WGU D105
Intermediate Accounting III
OA2 (Units 5-9)
Actual Questions with Verified Answers
Pass the Exam with Confidence
What You Will Get:
➢142 OA Exam Questions w/ Answers
➢Complete Units 5, 6, 7, 8, and 9
➢Expert Rationales Included
Take and pass the OA :)
,PREVIEW PAGES BELOW
Get the Complete PDF
After Purchase
"If you require further clarification or in need of
any study resources, feel free to Message me."
,1. Which needs to be eliminated from operating activities to determine net cash flo w
from operating activities?
A. Cash dividends and stock issuances
B. Purchases and sales of long-term assets
C. Noncash expenses and noncash revenues from net income
D. All changes in shareholders’ equity
CORRECT ANSWER:
C. Noncash expenses and noncash revenues from net income
Expert Rationale:
Under the indirect method, net income must be adjusted for items that affected
reported income but did not involve operating cash. Examples include depreciation,
amortization, and gains or losses on asset sales.
2. To arrive at net cash provided by operating activities, it is necessary to report
revenues and expenses on a cash basis. How is this accomplished?
A. By eliminating the effects of income statement transactions that did not result in a
corresponding increase or decrease in cash
B. By removing all investing transactions from the balance sheet
C. By adding all financing cash inflows to net income
D. By replacing accrual-basis revenue with gross sales
CORRECT ANSWER:
A. By eliminating the effects of income statement transactions that did not result in a
corresponding increase or decrease in cash
Expert Rationale:
The indirect method converts accrual-basis net income to operating cash flow by
adjusting for noncash items and changes in operating assets and liabilities. These
,adjustments remove the timing differences between income recognition and cash
movement.
3. A company acquired a building, paying a portion of the purchase price in cash and
issuing a mortgage note payable to the seller for the balance. In a statement of cash
flows, which amount is included in investing activities for the transaction?
A. The building’s total fair value
B. The mortgage note payable
C. The cash payment
D. The total purchase price plus interest
CORRECT ANSWER:
C. The cash payment
Expert Rationale:
Only the cash portion is reported as an investing cash outflow. The portion financed
through the mortgage note is a significant noncash investing and financing activity and
is disclosed separately.
4. A company borrows $10,000 and signs a 90-day nontrade note payable. In preparing
a statement of cash flows using the indirect method, this event would be reflected as an
adjustment in which section of the statement of cash flows?
A. Cash outflow from operating activities
B. Cash inflow from financing activities
C. Cash inflow from investing activities
D. Noncash operating activity
CORRECT ANSWER:
B. Cash inflow from financing activities
Expert Rationale:
Borrowing cash through a note payable increases the entity’s debt financing. The
$10,000 is therefore reported as a financing cash inflow, regardless of whether the
indirect or direct method is used for operating activities.
,5. Which classification of activities involves the cash effects of transactions that enter
into the determination of net income?
A. Financing activities
B. Investing activities
C. Operating activities
D. Noncash investing and financing activities
CORRECT ANSWER:
C. Operating activities
Expert Rationale:
Operating activities include the cash effects of transactions used to determine net
income, such as cash received from customers and cash paid to suppliers and
employees. Investing activities involve long-term assets, while financing activities involve
debt and equity financing.
6. What best describes the primary purpose of the information provided by the
statement of cash flows?
A. To calculate the entity’s gross profit percentage
B. To provide information about the cash receipts and cash payments of an entity during
a period
C. To report all changes in retained earnings
D. To determine the market value of the entity’s shares
CORRECT ANSWER:
B. To provide information about the cash receipts and cash payments of an entity during
a period
Expert Rationale:
The statement of cash flows explains how an entity generated and used cash during the
reporting period. It classifies cash flows as operating, investing, or financing activities
and helps users assess liquidity and cash-generating ability.
,7. During 2021, Stout Inc. had the following activities related to its financial operations:
• Payment in 2021 of cash dividend declared in 2020 to preferred shareholders:
$279,000
• Payment for the early retirement of long-term bonds payable, carrying amount
$3,930,000: $3,975,000
• Proceeds from the sale of treasury stock, on books at cost of $387,000: $450,000
Which amount of net cash used in financing activities should appear in Stout’s
statement of cash flows?
A. $3,804,000
B. $3,525,000
C. $4,254,000
D. $4,641,000
CORRECT ANSWER:
A. $3,804,000
Expert Rationale:
Financing cash outflows are the $279,000 dividend and $3,975,000 bond retirement
payment, totaling $4,254,000. The $450,000 treasury-stock proceeds are a financing
inflow. Net cash used is $4,254,000 − $450,000 = $3,804,000.
