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1. Fizzzle Inc. sold a piece of equipment during the period for $230,000 and recorded a gain of $45,000
   on the sale. How should this gain be treated when preparing the operating activities section of the
   statement of cash flows using the indirect method?
   a. A sale of equipment is an investing activity; the transaction will not affect the operating
   activities section.
   b. The gain is added back to net income in the operating activities section.
   c. The gain is subtracted from net income in the operating activities section.
   d. The entire sales price is subtracted from net income in the operating activities section.
2. The expense incurred by issuing stock options should be
   a. classified as a financing activity.
   b. added back to net income in the operating activities section.
   c. subtracted from net income in the operating activities section.
   d. does not appear in the statement of cash flows.
3. Lagos Corp. recorded sales of $345,000 in 2010, in addition its accounts receivable and accounts
   payable balances at the beginning and end of 2010 were as follows:
   Jan. 1, 2010 Dec. 31, 2010
   Accounts Receivable $65,000 $90,000
   Accounts Payable $32,000 $28,000
   How much cash did Lagos collect from customers in 2010?
   a. $345,000
   b. $320,000
   c. $324,000
   d. $316,000
4. As products move through the maturity phase, companies invest to ___________ productive capacity.
   a. increase
   b. decrease
   c. maintain
   d. Not enough information to answer this question.
5. Under the indirect method of preparing the statement of cash flows, add backs to net income include
   all of the following except:
   a. depreciation expense
   b. deferred tax expense
   c. gains on sale of equipment
   d. share-based compensation
6. Which of the following transactions would not create a cash flow?
   a. Payment of a cash dividend.
   b. The company purchased some of its own stock from a stockholder.
   c. Amortization of patent for the period.
   d. Sale of equipment at book value (i.e. no gain or loss)
7. Which of the following would not be a cash flow from investing activities?
   a. Sale of a patent.
   b. Collection of interest revenue on a long-term note receivable.
   c. Collection of principal of a note receivable.
   d. Purchase of long-term investments.
8. Which of the following is a cash flow from operating activities?
   a. Sale of long-term investments in common stock.
   b. Purchase of merchandise for resale.
   c. Payment of a note payable.
   d. Sale of a piece of land no longer used in operations.
9. A cash inflow from financing activities includes:
   a. receipt of interest payments.
   3-8
   b. proceeds from selling equipment.
   c. proceeds from issuance of bonds payable.
   d. proceeds from selling investments in equity securities of another company.
10. . Kraco Corporation reported 2010 net income of $450,000, including the effects of
    depreciation expense of $60,000, and amortization expense on a patent of $10,000. Also, cash
    of $50,000 was borrowed on a 5-year note payable. Based on this data, total cash inflow from
    operating activities using the indirect method for 2010 was
    a. $570,000
    b. $520,000
    c. $470,000
    d. $440,000