Deck 22: The Statement of Cash Flows

Question 1

On the statement of cash flows, cash receipts of dividends are classified as investing activities under U.S. GAAP.

Answer 1

False

Question 2

Which of the following is not a cash equivalent?

A) accounts receivable expected to be collected in 30 days
B) treasury bill with a maturity of 2 months
C) commercial paper maturing in 45 days
D) mutual fund deposits

Answer 2

A

Question 3

The statement of cash flows assists financial statement users in all of the following ways except ________.

A) determining the entity's need for external financing
B) evaluating the ability of the entity to meet its obligations
C) assessing the ability of the entity to satisfy its customers
D) identifying the entity's investing transactions during the period

Answer 3

C

Question 4

Which of the following questions would not be answered by the annual cash flow statement?

A) What was cash used for during the year?
B) What was the change in the cash balance during the year?
C) Where did cash come from during the year?
D) How did cash expenditures benefit the firm during the year?

Question 5

On the statement of cash flows, cash receipts from the collection of notes receivable are classified as investing activities.

Question 6

Cash equivalents are short-term, highly liquid investments with original maturities of one year or less when acquired.

Question 7

Which of the following is considered to be a part of cash and cash equivalents under IFRS, but not U.S. GAAP?

A) treasury bills
B) bank overdrafts
C) commercial paper
D) money market funds

Question 8

List five ways that the statement of cash flows assists the users of financial statements?

Question 9

Under both U.S. GAAP and IFRS, bank overdrafts are netted against the other positive balances included in cash and cash equivalents.

Question 10

The statement of cash flows summarizes a firm's cash inflows and outflows at a point in time.

Question 11

How do U.S. GAAP and IFRS differ in measuring cash and cash equivalents?

Question 12

On the statement of cash flows, cash receipts of dividends are classified as operating activities under U.S. GAAP.

Question 13

On the statement of cash flows, operating cash flows include cash flows that relate to the production and delivery of goods and services.

Question 14

Bank overdrafts are considered to be a reduction of cash under IFRS, but not under U.S. GAAP.

Question 15

The primary objective of the statement of cash flows is to ________.

A) provide information about a company's cash receipts and cash payments for operating, financing, and investing activities over a period of time
B) disclose changes in asset and equity accounts over a period of time
C) disclose changes in working capital over a period of time
D) provide information about a company's cash-basis revenue and expenses activities over a period of time

Question 16

The statement of cash flows is divided into three sections under U.S. GAAP and four sections under IFRS.

Question 17

On the statement of cash flows, the three classifications of cash flows are reporting, investing, and financing.

Question 18

One purpose of the cash flow statement is to determine the firm's need for external financing.

Question 19

Under U.S. GAAP, bank overdrafts are typically considered to be liabilities.

Question 20

When preparing the statement of cash flows, IFRS will allow companies to classify some cash flows classified as investing or financing activities under U.S. GAAP as operating activities under IFRS.

Question 21

The conceptual model for the statement of cash flows is based on the accounting equation.

Question 22

All of the following would appear as significant noncash investing and financing transactions in the notes or supplementary schedules to the financial statements except ________.

A) issuing preferred stock for cash
B) converting bonds into capital stock
C) exchanging land for a building
D) signing a capital finance lease

Question 23

Significant noncash transactions involving investing and financing activities are not required to be disclosed in the body of the statement of cash flows.

Question 24

Under U.S. GAAP, which of the following may be included in the financing activities section of the cash flow statement?

A) receipt of dividends
B) payment of dividends
C) receipt of interest
D) payment of interest

Question 25

Changes in current liabilities are reflected in the financing activities section of the statement of cash flows.

Question 26

On the statement of cash flows, cash payments of the principal portion of promissory notes are classified as financing activities.

Question 27

On the statement of cash flows, cash flows from investing activities should include ________.