8. Which event would be classified as a financing activity on a statement of cash flo ws?
A. Purchase of inventory
B. Collection of accounts receivable
C. Purchase of equipment
D. Payment of a bond payable
CORRECT ANSWER:
D. Payment of a bond payable
Expert Rationale:
Repayment of bond principal changes the company’s long-term financing and is
,therefore a financing cash outflow. Interest payments are generally classified as
operating activities under U.S. GAAP.
9. Xanthe Corporation had the following transactions occur in the current year:
1. Cash sale of merchandise inventory
2. Sale of delivery truck at book value
3. Sale of Xanthe common stock for cash
4. Issuance of a note payable to a bank for cash
5. Sale of a security held as an available-for-sale investment
6. Collection of loan receivable
How many of the above items will appear as a cash inflow from investing activities on a
statement of cash flows for the current year?
A. One item
B. Two items
C. Four items
D. Three items
CORRECT ANSWER:
D. Three items
Expert Rationale:
The investing cash inflows are the sale of the delivery truck, sale of the investment
security, and collection of the loan receivable. The inventory sale is operating, while the
stock issuance and note payable are financing activities.
10. A company needs to determine the order to use when presenting information in the
statement of cash flows. Which section should be presented third?
A. Financing activities
B. Operating activities
,C. Investing activities
D. Supplemental disclosures
CORRECT ANSWER:
A. Financing activities
Expert Rationale:
The standard order is operating activities first, investing activities second, and financing
activities third. Supplemental information and noncash disclosures generally follow
these sections.
11. An individual is reading a company’s statement of cash flows in order to better
understand the company. Which question is able to be answered from this information?
A. What is the current market price of the company’s shares?
B. What accounting method was used for inventory?
C. Where does the company generate cash inflows?
D. How many employees does the company have?
CORRECT ANSWER:
C. Where does the company generate cash inflows?
Expert Rationale:
The statement identifies the sources and uses of cash within operating, investing, and
financing activities. It does not directly report share prices, staffing levels, or detailed
accounting-policy choices.
12. A company has decided to use the indirect cash flow method to reconcile the
differences between accrual accounting net income and cash from operating activities.
The company is making a deduction from net income when calculating cash flow from
operating activities. Which deduction is possible under this method?
A. Depreciation expense
B. Decrease in accounts receivable
C. Increase in accounts payable
D. Increase in prepaid expense
,CORRECT ANSWER:
D. Increase in prepaid expense
Expert Rationale:
An increase in prepaid expense means cash was paid for costs not yet recognized as
expenses. Because the cash outflow exceeds the related expense included in net income,
the increase is deducted from net income.
13. A company is preparing a statement of cash flo ws and needs to know the order to
use to present information. Which section should be presented second?
A. Cash flow from financing activities
B. Cash flow from investing activities
C. Cash flow from operating activities
D. Noncash transaction disclosures
CORRECT ANSWER:
B. Cash flow from investing activities
Expert Rationale:
Investing activities are presented after operating activities and before financing
activities. They generally include purchases and sales of long-term assets and
investments.
14. Which kind of activity will be included in the operating activities section of the
statement of cash flows?
A. Cash payments to a supplier
B. Cash received from issuing bonds
C. Cash paid to purchase land
D. Cash received from selling common stock
CORRECT ANSWER:
A. Cash payments to a supplier
Expert Rationale:
Payments to suppliers relate to the company’s principal revenue-producing operations
,and are operating cash outflows. Purchases of land are investing activities, while issuing
bonds or stock produces financing cash flows.
15. A company reports the following information:
• Net income: $200,000
• Increase in accounts receivable: $82,000
• Purchase of equipment: $15,000
• Sale of property: $73,000
• Issuance of notes payable: $12,000
• Paid dividends: $9,000
What is the company’s cash flow from financing activities?
A. $85,000 inflow
B. $3,000 outflow
C. $3,000 inflow
D. $12,000 inflow
CORRECT ANSWER:
C. $3,000 inflow
Expert Rationale:
The note issuance produces a $12,000 financing inflow, and dividends are a $9,000
financing outflow. Net financing cash flow is $12,000 − $9,000 = $3,000 inflow.
16. An accountant is gathering the information necessary to prepare the statement of
cash flows. The first section in the statement of cash flows necessitates the use of
information from a comparative financial statement. Which comparative financial
statement is used for this purpose?
