MCQ questions with answers on topic cashflow statement asked in US CMA course
## Operating Activities Example
ABC Corporation reported net income of $150,000, depreciation expense of $30,000, a $25,000 increase in accounts receivable, a $10,000 decrease in accounts payable, and a $5,000 loss on sale of equipment. The net cash provided by operating activities is [1].
**A)** $140,000
**B)** $150,000
**C)** $170,000
**D)** $200,000
**Answer: B) $150,000**
Net income $150,000 + Depreciation $30,000 + Loss on sale $5,000 – Increase in AR $25,000 – Decrease in AP $10,000 = $150,000 [1].
## Activity Classification
Which of the following is **not** an operating cash flow? [2][3]
**A)** Collection of cash from receivables
**B)** Payment of income tax
**C)** Payment of cash for operating expenses
**D)** Purchase of equipment for cash
**Answer: D)** Purchase of equipment for cash (this is investing) [2].
## Indirect Method Adjustment
Under the indirect method, depreciation expense affects [2].
**A)** The operating activities section
**B)** The investing activities section
**C)** The financing activities section
**D)** The notes to the financial statements
**Answer: A)** The operating activities section (added back to net income as non-cash) [2].
## Cash Collected from Customers
Care Company had accounts receivable of $60,000 on Dec 31, 2016, $40,000 on Dec 31, 2017, and net credit sales of $200,000 in 2017. Net cash collected from customers is [2].
**A)** $180,000
**B)** $220,000
**C)** $240,000
**D)** $260,000
**Answer: B)** $220,000
($200,000 credit sales + $20,000 decrease in AR) [2].
## Non-Cash Investing Activity
Significant non-cash investing and financing activities are reported in the [2].
**A)** Operating activities section
**B)** Investing activities section
**C)** Footnotes or separate notes
**D)** Financing activities section
**Answer: C)** Footnotes or separate notes
Here are 10 multiple-choice questions (MCQs) on cash flow statements, drawn from US CMA-relevant topics like indirect method adjustments, activity classifications, and cash flow calculations. These align with management accounting principles covered in the US CMA course.
## Operating Activities
Net income is $150,000, depreciation expense is $30,000, increase in accounts receivable is $25,000, decrease in accounts payable is $10,000, and loss on sale of equipment is $5,000. What is the net cash provided by operating activities under the indirect method?
- A) $140,000
- B) $150,000
- C) $170,000
- **D) $200,000** (Incorrect; correct is B) $150,000: Add back non-cash items (depreciation $30,000 + loss $5,000) and adjust working capital changes (-$25,000 - $10,000).)[3]
A company's net income is $25,000, depreciation is $2,000, loss on sale of equipment is $100, increase in accounts receivable is $1,000, increase in accounts payable is $2,000, and decrease in inventory is $400. What is net cash from operating activities?[3]
- A) $29,000
- **B) $28,500** (Net income + depreciation + loss - ΞAR + ΞAP + decrease in inventory.)
- C) $27,500
- D) $24,300
## Investing Activities
Which of the following is **not** an investing cash flow?
- A) Collection of cash from receivables
- B) Payment of income tax
- C) Payment of cash for operating expenses
- **D) Purchase of equipment for cash*
A company sells old equipment for $5,000 cash (book value $4,500). Under the indirect method, the $500 gain affects which section?
- **A) Operating activities section** (Gains are deducted from net income.)
- B) Investing activities section
- C) Financing activities section
- D) Notes to financial statements[3]
## Financing Activities
Dividend paid by a manufacturing company is classified under which activity?[1][4]
- A) Cash flow from investing activities
- **B) Cash flow from financing activities**
- C) No cash flow
- D) Cash flow from operating activities[1]
## Key Concepts
A statement of cash flows has how many sections?[3]
- A) 2 sections
- **B) 3 sections** (Operating, investing, financing.)
- C) 4 sections
- D) 5 sections[3]
Under the indirect method, depreciation expense affects which section?[3]
- **A) Operating activities section** (Added back to net income.)
- B) Investing activities section
- C) Financing activities section
- D) Notes[3]
Significant non-cash investing and financing activities (e.g., conversion of bonds to stock) are reported in the:[3]
- A) Operating activities section
- B) Investing activities section
- **C) Footnotes or separate notes**
- D) Financing activities section[3]
## Calculations
Accounts receivable: Dec 31, 2016 $60,000; Dec 31, 2017 $40,000. Net credit sales 2017: $200,000. Net cash collected from customers?[3]
- A) $180,000
- **B) $220,000** (Credit sales + decrease in AR.)
