Deck 24: The Statement of Cash Flows

Question 1

When the net income is reconciled with the net cash provided by operating activities,depreciation expense is added to the net income.

Answer 1

True

Question 2

If the income statement reflects a net loss for the year,the loss is not reported under cash flows from operating activities in the statement of cash flows.

Answer 2

False

Question 3

Decreases in current assets must be deducted from net income to arrive at cash flows from operations.

Answer 3

False

Question 4

When a firm issues a long-term note payable,the amount that it receives for the note is considered a cash inflow from operating activities.

Question 5

The payment of cash dividends to stockholders would be classified as a cash outflow resulting from a financing activity.

Question 6

The statement of cash flows provides information about cash flows from operating activities,investing activities,and financing activities.

Question 7

The cash received from issuing common stock would not be reported on the statement of cash flows.

Question 8

If a firm's accounts receivable increased during the fiscal period,it is necessary to subtract the amount of the increase from the net income when computing the net cash provided by operating activities.

Question 9

A sale of used equipment for cash produces a cash inflow from investing activities.

Question 10

The starting point for analyzing cash flows from operating activities is the beginning balance of cash.

Question 11

Usually,there is a difference between the net income reported on the income statement and the net cash from operating activities shown on the statement of cash flows.

Question 12

Current assets and current liabilities are often referred to as operating assets and liabilities.

Question 13

The resale of treasury stock is classified as a cash inflow from financing activities.

Question 14

The Financial Accounting Standards Board prefers the indirect method of preparing the statement of cash flows.

Question 15

When the net income is adjusted to arrive at the net cash provided by operating activities,the amount of the bond premium amortized is added to the net income.

Question 16

Interest expense is treated as an outflow of cash from a financing activity.

Question 17

By analyzing past cash flows,financial statement users can identify the primary sources and uses of cash.

Question 18

An increase or decrease in accounts payable during a fiscal period has no effect on the net cash provided by operating activities.

Question 19

In computing the cash flows from operating activities section,a loss on the sale of long-term assets must be deducted from net income.

Question 20

Operating activities are routine business transactions that include providing services,paying wages,borrowing funds,selling stock,and paying dividends.

Question 21

When the ____________________ method of preparing the statement of cash flows is used,the interest and income taxes paid during the period are disclosed in notes accompanying the statement.

Question 22

The purpose of the statement of ____________________ is to report the cash balance at the beginning and end of the fiscal period and to show the sources and uses of cash during the period.

Question 23

Issuing stock for cash and paying dividends in cash would be classified as ____________________ activities on the statement of cash flows.

Question 24

A gain on the sale of equipment is reported in the ____________________ activities section of the statement of cash flows.

Question 25

On the statement of cash flows,it is necessary to reconcile the ____________________ with the net cash provided by operating activities.

Question 26

If the indirect method of preparing the statement of cash flows is used,a note disclosing the amount of interest and income taxes paid during the period must accompany the statement.

Question 27

The schedule of ____________________ supplements the income statement,showing selling and administrative expenses in greater detail.

Question 28

Interest expense is treated as an outflow of cash that results from a(n)____________________ activity.

Question 29

Noncash investing and financing activities,such as the issuance of bonds to acquire business property,do not require disclosure as the cash account is not affected.

Question 30

FASB requires companies to report the Statement of Cash Flows using the direct method.

Question 31

Purchases and sales of land,buildings,and equipment for cash are shown as ____________________ activities on the statement of cash flows.

Question 32

The payment of maturing bonds would be treated as a cash outflow in the ____________________ activities section of the statement of cash flows.

Question 33

Net income must be adjusted for changes in ____________________ assets and liabilities,such as accounts receivable and accounts payable,when determining the net cash provided by operating activities.

Question 34

If a corporation issued stock for $70,000 in cash,received $10,000 in cash from a long-term loan,and paid cash dividends totaling $20,000,the net cash provided by its financing activities would be ___________________.

Question 35

A complete set of published financial statements for a corporation must include a statement of cash flows.

Question 36

The statement of cash flows assumes that the ____________________ basis of accounting is used when recording transactions and preparing the balance sheet and income statement.

Question 37

The cash flows from investing activities and cash flows from financing activities are the same in both the direct and indirect methods.

Question 38

Cash flows from ____________________ activities are the result of routine business transactions such as buying and selling merchandise.

Question 39

On the statement of cash flows,cash and cash ____________________ consist of currency,bank accounts,and short-term,highly liquid investments.

Question 40

The purchase of treasury stock is treated as a cash outflow in the ____________________ activities section of the statement of cash flows.

Question 41

A decrease in accounts payable from $60,000 to $50,000 will be reflected on the statement of cash flows as a:

A) $10,000 source of operating activity funds.
B) $10,000 use of operating activity funds.
C) $10,000 source of investing activity funds.
D) $10,000 use of investing activity funds.

