

41. During 2009, Alpha Corporation reported net income of $10,000. During the year,
depreciation expense was $5,000, accounts payable increased $2,000 and accounts receivable
increased $4,000. Therefore, based upon this information, the "cash inflow from operating
activities" was
A. $21,000.
B. $20,000.
C. $16,000.
D. $13,000.

AACSB Tag: Analytic
Difficulty: Medium
L.O.: 2

42. Ballet Company reported total sales revenue of $80,000 total expenses of $72,000 and net
income of $8,000 for the year ended December 31, 2009. During 2009, accounts receivable
increased by $3,000, merchandise inventory decreased by $2,000, accounts payable increased
by $1,000, and $5,000 in depreciation expense was recorded. Assuming no other adjustments
to net income are needed, the net cash inflow from operating activities was
A. $10,000.

B. $11,000.
C. $13,000.
D. $19,000.

AACSB Tag: Analytic
Difficulty: Medium
L.O.: 2

43. The statement of cash flows (indirect method) reports depreciation expense as an addition
to net income because depreciation
A. causes an inflow of funds for the replacement of assets.
B. reduces reported net income of the period but does not involve an outflow of cash for that
period.
C. is a direct use of cash.
D. reduces reported net income and causes an inflow of cash.

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 2

13-13
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Chapter 013: Statement of Cash Flows

44. To prepare a statement of cash flows (indirect method), which of the following items
should be added back to net income to derive "cash flow from operating activities"?
A. Depreciation expense.
B. Increase in accounts receivable.
C. Gain on a sale of equipment.
D. Decrease in taxes payable.

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 2

45. Austin Company reported net income for 2009 of $60,000, depreciation expense of
$10,000, and amortization expense (patent) of $5,000. Also, accounts payable increased by
$3,000 and inventory decreased by $2,000. The amount of "cash flows from operating
activities" for 2009 was
A. $74,000.
B. $75,000.
C. $76,000.
D. $80,000.

AACSB Tag: Analytic

Difficulty: Medium
L.O.: 2

46. The 2009 income statement of Coen Company reported total sales revenue of $106,000
and total expenses of $108,000 and a net loss of $2,000. Expenses were: depreciation,
$10,000 and patent amortization, $5,000. There was an increase in inventory of $1,000. Cash
flow from operating activities during 2009, was (parentheses indicate a cash outflow)
A. $ 7,000.
B. $14,000.
C. $12,000.
D. ($3,000).

AACSB Tag: Analytic
Difficulty: Medium
L.O.: 2

13-14
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Chapter 013: Statement of Cash Flows

47. The 2009 income statement for McGrath Corporation showed the following:

Cash flow from operating activities is
A. $190,000.
B. $183,000.
C. $170,000.
D. $167,000.

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 2

48. Which statement regarding the indirect method is false?
A. Depreciation expense is added to net income.
B. An increase in accounts receivable is added to net income.
C. An increase in accounts payable is added to net income.
D. An increase in merchandise inventory is subtracted from net income.

AACSB Tag: Relative Thinking
Difficulty: Easy
L.O.: 2

49. Which of the following statements about cash flows from operating activities, in a
statement of cash flows prepared under the indirect method, is correct?
A. An increase in accounts receivable would be subtracted from net income.

B. An increase in salaries payable would be subtracted from net income.
C. An increase in inventory would be added to net income.
D. Depreciation expense would be subtracted from net income.

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 2

13-15
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Chapter 013: Statement of Cash Flows

50. Assume the 2009 income statement reported total sales revenue of $1,200,000. The 20082009, comparative balance sheets showed that accounts receivable increased by $25,000 and
the unearned revenue account decreased $15,000. The cash inflow from customers for 2009
would be

A. $1,225,000
B. $1,160,000
C. $1,175,000
D. $1,185,000

AACSB Tag: Analytic
Difficulty: Medium
L.O.: 2

51. Bold Company's 2009 income statement reported total sales revenue of $250,000. The
2008-2009, comparative balance sheets showed that accounts receivable decreased by
$20,000. The 2009 "cash receipts from customers" would be
A. $230,000.
B. $270,000.
C. $250,000.
D. $ 40,000.

