A1: Financial Statements
Question 1:
1A1-LS34
Dividends paid to company shareholders would be shown on the statement
of cash flows as:
*Source: Retired ICMA CMA Exam Questions.
A. cash flows from investing activities.
B. operating cash inflows.
C. cash flows from financing activities.
D. operating cash outflows.
Dividends paid to company shareholders would be shown on the statement
of cash flows as cash flows from financing activities. Financing activities
include all long-term debt and shareholders' equity transactions.
Question 2:
1A1-LS39
Which one of the following should be classified as an operating activity on
the statement of cash flows?
*Source: Retired ICMA CMA Exam Questions.
A. The purchase of additional equipment needed for current production.
B. A decrease in accounts payable during the year.
C. The payment of a cash dividend from money arising from current
operations.
D. An increase in cash resulting from the issuance of previously authorized
common stock.
A decrease in accounts payable during the year should be classified as an
operating activity on the statement of cash flows. The proceeds from the
issuance of stock and the payment of a dividend are financing activities.
Purchase of equipment is an investing activity.
Question 3:
1A1-LS40
All of the following are limitations to the information provided on the
statement of financial position except the:
*Source: Retired ICMA CMA Exam Questions.
A. judgments and estimates used regarding the collectability, salability, and
longevity of assets.
, B. lack of current valuation for most assets and liabilities.
C. omission of items that are of financial value to the business such as the
worth of the employees.
D. quality of the earnings reported for the enterprise.
Earnings for the enterprise are reported on the income, not the statement
of financial position (i.e. the balance sheet).
Question 4:
1A1-CQ09
Pierre Company had the following transactions during the fiscal year
ending December 31, year 3:
• Sold a delivery van with a net book value of $5,000 for $6,000
cash, reporting a gain of $1,000.
• Paid interest to bondholders for the amount of $275,000
• Declared dividends on December 31, year 3, of $.08 per share on
the 1.3 million shares outstanding, payable to shareholders of
record on January 31, year 4. No dividends were declared or paid
in prior years.
• Accounts receivable decreased from $70,000 on December 31,
year 2 to $60,000 on December 31, year 3.
• Accounts payable increased from $40,000 on December 31, year
2 to $45,000 on December 31, year 3.
• The cash balance was $150,000 on December 31, year 2, and
$177,500 on December 31, year 3.
Which of the answers below describes the correct entry for Pierre
Company's statement of cash flows on December 31, year 3 using the
indirect method?
A. The decrease of $10,000 in accounts receivable is reported as a $10,000
decrease in the operating section of the statement of cash flows.
B. The $104,000 dividend payout is represented as an outflow of funds in
the financing section.
C. Financing activities include the $1,000 gain from the sale of the delivery
van.
D. The $1,000 gain from the sale of the delivery van is included in operating
activities as a deduction.
Under the indirect method of cash flow statement preparation, net
operating cash flow is determined by adjusting net income. Using the
indirect method, the full $6,000 received for the asset sale is included in the
,investing activities section. Since the $1,000 gain is already included in net
income it must be deducted so as not to be double counted.
Question 5:
1A1-CQ10
Pierre Company had the following transactions during the fiscal year
ending December 31, year 3:
• Sold a delivery van with a net book value of $5,000 for $6,000
cash, reporting a gain of $1,000.
• Paid interest to bondholders for the amount of $275,000
• Declared dividends on December 31, year 3, of $.08 per share on
the 1.3 million shares outstanding, payable to shareholders of
record on January 31, year 4. No dividends were declared or paid
in prior years.
• Accounts receivable decreased from $70,000 on December 31,
year 2 to $60,000 on December 31, year 3.
• Accounts payable increased from $40,000 on December 31, year
2 to $45,000 on December 31, year 3.The cash balance was
$150,000 on December 31, year 2, and $177,500 on December
31, year 3
What is the net effect of taking the total cash provided (used) by operating
activities, adding it to the cash provided (used) by investing activities, and
adding that to the cash provided (used) by financing activities?
A. Positive cash flow of $27,500.
B. Negative cash flow of $371,000.
C. Positive cash flow of $22,500.
D. Negative cash flow of $366,000.
The total cash provided (used) by the three activities (operating, investing,
and financing) should equal the increase or decrease in cash for the year.