A) the factoring of accounts receivable
B) the receipt of stock dividends
C) the issuance of common stock in exchange for land
D) the major repair of a fixed asset

Question 28

Which of the following is not a required section of the cash flow statement?

A) financing activities section
B) operating activities section
C) funding activities section
D) investing activities section

Question 29

An acquisition of a plant asset financed by the issuance of long-term debt is not incorporated into the body of the statement of cash flows.

Question 30

IFRS does not require that the increase or decrease in cash and cash equivalents explained in the statement of cash flows agree to the line item Cash and Cash Equivalents, ending balance, in the balance sheet.

Question 31

Which of the following sections of the statement of cash flows includes cash flows that relate to the production and delivery of goods and services?

A) financing activities section
B) operating activities section
C) funding activities section
D) investing activities section

Question 32

A decrease in a liability generally results in an increase in cash.

Question 33

Changes in current assets excluding cash are reflected in the operating activities section of the statement of cash flows.

Question 34

An increase in accounts receivable generally results in an increase in cash.

Question 35

Which of the following is not included in the operating activities section of the cash flow statement under U.S. GAAP?

A) payments of income taxes
B) payments of dividends
C) payments of interest
D) payments of executive salaries

Question 36

Which of the following sections of the statement of cash flows includes cash flows that relate to the acquisition and disposal of noncurrent assets?

A) financing activities section
B) operating activities section
C) funding activities section
D) investing activities section

Question 37

The "bottom line" of the cash flow statement is Net Increase (Decrease) in Cash and Cash Equivalents.

Question 38

The conceptual model for the statement of cash flows is based on the income statement equation.

Question 39

Changes in noncurrent liabilities are reflected in the financing activities section of the statement of cash flows.

Question 40

List and briefly describe the various sections of the statement of cash flows.

Question 41

The conceptual model for the statement of cash flows is based on which of the following equations?

A) Cash Flows = Operating Activities + Financing Activities - Investing Activities
B) Net Income = Revenues - Expenses + Gains - Losses
C) Assets = Liabilities + Equity
D) Change in Retained Earnings = Net Income - Dividends

Question 42

Which of the following equations represent the relationship between the change in Cash and cash equivalents (Cash) and the changes in Other Current Assets (OCA), Current Liabilities (CL), Noncurrent Assets (NCA), Noncurrent Liabilities (NCL), Capital Stock (CS) and Retained Earnings (RE)?

A) ΔCash = ΔCL + ΔNCL − ΔOCA −ΔNCA + ΔCS + ΔRE
B) ΔCash = ΔOCA + ΔNCA −ΔCL −ΔNCL + ΔCS + ΔRE
C) ΔCash = ΔCL + ΔNCL − ΔOCA −ΔNCA - ΔCS - ΔRE
D) ΔCash = ΔOCA + ΔNCA −ΔCL −ΔNCL - ΔCS - ΔRE

Question 43

Under IFRS, the operating activities section may begin with something other than net income when using the indirect method.

Question 44

The indirect method of formatting the statement of cash flow is also referred to as the income statement format.

Question 45

Cash paid to employees is calculated as salary and wage expense minus increases in salaries and wages payable.

Question 46

Changes in which of the following are included in operating activities on the statement of cash flows?

A) accounts payable
B) bonds payable
C) treasury stock
D) property, plant, and equipment

Question 47

The direct method of formatting the statement of cash flow is also referred to as the reconciliation format.

Question 48

Under the direct method, items included in the operating activities section of the statement of cash flows include cash collected from customers and cash collected from the sale of operating plant assets.

Question 49

Under the indirect method, adjustments to net income are based on accounting equation relationships.

Question 50

Cash paid for merchandise is calculated as purchases plus increases in inventory minus decreases in accounts payable for inventory.

Question 51

When preparing the operating activities section of the statement of cash flows, both FASB and IASB prefer the direct method over the indirect method.

Question 52

A company borrows $10,000 and signs a 90-day nontrade note payable. How would this event be reflected in the statement of cash flows?