Question 42

A corporation received $50,000 in cash when it sold a building and paid $90,000 in cash when it purchased some new machinery.As a result,the statement of cash flows would report

A) $40,000 as the net cash used in financing activities.
B) $40,000 as the net cash provided by investing activities.
C) $40,000 as the net cash used in investing activities.
D) $40,000 as the net cash provided by financing activities.

Question 43

____________________ activities are transactions that involve the acquisition or disposal of assets that will not be used up or consumed in routine operations.

Question 44

Which of the following is reported on the statement of cash flows under financing activities?

A) Declaration of a cash dividend.
B) Payment of a cash dividend.
C) Issuance of a stock dividend.
D) Stock split.

Question 45

Operating activities include

A) collection of accounts receivable.
B) purchases of plant and equipment for cash.
C) issuance of common stock.
D) payment of dividends to shareholders.

Question 46

Information from Zwatsch Company's income statement is as follows: net income $55,000,depreciation expense $12,000;loss on sale of plant assets $4,000;gain on retirement of bonds $10,000;an increase in accounts receivable of $6,000 and dividend payments of $5,000.The net cash provided by operating activities is:

A) $73,000.
B) $67,000.
C) $55,000.
D) $50,000.

Question 47

A decrease in merchandise inventory is:

A) a source of cash under operating activities.
B) a use of cash under operating activities.
C) not reported on the statement of cash flows.
D) a source of cash under investing activities.

Question 48

A decrease in current liabilities is:

A) a source of cash under operating activities.
B) a use of cash under operating activities.
C) not reported on the statement of cash flows.
D) a use of cash under investing activities.

Question 49

The income statement shows a loss of $5,000 on the sale of equipment.As a result,the statement of cash flows would report

A) $5,000 as an increase in cash provided by investing activities.
B) $5,000 as a decrease in cash used in investing activities.
C) $5,000 as an increase in cash provided by operating activities.
D) $5,000 as a decrease in cash used in operating activities.

Question 50

When the net cash provided by operating activities is determined,a gain on a sale of equipment should

A) be added to the net income.
B) be subtracted from the net income.
C) not be used in the calculation.
D) be reported in the cash flows from financing activities section.

Question 51

In the ____________________ activities section of the statement of cash flows,net income is adjusted for the amortization of the premium on bonds payable.

Question 52

A corporation received $80,000 in cash when it sold a building and paid $50,000 in cash when it purchased some new machinery.As a result,the statement of cash flows would report

A) $30,000 as the net cash used in financing activities.
B) $30,000 as the net cash provided by investing activities.
C) $30,000 as the net cash used in investing activities.
D) $30,000 as the net cash provided by financing activities.

Question 53

Investing activities include

A) purchases of merchandise for cash.
B) purchases of plant and equipment for cash.
C) purchases of prepaid expense items such as supplies and insurance for cash.
D) increase in accounts receivable.

Question 54

An example of a financing activity is

A) the sale of merchandise for cash.
B) the issue of stock for cash.
C) the sale of used equipment for cash.
D) the purchase of a building.

Question 55

Operating activities include all except

A) collection of accounts receivable.
B) payment of wages.
C) decrease in accounts payable.
D) payment of dividends to shareholders.

Question 56

Cash and cash equivalents,as used on the statement of cash flows,consist of

A) only currency and bank accounts.
B) only bank accounts.
C) currency,bank accounts,and all investments.
D) currency,bank accounts and short-term,highly liquid investments.

Question 57

The net cash provided by operating activities is affected by

A) a change in merchandise inventory.
B) a purchase of land for cash.
C) the issue of bonds payable for cash.
D) proceeds of cash investments by stockholders.

Question 58

Information from Zurich Company's income statement is as follows: net income $12,300,depreciation expense $12,000;gain on sale of equipment $4,000;proceeds from the sale of land $10,000.The net cash provided by operating activities is:

A) $20,300.
B) $24,300.
C) $26,300.
D) $30,300.

Question 59

A corporation received $80,000 in cash when it sold common stock and used the proceeds to pay $60,000 in bonds payable.As a result,the statement of cash flows would report

A) $20,000 as the net cash used in financing activities.
B) $20,000 as the net cash provided by investing activities.
C) $20,000 as the net cash used in investing activities.
D) $20,000 as the net cash provided by financing activities.

Question 60

Financing activities include all of the following except:

A) payment of dividends to shareholders.
B) purchases of plant and equipment for cash.
C) receipt of cash upon the issuance of bonds.
D) repurchase of company stock.

Question 61

Chattel Company sold for $7,000 equipment that originally cost $40,000 and had depreciation in the amount of $34,000 taken.What amount is reported in the Cash Flows from Financing Activities section of the Statement of Cash Flows?

A) $6,000
B) $5,000
C) $0
D) $1,000

Question 62

On a statement of cash flows,depreciation expense is

A) subtracted from net income in the computation of the net cash provided by operating activities.
B) added to net income in the computation of the net cash provided by operating activities.
C) treated as a cash outflow in the computation of the net cash used in investing activities.
D) treated as a cash inflow in the computation of the net cash used in investing activities.