The difference between the beginning balance of cash of $150,000, and
the ending balance of cash of $177,500 is equal to $27,500.
Question 6:
1A1-CQ13
An item of inventory purchased for $30 had been incorrectly written down
at the end of last year to a current replacement cost of $22. The item is
currently selling for $60, its normal selling price. The error will affect the
financial statements in which of the following ways?
A. The income for this year will be overstated.
, B. The income for this year will be unaffected.
C. The cost of sales for this year will be overstated.
D. The income for last year is overstated.
Since the inventory item had been incorrectly valued at $22 instead of $30
at the end of the previous year, the current-year cost would have been
lower by $8, resulting in higher (overstated) net income for the year.
Income for the prior year was correspondingly understated.
Question 7:
1A1-LS30
When using the statement of cash flows to evaluate a company's
continuing solvency, the most important factor to consider is the cash:
*Source: Retired ICMA CMA Exam Questions.
A. flows from (used for) investing activities.
B. balance at the end of the period.
C. flows from (used for) operating activities.
D. flows from (used for) financing activities.
When using the statement of cash flows to evaluate a company's
continuing solvency, the most important factor to consider is the cash flows
from (used for) operating activities since over time, cash flow from
operations has to cover everything.
Question 8:
1A1-CQ08
Pierre Company had the following transactions during the fiscal year
ending December 31, year 3:
• Sold a delivery van with a net book value of $5,000 for $6,000
cash, reporting a gain of $1,000.
• Paid interest to bondholders for the amount of $275,000.
• Declared dividends on December 31, year 3, of $.08 per share on
the 1.3 million shares outstanding, payable to shareholders of
record on January 31, year 4. No dividends were declared or paid
in prior years.
• Accounts receivable decreased from $70,000 on December 31,
year 2 to $60,000 on December 31, year 3.
• Accounts payable increased from $40,000 on December 31, year
2 to $45,000 on December 31, year 3.
• The cash balance was $150,000 on December 31, year 2, and
$177,500 on December 31, year 3
Question 1:
1A1-LS34
Dividends paid to company shareholders would be shown on the statement
of cash flows as:
*Source: Retired ICMA CMA Exam Questions.
A. cash flows from investing activities.
B. operating cash inflows.
C. cash flows from financing activities.
D. operating cash outflows.
Dividends paid to company shareholders would be shown on the statement
of cash flows as cash flows from financing activities. Financing activities
include all long-term debt and shareholders' equity transactions.
Question 2:
1A1-LS39
Which one of the following should be classified as an operating activity on
the statement of cash flows?
*Source: Retired ICMA CMA Exam Questions.
A. The purchase of additional equipment needed for current production.
B. A decrease in accounts payable during the year.
C. The payment of a cash dividend from money arising from current
operations.
D. An increase in cash resulting from the issuance of previously authorized
common stock.
A decrease in accounts payable during the year should be classified as an
operating activity on the statement of cash flows. The proceeds from the
issuance of stock and the payment of a dividend are financing activities.
Purchase of equipment is an investing activity.
Question 3:
1A1-LS40
All of the following are limitations to the information provided on the
statement of financial position except the:
*Source: Retired ICMA CMA Exam Questions.
A. judgments and estimates used regarding the collectability, salability, and
longevity of assets.
, B. lack of current valuation for most assets and liabilities.
C. omission of items that are of financial value to the business such as the
worth of the employees.
D. quality of the earnings reported for the enterprise.
Earnings for the enterprise are reported on the income, not the statement
of financial position (i.e. the balance sheet).
Question 4:
1A1-CQ09
Pierre Company had the following transactions during the fiscal year
ending December 31, year 3:
• Sold a delivery van with a net book value of $5,000 for $6,000
cash, reporting a gain of $1,000.
• Paid interest to bondholders for the amount of $275,000
• Declared dividends on December 31, year 3, of $.08 per share on
the 1.3 million shares outstanding, payable to shareholders of
record on January 31, year 4. No dividends were declared or paid
in prior years.
• Accounts receivable decreased from $70,000 on December 31,
year 2 to $60,000 on December 31, year 3.