A) cash outflow from investing activities
B) cash inflow from investing activities
C) cash outflow from financing activities
D) cash inflow from financing activities

Question 53

Under the indirect method, which of the following would be added to net income when determining net cash flows from operations?

A) gain on the sale of a used truck
B) amortization expense
C) increase in inventory
D) decrease in accounts payable

Question 54

Increases in current liabilities cause operating cash flows to be lower than accrual-basis net income.

Question 55

A company reconciles net income to net cash flow from operating activities when using the direct method.

Question 56

Decreases in current assets cause operating cash flows to be higher than accrual-basis net income.

Question 57

Changes in retained earnings are always reflected in the operating activities section of the statement of cash flows.

Question 58

Explain the conceptual model for the statement of cash flows.

Question 59

Changes in which of the following are included in financing activities on the statement of cash flows?

A) accounts payable
B) bonds payable
C) accounts receivable
D) property, plant, and equipment

Question 60

Cash collected from customers is calculated as net sales revenue minus increases in accounts receivable.

Question 61

Which of the following is not a cash inflow from investing activities?

A) sale of fixed assets
B) collection of notes receivable
C) purchase of treasury stock
D) sale of held-to-maturity bond investment

Question 62

Cash flows from investing activities on the statement of cash flows include receipts of cash from the sale of investments and from issuing bonds.

Question 63

Ralirali Corporation's financial statements included the following amounts for the current year: $$\begin{array} { | l | r | } \hline \text { Issued new shares of preferred stock } & \$ 98,000 \\\hline \text { Loaned cash to key supplier } & 24,000 \\\hline \text { Bought new delivery truck for cash } & 59,000 \\\hline \text { Proceeds from the sale of used production machinery } & 29,000 \\\hline \text { Sold treasury stock } & 31,000 \\\hline\end{array}$$
Based on this information, what is the amount of net cash provided (used) by investing activities?

A) $30,000 net inflow
B) $54,000 net inflow
C) $54,000 net outflow
D) $5,000 net outflow

Question 64

Comparative financial statements for Tomtric Company follow:

$\begin{array}{c} \text {Tomtric Company}\\ \text {Income Statement}\\ \text {For the year ended December 31, 2019}\\\begin{array}{|l|r|}\hline \text { Sales } & \$ 70,000 \\\hline \text { Cost of goods sold } & \underline{40,000} \\\hline \text { Gross margin } & 30,000 \\\hline \text { Depreciation expense } & 5,000 \\\hline \text { Other operating expenses } & \underline{ 15,000 }\\\hline \text { Operating income } & 10,000 \\\hline \text { Loss on sale of equipment } & \underline{4,000} \\\hline \text { Income before taxes } & 6,000 \\\hline \text { Income tax expense } & \underline{2,400} \\\hline \text { Net income } & \underline{\$ 3,600} \\\hline\end{array}\end{array}$

Additional data on activities during 2019 are as follows:
• During 2019, Tomtric Company sold used equipment for $3,000 that had cost $15,000 with accumulated depreciation of $8,000.
• New equipment was purchased for $12,000 cash.
• Cash dividends totaling $8,000 were paid.
• Long-term investments that had cost $18,000 when purchased were sold for $18,000.
• Common stock was issued for $10,000.
Prepare the operating activities section of the statement of cash flows using the indirect method.

Question 65

How are the direct method and the indirect method alike for the statement of cash flows?

Question 66

Under the indirect method, which of the following would be subtracted from net income when determining net cash flows from operations?

A) gain on the sale of a used truck
B) amortization expense
C) decrease in prepaid rent
D) increase in salaries payable

Question 67

In determining net cash flow from operating activities, an increase in merchandise inventory during a period ________.