AACSB Tag: Analytic
Difficulty: Medium
L.O.: 2

13-16
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Chapter 013: Statement of Cash Flows

52. The financial statements for World Company show the following:
Cost of goods sold $725,000

Cash paid for merchandise is
A. $731,000.
B. $736,000.
C. $719,000.
D. $714,000.

AACSB Tag: Analytic
Difficulty: Medium
L.O.: 2

53. Madison Company had sales of $154,000. Additional information from the balance sheet
is below:

Cash collected from customers is
A. $148,000.
B. $150,000.
C. $154,000.

D. $160,000.

AACSB Tag: Analytic
Difficulty: Medium
L.O.: 2

13-17
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Chapter 013: Statement of Cash Flows

54. Amanda Company reported income tax expense of $250,000. Beginning income taxes
payable was $30,000 while ending income taxes payable was $25,000. What cash was paid
for taxes?
A. $280,000
B. $255,000

C. $245,000
D. It cannot be computed with the given information.

AACSB Tag: Analytic
Difficulty: Medium
L.O.: 2

55. Aaron Inc. reported operating expenses in 2009 of $765,000 (including $80,000 of
depreciation expense). Prepaid expenses increased $25,000 while accrued liabilities increased
$43,000. How much cash was paid for operating expenses in 2009?
A. $702,000
B. $622,000
C. $667,000
D. $703,000

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 2

56. Which of the following statements about the quality of income ratio is true?
A. When sales are growing, receivables and inventory normally increase faster than accounts
payable so the ratio increases.
B. Seasonal variations in sales have no impact on the quality of income ratio.
C. Failure to accrue appropriate expenses will inflate net income and reduce the quality of
income ratio.
D. The quality of income ratio is computed by dividing net income by cash flow from
operating activities.

AACSB Tag: Relative Thinking
Difficulty: Hard

L.O.: 3

13-18
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Chapter 013: Statement of Cash Flows

57. Which of the following statements about the quality of income ratio is true?
A. An increase in operating assets and a decrease in liabilities will reduce operating cash
flows, thereby reducing the ratio.
B. Seasonal variations in sales and purchases of inventory can cause wide deviations in the
quality of income ratio.
C. When sales are growing, receivables and inventory normally increase at a faster rate than
accounts payable often causing operating cash flows to be less than income.
D. All of the answers are true.

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 3

58. In 2009, Boogle reported net income of $785 million and positive cash flow from
operations of $1,196 million. In 2008, their net income was $563 million and positive cash
flow from operations was $1,237 million. Which of the following is false about their quality
of income ratios?
A. In 2008 their ratio was 2.2 and in 2009 it was 1.5.
B. Their ratio in 2008 was better than their ratio in 2009.
C. Boogle's quality of income ratios indicates poor performance because net income is less
than cash flow.
D. The ratio in both years shows the company's ability to generate good cash flow from its
operating activities.

AACSB Tag: Analytic
Difficulty: Hard
L.O.: 3

59. In 2009, Irish Eyes reported a quality of income ratio of 1.2. In 2008 and 2007 the ratio
was 1.3 and 1.6 respectively. Which of the following was the most likely cause of the
decrease in the ratio?
A. An increase in current assets such as receivables and inventory.
B. An increase in accounts payable and accrued liabilities.
C. A decrease in sales revenue.
D. Both an increase in current assets such as receivables and inventory and a decrease in sales
revenue are likely causes.

AACSB Tag: Analytic
Difficulty: Hard

L.O.: 3

13-19
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Chapter 013: Statement of Cash Flows

60. Which of the following is a cash outflow connected to investing activities?
A. Repurchase of treasury stock.
B. Purchase of short-term investments.
C. Purchase of property, plant and equipment
D. Both purchases of short-term investments and purchases of property, plant and equipment
are outflows connected to investing activities.