• Accounts payable increased from $40,000 on December 31, year
2 to $45,000 on December 31, year 3.
• The cash balance was $150,000 on December 31, year 2, and
$177,500 on December 31, year 3.
Which of the answers below describes the correct entry for Pierre
Company's statement of cash flows on December 31, year 3 using the
indirect method?
A. The decrease of $10,000 in accounts receivable is reported as a $10,000
decrease in the operating section of the statement of cash flows.
B. The $104,000 dividend payout is represented as an outflow of funds in
the financing section.
C. Financing activities include the $1,000 gain from the sale of the delivery
van.
D. The $1,000 gain from the sale of the delivery van is included in operating
activities as a deduction.
Under the indirect method of cash flow statement preparation, net
operating cash flow is determined by adjusting net income. Using the
indirect method, the full $6,000 received for the asset sale is included in the
,investing activities section. Since the $1,000 gain is already included in net
income it must be deducted so as not to be double counted.
Question 5:
1A1-CQ10
Pierre Company had the following transactions during the fiscal year
ending December 31, year 3:
• Sold a delivery van with a net book value of $5,000 for $6,000
cash, reporting a gain of $1,000.
• Paid interest to bondholders for the amount of $275,000
• Declared dividends on December 31, year 3, of $.08 per share on
the 1.3 million shares outstanding, payable to shareholders of
record on January 31, year 4. No dividends were declared or paid
in prior years.
• Accounts receivable decreased from $70,000 on December 31,
year 2 to $60,000 on December 31, year 3.
• Accounts payable increased from $40,000 on December 31, year
2 to $45,000 on December 31, year 3.The cash balance was
$150,000 on December 31, year 2, and $177,500 on December
31, year 3
What is the net effect of taking the total cash provided (used) by operating
activities, adding it to the cash provided (used) by investing activities, and
adding that to the cash provided (used) by financing activities?
A. Positive cash flow of $27,500.
B. Negative cash flow of $371,000.
C. Positive cash flow of $22,500.
D. Negative cash flow of $366,000.
The total cash provided (used) by the three activities (operating, investing,
and financing) should equal the increase or decrease in cash for the year.
The difference between the beginning balance of cash of $150,000, and
the ending balance of cash of $177,500 is equal to $27,500.
Question 6:
1A1-CQ13
An item of inventory purchased for $30 had been incorrectly written down
at the end of last year to a current replacement cost of $22. The item is
currently selling for $60, its normal selling price. The error will affect the
financial statements in which of the following ways?
A. The income for this year will be overstated.
, B. The income for this year will be unaffected.
C. The cost of sales for this year will be overstated.
D. The income for last year is overstated.
Since the inventory item had been incorrectly valued at $22 instead of $30
at the end of the previous year, the current-year cost would have been
lower by $8, resulting in higher (overstated) net income for the year.
Income for the prior year was correspondingly understated.
Question 7:
1A1-LS30
When using the statement of cash flows to evaluate a company's
continuing solvency, the most important factor to consider is the cash:
*Source: Retired ICMA CMA Exam Questions.
A. flows from (used for) investing activities.
B. balance at the end of the period.
C. flows from (used for) operating activities.
D. flows from (used for) financing activities.
When using the statement of cash flows to evaluate a company's
continuing solvency, the most important factor to consider is the cash flows
from (used for) operating activities since over time, cash flow from
operations has to cover everything.
Question 8:
1A1-CQ08
Pierre Company had the following transactions during the fiscal year
ending December 31, year 3:
• Sold a delivery van with a net book value of $5,000 for $6,000
cash, reporting a gain of $1,000.
• Paid interest to bondholders for the amount of $275,000.
• Declared dividends on December 31, year 3, of $.08 per share on
the 1.3 million shares outstanding, payable to shareholders of
record on January 31, year 4. No dividends were declared or paid
in prior years.
• Accounts receivable decreased from $70,000 on December 31,
year 2 to $60,000 on December 31, year 3.
• Accounts payable increased from $40,000 on December 31, year
2 to $45,000 on December 31, year 3.
• The cash balance was $150,000 on December 31, year 2, and
$177,500 on December 31, year 3