Question 63

An example of an investing activity is

A) the issue of preferred stock.
B) the resale of treasury stock.
C) the issue of bonds and notes payable.
D) the purchase of property,plant,or equipment for cash.

Question 64

On a statement of cash flows,an increase in a prepaid expense

A) is included in computing cash flows from operating activities.
B) is included in computing cash flows from investing activities.
C) is included in computing cash flows from financing activities.
D) is not used in computing cash flows.

Question 65

Transactions for the acquisition or disposal of long-term assets are

A) operating activities.
B) investing activities.
C) financing activities.
D) outflows or uses of cash.

Question 66

When the net cash provided by operating activities is determined,an increase in income taxes payable should

A) be subtracted from the net cash amount after other calculations have been made.
B) be subtracted from the net income.
C) not be used in the calculation.
D) be added to the net income.

Question 67

When the net cash provided by operating activities is determined,the amortization of bond premium

A) should be added to the net income.
B) should be subtracted from the net income.
C) should not be used in the calculation.
D) be subtracted from the net cash amount after other calculations have been made.

Question 68

Cannon Manufacturing Co.sold equipment that cost $18,000 for $6,000.A loss on sale of $1,000 was recorded.How is the Cash Flows from Operating Activities affected?

A) The loss of $1,000 is added to Net Income.
B) The loss of $1,000 is deducted from Net Income.
C) The $6,000 cash received is deducted from Net Income.
D) The $11,000 accumulated depreciation is added to Net Income.

Question 69

Windwhirl Company,reported net income of $150,000 and a $5,000 gain on the sale of equipment.The cash received from the sale of equipment was $22,000.Windwhirl issued additional shares of stock for $225,000,paid off a $200,000 bond issue recorded at par and paid out $40,000 in dividends during the year.Calculate the increase or decrease in cash from financing activities.

A) ($15,000).
B) $7,000.
C) $27,000.
D) $152,000.

Question 70

Chattel Company sold for $7,000 equipment that originally cost $40,000 and had depreciation in the amount of $34,000 taken.What amount is reported in the Cash Flows from Investing Activities section of the Statement of Cash Flows?

A) $7,000
B) $6,000
C) $5,000
D) $1,000

Question 71

Doff Manufacturing Co.sold equipment that cost $12,000 for $3,000.Depreciation of $10,000 had been taken on the equipment.How is the Cash Flows from Operating Activities affected?

A) The loss of $1,000 is added to Net Income
B) The gain of $1,000 is added to Net Income
C) The gain of $1,000 is deducted from Net Income
D) The loss of $1,000 is deducted from Net Income

Question 72

Anders Inc,reported that its bonds with a par value of $500,000 and a carrying value of $525,000 was retired for $545,000 resulting in a loss of $20,000.The amounts to be reported under the cash flows include:

A) $45,000 net decrease in cash used for financing activities.
B) $525,000 net decrease in cash used for investing activities.
C) $20,000 increase in cash from operating activities;$545,000 decrease in cash used for investing activities.
D) $20,000 increase in cash from operating activities;$545,000 decrease in cash used for financing activities.

Question 73

Transactions that provide cash to the business to carry on its activities are

A) operating activities.
B) investing activities.
C) financing activities.
D) outflows or uses of cash.

Question 74

An increase in accounts payable is

A) added to the net income when determining the net cash provided by operating activities.
B) subtracted from the net income when determining the net cash provided by operating activities.
C) added to the cash flows from investing activities.
D) not used to calculate the net cash provided by operating activities.

Question 75

Cinders Inc,reported net income of $50,000 and loss on sale of plant assets of $15,000.The cash received from the sale of plant assets was $45,000.Cinders also issued additional shares of stock for $25,000 and paid dividends of $4,500.Calculate the increase or decrease in cash from investing activities.

A) ($15,000).
B) $60,000.
C) $45,000.
D) $40,500.

Question 76

Polyglot Services,Inc.sold equipment that cost $45,600 for $12,450.Depreciation on the equipment from purchase to date of sale amounted to $35,000.What amount is reported in the Cash Flows from Investing Activities section of the Statement of Cash Flows?

A) $12,450
B) $0
C) $1,850
D) $10,600

Question 77

The payment of interest is considered to be

A) an outflow of cash that results from a financing activity.
B) an outflow of cash that results from an investing activity.
C) an outflow of cash that results from an operating activity.
D) an activity that is not reported on the statement of cash flows.

Question 78

Chattel Company sold for $5,000 equipment that originally cost $40,000 and had depreciation in the amount of $34,000 taken.What amount is reported in the Cash Flows from Operating Activities section of the Statement of Cash Flows?

A) $7,000
B) $6,000
C) $5,000
D) $1,000

Question 79

Generally,if a short-term investment is to be classified as a cash equivalent,it must fall due within

A) 12 months from the date it was acquired.
B) 6 months from the date it was acquired.
C) 3 months from the date it was acquired.
D) 1 month from the date it was acquired.

Question 80

The method used by most corporations to prepare the statement of cash flows is the

A) accrual method.
B) direct method.
C) deferral method.
D) indirect method.