A) requires a subtraction adjustment to financing cash flows under the indirect method
B) requires a subtraction adjustment to sales to customers under the direct method
C) requires an addition adjustment to net income under the indirect method
D) requires an addition adjustment to payments for merchandise under the direct method

Question 68

The calculation of cash flows from investing activities on the statement of cash flows begins with net income.

Question 69

In determining net cash flow from operating activities, a decrease in accounts payable during a period ________.

A) does not require an adjustment under the indirect method
B) does not require an adjustment under the direct method
C) requires a subtraction adjustment to net income under the indirect method
D) requires a subtraction adjustment to payments for merchandise under the direct method

Question 70

When preparing the investing activities section of the cash flow statement under both U.S. GAAP and IFRS, firms report acquisitions of fixed assets separate from sales of fixed assets.

Question 71

Contrast the differences between the indirect method and the direct method for the statement of cash flows by explaining each.

Question 72

In a statement of cash flows, the cash flows from investing activities section should report ________.

A) the factoring of accounts receivable
B) a major overhaul of equipment
C) stock dividends received
D) the issuance of common stock in exchange for a factory building

Question 73

Which of the following statements is true?

A) Standard setters encourage the use of the direct method over the indirect method.
B) The direct method is known as the reconciliation method.
C) Under U.S. GAAP, the indirect method starts with income before income taxes.
D) All of these statements are true.

Question 74

Firms report cash flows from investing activities using the ________.

A) gross method
B) net method
C) indirect method
D) direct method

Question 75

Volutia Corporation's comparative financial statements included the following amounts for the current year: $$\begin{array} { | l | r |} \hline \text { Depreciation expense } & \$ 102,000 \\\hline \text { Loss on sale of fixed assets } & 38,000 \\\hline \text { Decrease in fixed assets } & 155,000 \\\hline \text { Increase in accounts receivable } & 37,000 \\\hline \text { Decrease in accounts payable } & 42,000 \\\hline \text { Decrease in inventory } & 71,000 \\\hline \text { Increase in taxes payable } & 19,000 \\\hline \text { Net income } & 72,000 \\\hline\end{array}$$
Compute net cash provided by operating activities using the indirect method.

A) $223,000
B) $22,000
C) $185,000
D) $68,000

Question 76

Which of the following is a cash outflow from investing activities?

A) lending cash
B) payment of dividends
C) proceeds from sale of fixed assets
D) purchase of merchandise inventory

Question 77

Volutia Corporation's comparative financial statements included the following amounts for the current year:
$$\begin{array} { | l | r |} \hline \text { Depreciation expense } & \$ 102,000 \\\hline \text { Loss on sale of fixed assets } & 38,000 \\\hline \text { Decrease in fixed assets } & 155,000 \\\hline \text { Increase in accounts receivable } & 37,000 \\\hline \text { Decrease in accounts payable } & 42,000 \\\hline \text { Decrease in inventory } & 65,000 \\\hline \text { Increase in taxes payable } & 19,000 \\\hline \text { Net income } & 720,000 \\\hline\end{array}$$
Prepare the operating activities section of the statement of cash flows using the indirect method.

Question 78

The investing cash flows section of the statement of cash flows is based on an analysis of the balance sheet accounts for noncurrent assets and noncurrent liabilities.

Question 79

Tandoor Inc. financial statements included the following amounts for the current year: $$\begin{array} {| l | r| } \hline \text { Retired bonds } & \$ 73,000 \\\hline \text { Proceeds from collection of note receivable } & 31,000 \\\hline \text { Dividends received } & 45,000 \\\hline \text { Acquired production machinery with cash } & 59,000 \\\hline \text { Sold treasury stock } & 39,000 \\\hline\end{array}$$
Based on this information, what is the amount of net cash provided (used) by investing activities?

A) $90,000 net inflow
B) $14,000 net inflow
C) $28,000 net outflow
D) $34,000 net outflow

Question 80

Cash flows from investing activities on the statement of cash flows include receipts of cash from the collection of notes receivable and from the sale of fixed assets.