1. (CMA Dec 95 #5) A statement of cash flows is intended to help users of financial statements

a. evaluate a firm's liquidity, solvency, and financial flexibility
b. evaluate a firm's economic resources and obligations
c. determine a firm's components of income from operations
d. determine whether or not accounts receivable are collectible

2. (CMA Jun 97 #3) The information reported in the statement of cash flows should help investors, creditors, and others to assess all of the following except the

a. company's ability to pay dividends and meet obligations
b. company's ability to generate future cash flows
c. management with respect to the efficient and profitable use of the firm's resources
d. cash and noncash investing and financing transactions during the period

3. On the statement of cash flows, cash purchase of land is treated as a/an

a. investing activity
b. financing activity
c. outflow of cash from operations
d. expenditure not requiring the use of cash

4. If the balance sheet shows the same beginning and ending balance for depreciable assets,

a. there have been no financing activities during the year
b. there have been no investing activities during the year
c. there may have been investing activities
d. there may have been financing activities

5. If cash decreases by $10,000 during the year, liabilities decrease by $5,000, and shareholders' equity increases by $5,000, what is the total change in noncash assets for the year?

a. a decrease of $5,000
b. an increase of $10,000
c. a decrease of $10,000
d. an increase of $5,000

6. Which is a use of cash?

a. an increase in inventory
b. a decrease in accounts receivable
c. a decrease in equipment
d. an increase in accounts payable

7. The Flatiron Company had retained earnings at the beginning of the year totaling $10,000. At the end of the year retained earnings totaled $20,000. Depreciation was $5,000 for the year and the company paid dividends of $15,000. What is the amount recorded as Net Income in the operating activities section of the statement of cash flows prepared using the indirect method?

a. a net loss of $15,000
b. a net income of $15,000
c. a net income of $0
d. a net income of $25,000

8. At the end of the first year of operations the Avalanche Company had ending inventory totaling $20,000. The company sold goods at a cost of $240,000. Purchases of goods for the year totaled $220,000. What is the effect of inventory on the statement of cash flows for year 1?

a. an outflow of $220,000
b. an inflow of $220,000
c. an outflow of $20,000
d. an inflow of $240,000

9. Which of the following is correct concerning depreciation?

a. Depreciation provides additional cash flow from operating activities.
b. Depreciation requires a cash reserve to fund.
c. Depreciation is actually an investing activity.
d. Depreciation uses cash from operating activities.

10. If a statement of cash flow showed that a firm had a small cash loss from operating activities, a large cash outflow from investing activities, and a large cash inflow from financing activities, you would expect the firm to be at what stage of development?

a. a new, rapidly growing firm
b. a profitable, growing firm
c. a mature, stable firm
d. a firm in early decline

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