Using All Four Financial Statements
Easy Practice Test
Financial Accounting
Using All Four Financial Statements
Easy Practice Test
Click the “Check Your Answer” box below each question to reveal the correct answer and explanation.
1. Which of the following is reported in the operating section of the direct method cash flow statement?
b. cash paid to repay long-term debt
c. cash paid for rent
d. cash paid for dividends
Answer
2. Which of the following is reported in the operating section of the indirect method cash flow statement?
b. cash received from selling equipment
c. depreciation expense
d. cash paid and cash received from operations
Answer
3. The purchase of property, plant, and equipment for cash of $100,000 is reported in which section of the cash flow statement?
b. investing section
c. financing section
d. both the investing and financing section
Answer
4. The cash flow statement reports
b. the items that cause the cumulative change in cash
c. the cumulative balances of all items impacted by cash
d. the items that cause the change in cash for the period
Answer
5. Which financial statement answers the question “how much is owed” on long-term debt as of a certain date?
b. balance sheet
c. income statement
d. both the balance sheet and the cash flow statement
Answer
6. Which financial statement answers the question “how much cash” during the period?
b. balance sheet
c. income statement
d. both the cash flow statement and the income statement
Answer
7. Which financial statement answers the question “how much value was provided to customers” during the current period?
b. balance sheet
c. income statement
d. both the cash flow statement and the income statement
Answer
8. Which financial statement answers the question “what was done with owners” during the period?
b. statement of owner’s equity
c. income statement
d. both the cash flow statement and statement of owner’s equity
Answer
9. Which financial statement answers the question “ how much does the company have” to date?
b. balance sheet
c. statement of owner’s equity
d. both the balance sheet and statement of cash flows
Answer
10. Which statement reports the change in accounts receivable from one period to the next?
b. balance sheet
c. statement of owner’s equity
d. both the balance sheet and statement of cash flows
Answer
11. State two items that would be reported on each of the three sections on the cash flow statement
b. Investing activities
c. Financing activities
Answer
Any of the following are correct:
a. Cash from customers, cash paid to suppliers, cash paid for any other expenses, cash received from earnings on investments, a change to a current asset or current liability
b. cash used to purchase or cash received from selling long term assets (property, plant, equipment, intangible assets, L/T notes receivable or L/T investments)
c. cash received from borrowing a long-term liability or cash used to repay all long-term liabilities. Cash received from or paid to shareholders (owners.)
12. Prepare a statement of retained earnings from the following information:
(shows the changes in only the retained earnings account)
a. the company earned $325,000 from all prior year’s operations
b the company paid $32,000 to shareholders in all prior years
c. the company incurred a net loss for this period of $12,000
d. the company paid out $5,000 in dividends to shareholders this year
e. the company provided $124,000 of goods to customers this year
f. the company received $23,000 in dividends from investments this year
Answer
The statement of retained earnings shows the changes in retained earnings;
net income or loss (profit or loss) and dividends paid.
Providing goods to customers is a revenue which is already included in the profit or loss for this period.
Receiving dividends is investment revenue which is already included in the profit or loss for this period.
| Beginning Retained Earnings (325,000 – 32,000) |
$ 293,000 |
| – Less Net Loss this period only |
($12,000) |
| – Dividends Paid this period only |
( $5,000) |
| = Ending Retained Earnings | $ 276,000 |
13. Prepare a Statement of Stockholder’s Equity for the year ended
December 31, 20×2 using the following information:
Occurred during 20×2:
| a. dividends declared to shareholders | $ 5,000 |
| b. dividends paid to shareholders | $ 4,000 |
| c. net income this period | $ 22,000 |
| d. issued 20,000 shares; $0.10 par value | $100,000 |
| e. provided goods to customers this period | $275,000 |
| f. purchased common stock from investors | $ 12,000 |
Balance Sheet as of December 31, 20×1
| Common Stock (10,000 shares issued; $0.10 par) | $ 1,000 |
| Paid In Capital | $199,000 |
| Treasury Stock | ($ 25,000) |
| Retained Earnings | $ 26,000 |
| Total Stockholder’s Equity | $201,000 |
Answer
| Common Shares |
Stock $ |
Paid In Capital |
Treasury Stock |
Retained Earnings |
|
| Balance, December 31, 20×1 | 10,000 | $1,000 | $199,000 | ($25,000) | $26,000 |
| Issued Common Stock | 20,000 | $2,000 | $98,000 | ||
| Dividends Declared | ($5,000) | ||||
| Net Income | $22,000 | ||||
| Purchased Common Stock | ($12,000) | ||||
| Balance, December 31, 20×2 | 30,000 | $3,000 | $297,000 | ($37,000) | $43,000 |
Important to notice:
Dividends paid is reported on the cash flow statement. Dividends declared is reported on the statement of stockholder’s equity. The difference in the two is dividends payable; reported on the balance sheet.
Goods provided to customers is revenue which is already included in net income
14. Prepare a Statement of Cash Flows using the information provided below.
The company uses the indirect method for the operating section.
| Cash proceeds from selling equipment | $35,000 |
| Cash paid for interest expense | $ 4,000 |
| Net Income | $48,000 |
| Decrease in accounts payable (negative #) | $ 7,000 |
| Depreciation expense (positive #) | $18,000 |
| Cash paid to reduce long-term debt | $25,000 |
| Cash paid for salaries | $23,000 |
| Gain on sale of equipment (negative #) | $ 3,000 |
| Decrease in accounts receivable (positive #) | $ 6,000 |
| Cash received from customers | $65,000 |
| Cash received from issuing common stock | $10,000 |
| Cash paid to purchase computers | $ 5,000 |
Answer
Indirect Method
| Net Income | $48,000 |
| Depreciation expense | $18,000 |
| Gain on sale of equipment | ($ 3,000) |
| Change in current assets and current liabilities: | |
| Decrease in accounts payable | ($ 7,000) |
| Decrease in accounts receivable | $ 6,000 |
| Cash from operating activities: | $62,000 |
| Cash paid to purchase computers | ($ 5,000) |
| Cash proceeds from selling equipment | $35,000 |
| Cash from investing activities: | $30,000 |
| Cash paid to reduce long-term debt | ($25,000) |
| Cash received from issuing common stock | $10,000 |
| Cash from financing activities: | ($15,000) |
| Total Change in Cash | $77,000 |