Chapter 7 Multiple-choice questions

. Which one of the following is not a category of cash flows required to be shown on the statement of cash flows?

Cash flows from operating activities.

Cash flows from financing activities.

Cash flows from taxation.

Cash flows from investing activities.

. If a company changes from offering 30 days' credit to customers to offering 50 days credit, which of the following statements is correct?

Cash generated from operations will increase.

Cash generated from financing activities will decrease.

Cash generated from operations will decrease.

There will be no effect on the statement of cash flows.

. If a company issues 1 million £1 shares at £1.30 per share, what will be the effect on the statement of cash flows?

Cash flows from financing activities will increase by £1.3 million.

Cash flows from investing activities will increase by £1.3 million.

Cash flows from investing activities will increase by £1.0 million.

Cash flows from financing activities will increase by £1.0 million.

. Which one of the following courses of action will increase the bank balance of a company?

Paying suppliers more promptly.

Repaying a loan.

Taking longer to pay suppliers.

Increasing the inventory levels held.

. Dessy plc made an operating profit of £185,500 after charging depreciation of £31,200. During that year, trade payables increased by £26,600 and inventory increased by £40,300. There was no change to trade receivables. Assuming that no other factors affected it, the cash generated from operations would have been:

£203,000.

£230,400.

£283,600.

£149,800.

. Which one of the following would be categorized as a cash flow from investing activities?

Increase in inventory held.

Proceeds of a loan issue.

Proceeds from sale of equipment.

Dividends paid.

. Which of the following would not be revealed by a company's statement of cash flows?

Whether the company has paid a dividend during the year.

How the company has managed its working capital over the last financial year.

Whether the company has exceeded its overdraft limit during the year.

Whether the company has raised extra long-term funding during the year.

. Lydia buys and sells ladies' handbags for cash. She buys them for £20 each and sells them for £35 each. During March, her first month of trading, she bought 50 handbags and had 10 handbags remaining in inventory at the month end. Ignoring any other expenses or payments, which of the following statements is true for March?

The business made a gross profit for the month of £600 and its bank balance increased by £600 as a result of trading.

The business made a gross profit for the month of £400 and its bank balance increased by £400 as a result of trading.

The business made a gross profit for the month of £400 and its bank balance increased by £600 as a result of trading.

The business made a gross profit for the month of £600 and its bank balance increased by £400 as a result of trading.

. Lydia buys and sells ladies' handbags. She buys for cash and sells on one month's credit. She pays £20 for each bag and sells them for £35 each. During March, her first month of trading, she bought 50 handbags and had 10 handbags remaining in inventory at the month end. Ignoring any other expenses or payments, which of the following statements is true for March?

The business made a gross profit for the month of £600 and its bank balance decreased by £1,000 as a result of trading.

The business made a gross profit for the month of £600 and its bank balance decreased by £1,400 as a result of trading.

The business made a gross profit for the month of £600 and its bank balance increased by £1,400 as a result of trading.

The business made a gross profit for the month of £400 and its bank balance increased by £400 as a result of trading.

. Which one of the following would reduce the cash balances of a business and not reduce the profit for the year?

Interest paid.

Distribution costs.

Wages paid.

Dividends paid.

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