- C) $240,000
- D) $260,000[3]
Income tax expense $30,500; tax payable Dec 31, 2016 $4,000; Dec 31, 2017 $6,500. Cash payment for income tax?[3]
- **A) $28,000** (Expense - increase in payable.)
- B) $33,000
- C) $34,500
- D) $37,000
Here are 25 MCQs with answers on Cash Flow Statement (US GAAP) – aligned with US CMA Part 1 & Part 2 exam pattern (conceptual + tricky + exam-oriented).
πΉ MCQs – Cash Flow Statement (US GAAP)
1. Which of the following is classified as an operating activity under US GAAP?
A. Issuance of bonds
B. Payment of dividends
D. Purchase of equipment
✅ Answer: C
(Under US GAAP, interest paid = Operating activity)
2. Which of the following is an investing activity?
A. Sale of inventory
B. Purchase of land
C. Issuance of shares
D. Payment of wages
✅ Answer: B
3. Dividend received under US GAAP is classified as:
A. Operating
B. Investing
C. Financing
D. Non-cash
✅ Answer: A
(US GAAP → Dividend received = Operating)
4. Under indirect method, an increase in accounts receivable is:
A. Added to net income
B. Deducted from net income
C. Ignored
D. Financing activity
✅ Answer: B
(Increase in AR → Cash not received → Deduct)
5. Decrease in inventory under indirect method:
A. Deducted
B. Added
C. Ignored
D. Financing
✅ Answer: B
6. Gain on sale of equipment should be:
A. Added to net income
B. Deducted from net income
C. Investing inflow
D. Financing inflow
✅ Answer: B
(Gain included in NI → remove in operating; full proceeds shown in investing)
7. Amortization expense under indirect method:
A. Deducted
B. Added
C. Ignored
D. Financing
✅ Answer: B
8. Payment of long-term debt principal is:
A. Operating
B. Investing
C. Financing
D. Non-cash
✅ Answer: C
9. Conversion of bonds into equity is:
A. Operating
B. Investing
C. Financing
D. Non-cash investing & financing
✅ Answer: D
10. Which method starts with net income?
A. Direct
B. Indirect
C. Hybrid
D. None
✅ Answer: B
11. Purchase of treasury stock is:
A. Operating
B. Investing
C. Financing outflow
D. Non-cash
✅ Answer: C
12. Which item is added back under indirect method?
A. Increase in prepaid expenses
B. Decrease in accounts payable
C. Depreciation expense
D. Gain on sale
✅ Answer: C
13. Increase in accounts payable results in:
A. Decrease in operating cash
B. Increase in operating cash
C. Investing inflow
D. Financing inflow
✅ Answer: B
14. Purchase of available-for-sale debt securities is:
A. Operating
B. Investing
C. Financing
D. Non-cash
✅ Answer: B
15. Unrealized gain on AFS securities affects:
A. Operating cash
B. Investing cash
C. Financing cash
D. Does not affect cash
✅ Answer: D
(OCI item → no cash effect)
16. Which of the following is TRUE under US GAAP?
A. Interest paid can be financing
B. Dividend paid is operating
C. Interest received is operating
D. Dividend received is investing
✅ Answer: C
17. If net income is $100, depreciation is $20, AR increases by $15, CFO equals:
A. $105
B. $95
C. $115
D. $85
Calculation:
100 + 20 – 15 = 105
✅ Answer: A
18. Sale of equipment for $50, book value $40. Gain $10.
Cash flow from investing:
A. $10
B. $40
C. $50
D. $60
✅ Answer: C
(Full proceeds shown in investing)
19. Under direct method, cash paid to suppliers equals:
A. COGS + Increase in AP
B. COGS – Increase in inventory + Decrease in AP
C. COGS + Increase in inventory – Increase in AP
D. COGS only
Correct formula:
COGS + Increase in Inventory – Increase in AP
✅ Answer: C
20. Which is financing inflow?
A. Issuance of common stock
B. Purchase of equipment
C. Interest received
D. Dividend paid
✅ Answer: A
21. If prepaid expense increases, operating cash flow:
A. Increases
B. Decreases
C. No impact
D. Financing
✅ Answer: B
22. Which activity affects free cash flow?
A. Net income
C. Dividend paid
D. Depreciation
✅ Answer: B
23. Free Cash Flow (basic formula) equals:
A. CFO – CapEx
B. NI – CapEx
C. CFO + CapEx
D. CFO – Dividends
✅ Answer: A
24. Under indirect method, decrease in accrued expenses:
A. Added
B. Deducted
C. Ignored
D. Investing
✅ Answer: B
25. Which transaction appears in supplemental disclosure?
A. Depreciation
B. Cash paid for interest
C. Stock issued for land
D. Net income
✅ Answer: C
π₯ Ultra Important US CMA Exam Traps
• Interest paid → Operating (NOT financing)
• Dividend paid → Financing
• Dividend received → Operating
• Gain/Loss → Adjust in operating section
• Non-cash transactions → Separate disclosure
• Change in working capital → Core scoring area
• Direct method → Rarely tested numerically, but conceptually tested
Here is a CMA-style Integrated Case Simulation on Cash Flow Statement (US GAAP) – multi-layered, exam-level difficulty with traps on gains, working capital, non-cash transactions, and classification.
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π₯ INTEGRATED CASE SIMULATION – CASH FLOW STATEMENT (US GAAP)
π Case Background
Omega Manufacturing Inc. reported the following for Year 2025:
Income Statement Data:
Net Income = $450,000
Depreciation Expense = $120,000
Amortization of Patent = $30,000
Gain on Sale of Equipment = $20,000
Interest Expense = $40,000
---
Additional Information:
1. Equipment (Cost $200,000, Accumulated Depreciation $120,000) was sold for $100,000.
2. Land was purchased for $150,000 cash.
3. Bonds payable of $300,000 were issued at par.
4. Dividends of $80,000 were declared and paid.
5. Treasury stock was purchased for $60,000.
6. Bonds worth $100,000 were converted into common stock (non-cash transaction).
---
Working Capital Changes:
Item Beginning Ending
Accounts Receivable 180,000 220,000
Inventory 250,000 230,000
Prepaid Expenses 40,000 50,000
Accounts Payable 150,000 170,000
Accrued Liabilities 60,000 55,000
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π REQUIRED (CMA STYLE)
Part 1: Compute Net Cash Flow from Operating Activities (Indirect Method)
Start with Net Income:
= 450,000
Step 1: Add Non-Cash Expenses
Depreciation = +120,000
Amortization = +30,000
Subtotal = 600,000
Step 2: Remove Gain
Gain on Sale = –20,000
Subtotal = 580,000
Step 3: Adjust Working Capital
Increase in AR (220 – 180 = 40,000) → (40,000)
Decrease in Inventory (20,000) → +20,000
Increase in Prepaid (10,000) → (10,000)
Increase in AP (20,000) → +20,000
Decrease in Accrued Liabilities (5,000) → (5,000)
Net WC Adjustment =
–40,000 + 20,000 –10,000 +20,000 –5,000
= –15,000
✅ Net Cash from Operating Activities:
580,000 – 15,000 =
π $565,000
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π Part 2: Investing Activities
Sale of Equipment = +100,000
Purchase of Land = (150,000)
✅ Net Cash from Investing:
= (50,000)
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π° Part 3: Financing Activities
Issue of Bonds = +300,000
Dividends Paid = (80,000)
Purchase of Treasury Stock = (60,000)
✅ Net Cash from Financing:
= 160,000
(Bond conversion excluded – non-cash)
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π Final Answer Summary
Section Cash Flow
Operating 565,000
Investing (50,000)
Financing 160,000
π₯ Net Increase in Cash:
565,000 – 50,000 + 160,000
= $675,000
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π― CMA Trap Areas Tested
Gain removal in operating section
Full proceeds shown in investing
Working capital direction logic
Non-cash bond conversion disclosure
Treasury stock classification
Dividend paid = Financing
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π₯ Advanced CMA Analytical MCQs Based on Case
1. If equipment had been sold at a loss of $20,000 instead, CFO would:
A. Increase by 20,000
B. Decrease by 20,000
C. Remain same
D. Increase by 100,000
✅ Answer: A
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2. If AR had decreased by $40,000 instead of increased, CFO would be:
A. 605,000
B. 645,000
C. 525,000
D. 565,000
Correct Adjustment: +40,000 instead of –40,000
Net difference = +80,000
565,000 + 80,000 =
✅ Answer: B
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3. Free Cash Flow (CFO – CapEx):
CapEx = 150,000
FCF = 565,000 – 150,000
= 415,000
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