AACSB Tag: Relative Thinking
Difficulty: Medium

L.O.: 4

61. Which of the following is true?
A. Cash paid to repurchase treasury stock is an investing cash outflow.
B. Purchase of a patent is an investing cash outflow.
C. A cash dividend is an operating cash outflow.
D. Cash paid to acquire stock in another company is a financing outflow.

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 4

62. Canadian Beer reported they sold equipment for $222 million and purchased $1,515
million of new equipment. The equipment sold had a net book value of $150 million. Cash
flow from investing activities would show
A. an inflow of $222 million and outflow of $1,515 million.
B. an inflow of $150 million and outflow of $1,515 million.
C. a net outflow of $1,293 million.
D. a net outflow of $1,365 million.

AACSB Tag: Analytic
Difficulty: Medium
L.O.: 4

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Chapter 013: Statement of Cash Flows

63. Which of the following is false?
A. Purchase of equipment is an investing cash outflow.
B. Purchase of short-term investments is an investing cash outflow.
C. Sale of equipment creates investing cash inflow equal to its selling price.
D. Purchase of a patent is an investing cash outflow.

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 4

64. Milliken Company paid $2.2 million to purchase stock in another company, $1.0 million
to repurchase treasury shares, $.5 million to buy short-term investments, sold used equipment
for $.8 million when its book value was $.6 million, and purchased new equipment for $3.4
million. How much will be reported as net investing cash flow?
A. $6.3 million net cash outflow.
B. $5.3 million net cash outflow.
C. $5.1 million net cash outflow.

D. $4.8 million net cash outflow.

AACSB Tag: Analytic
Difficulty: Medium
L.O.: 4

65. Roberts Company sold equipment for $250,000, purchased a building for $6,500,000, sold
short-term investments for $280,000, and repaid a note payable for $2,300,000 plus $230,000
of interest. The net cash flow from investing activities was
A. $6,250,000 outflow.
B. $8,320,000 outflow.
C. $8,270,000 outflow.
D. $5,970,000 outflow.

AACSB Tag: Analytic
Difficulty: Medium
L.O.: 4

13-21
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Chapter 013: Statement of Cash Flows

66. Which of the following statements about the capital acquisitions ratio is true?
A. A high ratio indicates less need for outside financing of property, plant and equipment.
B. The ratio is computed by dividing cash flow from operations by the average property, plant
and equipment, net from the balance sheet.
C. A low ratio may indicate a failure to update property, plant and equipment which can limit
a company's ability to compete in the future.
D. Both a high ratio indicates less need for outside financing of property, plant and equipment
and a low ratio may indicate a failure to update property, plant and equipment which can limit
a company's ability to compete in the future are true.

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 5

67. Which of the following statements about the capital acquisitions ratio is false?
A. The ratio is computed by dividing cash flow from operations by cash paid for property,
plant and equipment.
B. Because the need for investment in property, plant and equipment differs dramatically
across industries, a firm's ratio should only be compared with its prior years' ratio or with
firms in the same industry.
C. A high ratio indicates more need for outside financing of current and future purchases of
property, plant and equipment.
D. None of the other answers is false.

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 5

68. In 2009, Eva's Enterprises disclosed cash paid for property, plant and equipment of $755
million and cash flow from operations of $5,968 million. Their average property, plant and
equipment from the comparative balance sheet was $6,094 million. Compute Eva's
Enterprises capital acquisitions ratio for 2009.
A. 1.0
B. 5.3
C. 7.9
D. 6.0

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 5

13-22
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Chapter 013: Statement of Cash Flows

69. In 2008, Eva's Enterprises had a capital acquisitions ratio of 7.9. In 2008, Carlos'
Corporation had a ratio of 3.6. The amount of cash flow from operations was $5,968,000 for
Eva's Enterprises and $5,054,000 for Carlos Corporation. Which of the following statements
is correct?
A. Eva's Enterprises used less cash for investments in property, plant and equipment during
2008 than did Carlos Corporation.
B. Eva's Enterprises has less need for external financing of its investments in property, plant
and equipment indicated by its higher capital acquisitions ratio compared to Carlos
Corporation.
C. Eva's Enterprises invested about $785,000 in property, plant and equipment during 2008.
D. All of the answers are correct.