A. Income statement
B. Statement of retained earnings
Intermediate Accounting III
OA2 (Units 5-9)
Actual Questions with Verified Answers
Pass the Exam with Confidence
What You Will Get:
➢142 OA Exam Questions w/ Answers
➢Complete Units 5, 6, 7, 8, and 9
➢Expert Rationales Included
Take and pass the OA :)
,PREVIEW PAGES BELOW
Get the Complete PDF
After Purchase
"If you require further clarification or in need of
any study resources, feel free to Message me."
,1. Which needs to be eliminated from operating activities to determine net cash flo w
from operating activities?
A. Cash dividends and stock issuances
B. Purchases and sales of long-term assets
C. Noncash expenses and noncash revenues from net income
D. All changes in shareholders’ equity
CORRECT ANSWER:
C. Noncash expenses and noncash revenues from net income
Expert Rationale:
Under the indirect method, net income must be adjusted for items that affected
reported income but did not involve operating cash. Examples include depreciation,
amortization, and gains or losses on asset sales.
2. To arrive at net cash provided by operating activities, it is necessary to report
revenues and expenses on a cash basis. How is this accomplished?
A. By eliminating the effects of income statement transactions that did not result in a
corresponding increase or decrease in cash
B. By removing all investing transactions from the balance sheet
C. By adding all financing cash inflows to net income
D. By replacing accrual-basis revenue with gross sales
CORRECT ANSWER:
A. By eliminating the effects of income statement transactions that did not result in a
corresponding increase or decrease in cash
Expert Rationale:
The indirect method converts accrual-basis net income to operating cash flow by
adjusting for noncash items and changes in operating assets and liabilities. These
,adjustments remove the timing differences between income recognition and cash
movement.
3. A company acquired a building, paying a portion of the purchase price in cash and
issuing a mortgage note payable to the seller for the balance. In a statement of cash
flows, which amount is included in investing activities for the transaction?
A. The building’s total fair value
B. The mortgage note payable
C. The cash payment
D. The total purchase price plus interest
CORRECT ANSWER:
C. The cash payment
Expert Rationale:
Only the cash portion is reported as an investing cash outflow. The portion financed
through the mortgage note is a significant noncash investing and financing activity and
is disclosed separately.
4. A company borrows $10,000 and signs a 90-day nontrade note payable. In preparing
a statement of cash flows using the indirect method, this event would be reflected as an
adjustment in which section of the statement of cash flows?
A. Cash outflow from operating activities
B. Cash inflow from financing activities
C. Cash inflow from investing activities
D. Noncash operating activity
CORRECT ANSWER:
B. Cash inflow from financing activities
Expert Rationale:
Borrowing cash through a note payable increases the entity’s debt financing. The
$10,000 is therefore reported as a financing cash inflow, regardless of whether the
indirect or direct method is used for operating activities.
,5. Which classification of activities involves the cash effects of transactions that enter
into the determination of net income?
A. Financing activities
B. Investing activities
C. Operating activities
D. Noncash investing and financing activities
CORRECT ANSWER:
C. Operating activities
Expert Rationale:
Operating activities include the cash effects of transactions used to determine net
income, such as cash received from customers and cash paid to suppliers and
employees. Investing activities involve long-term assets, while financing activities involve
debt and equity financing.
6. What best describes the primary purpose of the information provided by the
statement of cash flows?
A. To calculate the entity’s gross profit percentage
B. To provide information about the cash receipts and cash payments of an entity during
a period
C. To report all changes in retained earnings
D. To determine the market value of the entity’s shares
CORRECT ANSWER:
B. To provide information about the cash receipts and cash payments of an entity during
a period
Expert Rationale:
The statement of cash flows explains how an entity generated and used cash during the
reporting period. It classifies cash flows as operating, investing, or financing activities
and helps users assess liquidity and cash-generating ability.
,7. During 2021, Stout Inc. had the following activities related to its financial operations:
• Payment in 2021 of cash dividend declared in 2020 to preferred shareholders:
$279,000
• Payment for the early retirement of long-term bonds payable, carrying amount
$3,930,000: $3,975,000
• Proceeds from the sale of treasury stock, on books at cost of $387,000: $450,000
Which amount of net cash used in financing activities should appear in Stout’s
statement of cash flows?
A. $3,804,000
B. $3,525,000
C. $4,254,000
D. $4,641,000
CORRECT ANSWER:
A. $3,804,000
Expert Rationale:
Financing cash outflows are the $279,000 dividend and $3,975,000 bond retirement
payment, totaling $4,254,000. The $450,000 treasury-stock proceeds are a financing
inflow. Net cash used is $4,254,000 − $450,000 = $3,804,000.
