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Exam 5: Fraud, Internal Control, and Cash

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Question 51

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Which of the following is not true of the direct method of preparing a statement of cash flows?

A) It gives the user a sense of the magnitude of gross dollars flowing in and out of the company.
B) It has the same cash flows from investing and financing activities as the indirect method.
C) It results in a different net cash from operating activities than the indirect method.
D) It reports the same net increase or decrease in cash as the indirect method.

E) A) and C)
F) C) and D)

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Question 52

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

A) True
B) False

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Question 53

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Investing activities include

Assume the 20X4 income statement reported total sales revenue of $160,000. The 20X3-20X4, comparative statements of financial position showed that trade receivables increased by $10,000. What was the "cash inflow from customers" for 20X4?

In calculating cash flows from operating activities using the indirect method, a loss on the sale of equipment is

A statement of cash flows indicates the sources and uses of cash during a specific period.

Which of the following is a cash inflow from financing activities?

The capital expenditures ratio (Cash Flow from Operating Activities ÷ Cash Paid for Property, Plant, and Equipment) reflects the portion of purchases of property, plant, and equipment financed from operating activities without the need for outside debt or equity financing or the sale of other investments or other long-term assets.

If a company reports a net loss, it

The category that is generally considered to be the best measure of a company's ability to continue as a going concern is

Only investments with original maturities of less than three months at the date of purchase qualify as cash equivalents.

Travis Company reported a profit for 20X2 of $20,000, building depreciation expense of $6,000, and amortization expense (patent) of $5,000. Also, trade payables increased by $7,000 and inventory decreased by $2,000. What was the amount of "cash flows from operating activities" for 20X2?

Nelson Company collected the following data in its accounting records in 20X7: $\begin{array}{|l|r|}\hline \text { Income Statement } & \\\hline \text { Depreciation expense } & \$ 1,000 \\\text { Loss on sale of equipment } & \$ 3,000\\\hline \\\hline \text { Statement of Financial Position } & \\ \hline \text { Beginning balance - equipment } & \$ 12,500 \\\hline \text { Ending balance - equipment } & \$ 8,000 \\\hline \text { Beginning balance - accumulated depreciation } & \$ 2,000 \\\hline \text { Ending balance - accumulated depreciation } & \$ 2,400 \\\hline\end{array}$ No new equipment was purchased during the year. What was the cash inflow from the sale of equipment in 20X7?

Match each activity below with the proper classification by inserting the proper capital letter in the space to the left. Classification of Activity I. Investing F. Financing O. Operating $\begin{array} { | l | l | } \hline \quad\quad& \text { 1. Collection of interest on a note receivable } \\\hline & \text { 2. Payment of debt principal with cash } \\\hline & \text { 3. Sales of operational assets } \\\hline & \text { 4. Payment of cash dividends } \\\hline & \text { 5. Issuance of shares for cash } \\\hline& \text { 6. Borrowing cash from the bank } \\\hline &\text { 7. Purchase of operational assets for cash } \\\hline &\text { 8. Collections of dividends on long term investments } \\\hline\end{array}$

Lori Company sold an operational asset, a machine, for cash. It originally cost $20,000. The accumulated depreciation at the date of disposal was $15,000. A gain on the disposal of $2,000 was reported. What was the cash inflow from this transaction?

The following information was reported from the statement of cash flows for The W D Company for the years 2015 through 2017 in millions of dollars: $\begin{array} { | l | r | r | r | } \hline & \text { 20X7 } &2 0 X 6 & \text { 20X5 } \\\hline \text { Net earnings } & \$ 1,300 & \$ 1,850 & \$ 1,966 \\\hline \text { Cash provided by operations } & \$ 5,599 & \$ 5,115 & \$ 5,099 \\\hline \text { Cash used by investments } & \$ ( 5,310 ) & \$ ( 5,665 ) & \$ ( 3,936 ) \\\hline \text { Cash provided/used by financing } & \$ 9 & \$ 360 & \$ ( 1,124 ) \\\hline\end{array}$ A. Calculate the quality of earnings ratio for the years 20X5 through 20X7. B. Interpret the quality of earnings ratio for The W D Company for the three-year period.

The primary objective of the statement of cash flows is to provide information about a company's cash receipts and cash payments during an accounting period.

Under the indirect method, noncash expenses are added to net earnings.

How should the statement of cash flows be dated?

Restless Company's 20X2 income statement reported total sales revenue of $100,000. The 20X1- 20X2, comparative statements of financial position showed that trade receivables decreased by $10,000. What were the 20X2 "cash receipts from customers"?