AACSB Tag: Relative Thinking
Difficulty: Hard
L.O.: 5

70. From 2007-2010, Canadian Beer's capital acquisitions ratio was 7.49 while American
Beer's was 4.19. Which of the following statements is true?
A. American Beer's ratio is lower because they are experiencing slow growth.
B. American Beer's ratio shows this company will have less difficulty financing expansion
from operating cash flows than Canadian Beer.
C. American Beer needed to borrow money or issue more stock to cover their investments in
property, plant and equipment since they had an inadequate capital acquisitions ratio.

D. American Beer's lower ratio may indicate a failure to update plant and equipment.

AACSB Tag: Relative Thinking
Difficulty: Hard
L.O.: 5

71. In 2009, Tommy's Toys reported the following: long-term debt repayments of $503
million; interest paid, $143 million; and proceeds from exercise of stock options, $27 million.
How much is net cash flow from financing activities in 2009?
A. $476 million net cash outflow.
B. $530 million net cash outflow.
C. $673 million net cash outflow.
D. $ 76 million net cash outflow.

AACSB Tag: Analytic
Difficulty: Hard
L.O.: 6

13-23
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Chapter 013: Statement of Cash Flows

72. Burich Co. reported proceeds from short-term borrowings of $2.5 million, proceeds from
long-term borrowings of $6.8 million, repayments of long-term borrowings of $3.5 million,
interest payments of $780,000, repurchase of treasury shares of $500,000 and cash dividends
declared of $1.1 million. Net cash flow from financing activities equals
A. $5,300,000 net cash inflow.
B. $4,200,000 net cash inflow.
C. $1,700,000 net cash inflow.
D. $2,800,000 net cash inflow.

AACSB Tag: Analytic
Difficulty: Hard
L.O.: 6

73. Which of the following is true?
A. Repayments of principal and interest reduce financing cash flows.
B. Repurchase of treasury shares is a cash outflow connected to investing activities.
C. If a company borrows $450 million in long-term notes and repays $380 million of longterm notes, and then these items must both be disclosed and not netted against each other in
the financing section.
D. Both repayments of principal and interest reduce financing cash flows and if a company
borrows $450 million in long-term notes and repays $380 million of long-term notes, then
these items must both be disclosed and not netted against each other in the financing section
are true statements.

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 6

74. Which of the following would be a financing cash outflow?
A. Cash dividends declared.
B. Interest paid.
C. Repurchase of treasury shares.
D. Purchase of a building on credit.

AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 6

13-24
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Chapter 013: Statement of Cash Flows

75. Borderline Corp. borrowed $1.2 million in short-term notes and $6.4 million in long-term
notes. The company repaid $4.8 million of long-term notes plus $.6 million of interest.
Borderline issued $8.7 million of common stock and paid a cash dividend of $1.2 million.
Net cash flow from financing activities equals
A. $9.7 million net cash inflow.
B. $10.3 million net cash inflow.
C. $9.1 million net cash inflow.
D. $7.9 million net cash inflow.

AACSB Tag: Analytic
Difficulty: Medium
L.O.: 6

76. Lab Industries, Inc., issued $50,000 of bonds, paid cash dividends of $8,000, sold longterm investments for $12,000, received $5,000 of dividend revenue, purchased treasury stock
for $15,000, and purchased new equipment for $19,000. The net cash flow from financing
activities would be
A. $70,000.
B. $27,000.
C. $80,000.
D. ($20,000).

AACSB Tag: Analytic
Difficulty: Medium
L.O.: 6

77. Non-cash financing and investing activities
A. must be reported in the notes to the financial statements.

B. are transactions that do not cause a direct inflow or outflow of cash.
C. are disclosed in a separate schedule on the statement of cash flows.
D. include only activities over 5% of the available cash balance.

AACSB Tag: Relative Thinking
Difficulty: Easy
L.O.: 7

13-25
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