1. d. Correct. Budgeting activities are the process of planning and budgeting the activities for the next accounting period. Budgeting includes preparing many schedules and financial statements based on estimates and assumptions regarding future operations. Answers a, b, and c are all major segments. See pages 123-125.

2. a. Correct. The three primary financial statements are the balance sheet, income statement, and statement of cash flows. Often other financial statements are issued with the three primary financial statements, such statements could be the statement of retained earnings, statement of owners’ equity, and others.

3. c. Correct. The income statement shows the results of operations for the year and therefore cannot be a major use of the statement of cash flows. Answers a., b., and d. are all major uses. See page 123

4. b. Correct. The statement of cash flows shows the change in cash for the accounting period and the cause of those changes. Answers a., c., and d. are incorrect. See page 123.

5. c. Correct. The sum of all the net cash flows from operating, financing, and investing activities must equal the change in the cash account for the accounting period. Answers a., b., and d. are incorrect. See pages 124-125.

6. a. Correct. The purchase and sale of merchandise is an operating activity, not an investing activity. Answers b., c., and d. are all investing activities. See page 126.

7. a. Correct. Cash paid to suppliers would be an operating activity, not a financing activity. Answers b., c., and d. are all financing activities. See pages 126-127.

8. b. Correct. Cash received from and cash paid to owners or stockholders of a company are considered financing activities. Answers a., c., and d. are not correct. See page 126.

9. d. Correct. The cash column in the accounting transaction worksheet contains all the details concerning the change in cash during the accounting period. Answers a., b., and c. are incorrect. See page 128.

10. c. Correct. Solvency refers to the ability of a company to pay its creditors when the liabilities become due, i.e., to have cash available when needed to continue to operate. Answers a., b., and d. are incorrect. See page 129.

11. b. Correct. Both the short-term bank loan of $5,000 and the owner withdrawal of $3,000 are financing activities. $5,000 less $3,000 equals $2,000 positive net cash flow from financing activities. Answers a., c., and d. are incorrect. See pages 125-127.

12. a. Correct. There are no investing activities in the data above. All cash flows are either operating or financing activities. Answers b., c., and d. are incorrect. See pages 125-127.

13. c. Correct. All the cash flows except the bank loan and the owner withdrawal are operating cash flows. They total to negative $400 (-$200 -$1,400 +1,500 +$1,000 -$700 -$1,400 +$800 = –$400). Answers a., b., and d. are incorrect. See pages 125-127.