ACT 210 Practice Questions and Solutions
1. Which of the following would not be a cash flow from financing activities?
A. Issuance of common stock for cash.
B. Borrowing cash on a long-term note payable.
C. Collection of a cash dividend.
D. Repayment of principal on a long-term note payable.
2. Which of the following would be subtracted from net income when determining cash flows
from operating activities under the indirect method?
A. An increase in accounts payable.
B. Depreciation expense.
C. A decrease in prepaid insurance.
D. A gain on the sale of a depreciable asset.
,3. Rice Company, a retailer, has provided the following information pertaining to its recent year
of operation:
• Net income, $100,000
• Accounts receivable increased $9,000
• Prepaid insurance decreased $3,000
• Depreciation expense was $15,000
• Gain on sale of land, $2,000
• Wages payable decreased $7,000
• Unearned revenue increased $11,000
Using the indirect method, how much was Rice's net cash provided by operating activities?
Your answer is ( )
Net cash provided by operating activities =
$111,000.
Net income $100,000
Depreciation expense 15,000
Gain on sale of land (2,000)
Accounts receivable increase (9,000)
Prepaid insurance decrease 3,000
Wages payable decrease (7,000)
Unearned revenue increase 11,000
Net cash provided by operating
$111,000
activities
4. Canadian Beer reported equipment sold for $222 million cash and new equipment purchased
$1,515 million cash. The equipment sold had a net book value of $150 million. Cash flow
from investing activities would show:
A. An inflow of $222 million and outflow of $1,515 million.
B. An inflow of $222 million and outflow of $150 million.
C. Cash paid for equipment of $1,293 million.
D. A net outflow of $1,365 million.
, 5. Flow Company has provided the following information for the year ended December 31,
2016:
• Cash paid for interest, $20,000
• Cash paid for dividends, $6,000
• Cash dividends received, $4,000
• Cash proceeds from bank loan, $29,000
• Cash purchase of treasury stock, $11,000
• Cash paid for equipment purchase, $27,000
• Cash received from issuance of common stock, $37,000
• Cash received from sale of land with a $32,000 book value, $25,000
• Acquisition of land costing $51,000 in exchange for preferred stock issuance
• Payment of a $100,000 note payable by exchanging used machinery with a $77,000 book
value and $100,000 fair value
How much was Flow's net cash flow from financing activities?
Your answer is ( )
Net cash inflow from financing activities
$49,000.
Cash paid for dividends ($6,000)
Cash received from bank loan 29,000
Cash purchase of treasury stock (11,000)
Cash received from common stock
37,000
sale
Net cash inflow from financing
$49,000
activities
6. Skylar Company issued $50,000,000 of its 10% bonds at par on January 1, 2016. On
December 31, 2016, the bonds were trading on the bond exchange at 102.5 (i.e., 102.5% of
the par value). Since the issue date, what has happened to the market rate of interest?
A. The market rate increased.
B. The market rate decreased.
C. The market rate stayed the same.
D. The change in the market rate cannot be determined.
1. Which of the following would not be a cash flow from financing activities?
A. Issuance of common stock for cash.
B. Borrowing cash on a long-term note payable.
C. Collection of a cash dividend.
D. Repayment of principal on a long-term note payable.
2. Which of the following would be subtracted from net income when determining cash flows
from operating activities under the indirect method?
A. An increase in accounts payable.
B. Depreciation expense.
C. A decrease in prepaid insurance.
D. A gain on the sale of a depreciable asset.
,3. Rice Company, a retailer, has provided the following information pertaining to its recent year
of operation:
• Net income, $100,000
• Accounts receivable increased $9,000
• Prepaid insurance decreased $3,000
• Depreciation expense was $15,000
• Gain on sale of land, $2,000
• Wages payable decreased $7,000
• Unearned revenue increased $11,000
Using the indirect method, how much was Rice's net cash provided by operating activities?
Your answer is ( )
Net cash provided by operating activities =
$111,000.
Net income $100,000
Depreciation expense 15,000
Gain on sale of land (2,000)
Accounts receivable increase (9,000)
Prepaid insurance decrease 3,000
Wages payable decrease (7,000)
Unearned revenue increase 11,000
Net cash provided by operating
$111,000
activities
4. Canadian Beer reported equipment sold for $222 million cash and new equipment purchased
$1,515 million cash. The equipment sold had a net book value of $150 million. Cash flow
from investing activities would show:
A. An inflow of $222 million and outflow of $1,515 million.
B. An inflow of $222 million and outflow of $150 million.
C. Cash paid for equipment of $1,293 million.
D. A net outflow of $1,365 million.
, 5. Flow Company has provided the following information for the year ended December 31,
2016:
• Cash paid for interest, $20,000
• Cash paid for dividends, $6,000
• Cash dividends received, $4,000
• Cash proceeds from bank loan, $29,000
• Cash purchase of treasury stock, $11,000
• Cash paid for equipment purchase, $27,000
• Cash received from issuance of common stock, $37,000
• Cash received from sale of land with a $32,000 book value, $25,000
• Acquisition of land costing $51,000 in exchange for preferred stock issuance
• Payment of a $100,000 note payable by exchanging used machinery with a $77,000 book
value and $100,000 fair value
How much was Flow's net cash flow from financing activities?
Your answer is ( )
Net cash inflow from financing activities
$49,000.
Cash paid for dividends ($6,000)
Cash received from bank loan 29,000
Cash purchase of treasury stock (11,000)
Cash received from common stock
37,000
sale
Net cash inflow from financing
$49,000
activities
6. Skylar Company issued $50,000,000 of its 10% bonds at par on January 1, 2016. On
December 31, 2016, the bonds were trading on the bond exchange at 102.5 (i.e., 102.5% of
the par value). Since the issue date, what has happened to the market rate of interest?
A. The market rate increased.
B. The market rate decreased.
C. The market rate stayed the same.
D. The change in the market rate cannot be determined.