8. Which event would be classified as a financing activity on a statement of cash flo ws?
A. Purchase of inventory
B. Collection of accounts receivable
C. Purchase of equipment
D. Payment of a bond payable
CORRECT ANSWER:
D. Payment of a bond payable
Expert Rationale:
Repayment of bond principal changes the company’s long-term financing and is
,therefore a financing cash outflow. Interest payments are generally classified as
operating activities under U.S. GAAP.
9. Xanthe Corporation had the following transactions occur in the current year:
1. Cash sale of merchandise inventory
2. Sale of delivery truck at book value
3. Sale of Xanthe common stock for cash
4. Issuance of a note payable to a bank for cash
5. Sale of a security held as an available-for-sale investment
6. Collection of loan receivable
How many of the above items will appear as a cash inflow from investing activities on a
statement of cash flows for the current year?
A. One item
B. Two items
C. Four items
D. Three items
CORRECT ANSWER:
D. Three items
Expert Rationale:
The investing cash inflows are the sale of the delivery truck, sale of the investment
security, and collection of the loan receivable. The inventory sale is operating, while the
stock issuance and note payable are financing activities.
10. A company needs to determine the order to use when presenting information in the
statement of cash flows. Which section should be presented third?
A. Financing activities
B. Operating activities
,C. Investing activities
D. Supplemental disclosures
CORRECT ANSWER:
A. Financing activities
Expert Rationale:
The standard order is operating activities first, investing activities second, and financing
activities third. Supplemental information and noncash disclosures generally follow
these sections.
11. An individual is reading a company’s statement of cash flows in order to better
understand the company. Which question is able to be answered from this information?
A. What is the current market price of the company’s shares?
B. What accounting method was used for inventory?
C. Where does the company generate cash inflows?
D. How many employees does the company have?
CORRECT ANSWER:
C. Where does the company generate cash inflows?
Expert Rationale:
The statement identifies the sources and uses of cash within operating, investing, and
financing activities. It does not directly report share prices, staffing levels, or detailed
accounting-policy choices.
12. A company has decided to use the indirect cash flow method to reconcile the
differences between accrual accounting net income and cash from operating activities.
The company is making a deduction from net income when calculating cash flow from
operating activities. Which deduction is possible under this method?
A. Depreciation expense
B. Decrease in accounts receivable
C. Increase in accounts payable
D. Increase in prepaid expense
,CORRECT ANSWER:
D. Increase in prepaid expense
Expert Rationale:
An increase in prepaid expense means cash was paid for costs not yet recognized as
expenses. Because the cash outflow exceeds the related expense included in net income,
the increase is deducted from net income.
13. A company is preparing a statement of cash flo ws and needs to know the order to
use to present information. Which section should be presented second?
A. Cash flow from financing activities
B. Cash flow from investing activities
C. Cash flow from operating activities
D. Noncash transaction disclosures
CORRECT ANSWER:
B. Cash flow from investing activities
Expert Rationale:
Investing activities are presented after operating activities and before financing
activities. They generally include purchases and sales of long-term assets and
investments.
14. Which kind of activity will be included in the operating activities section of the
statement of cash flows?
A. Cash payments to a supplier
B. Cash received from issuing bonds
C. Cash paid to purchase land
D. Cash received from selling common stock
CORRECT ANSWER:
A. Cash payments to a supplier
Expert Rationale:
Payments to suppliers relate to the company’s principal revenue-producing operations
,and are operating cash outflows. Purchases of land are investing activities, while issuing
bonds or stock produces financing cash flows.
15. A company reports the following information:
• Net income: $200,000
• Increase in accounts receivable: $82,000
• Purchase of equipment: $15,000
• Sale of property: $73,000
• Issuance of notes payable: $12,000
• Paid dividends: $9,000
What is the company’s cash flow from financing activities?
A. $85,000 inflow
B. $3,000 outflow
C. $3,000 inflow
D. $12,000 inflow
CORRECT ANSWER:
C. $3,000 inflow
Expert Rationale:
The note issuance produces a $12,000 financing inflow, and dividends are a $9,000
financing outflow. Net financing cash flow is $12,000 − $9,000 = $3,000 inflow.
16. An accountant is gathering the information necessary to prepare the statement of
cash flows. The first section in the statement of cash flows necessitates the use of
information from a comparative financial statement. Which comparative financial
statement is used for this purpose?
A. Income statement
B. Statement of retained earnings
