Deck 5: Cash Flow Statement

Question 1

The cash flow statement and the income statement both measure a company's performance.

Answer 1

True

Question 2

The indirect approach reports the full gross cash flows from operating activities.

Answer 2

False

Question 3

If prepaid expenses are shown as having a positive effect on cash flow that is because prepaid expenses increased during the year.

Answer 3

False

Question 4

Cash paid for dividends to shareholders is classified as an investing activity.

Question 5

The components of a cash flow statement are investing, financing, and operating activities.

Question 6

All of the following are fundamental causes of cash flow difficulties in many start-up companies, except for:

A)Lead \ Lag relationship in cash inflows and outflows
B)Inadequate financing
C)Overcapitalization
D)High growth rate sales

Question 7

The following items are reported on a company's income statement.Which of them is most likely equal to its cash flow impact?

A)Amortization expense
B)Gain on sale of capital assets
C)Loss on sale of investment
D)Interest expense

Question 8

Cash from operating activities will be the same using either the direct or indirect method to prepare the cash flow statement.

Question 9

When analyzing a company's cash flow situation, the term "capitalization" refers to:

A)how much cash the company has to start with.
B)how many capital assets the company has purchased during the period.
C)the amount of common shares sold during the period.
D)the length of time in the lead\lag relationship.

Question 10

Cash equivalents include investments that can be readily converted into cash; investment maturity dates are irrelevant.

Question 11

The sales terms for a company are 10 percent down and the balance due by the end of the following month.Sales for January, February and March were $8,500, $11,500 and $13,000 respectively.The cash collections from operations for the month of February would be closest to?

A)$7,600
B)$8,800
C)$10,350
D)$11,500

Question 12

The cash flow statement will show a positive cash inflow from operations as long as the cost of inventory remains below the selling price.

Question 13

Which of the following would cause an inflow of cash?

A)Issuing common shares to retire long-term debt
B)Payment of a dividend to the shareholders
C)Incurring a loss on the sale of a capital asset
D)Recognizing amortization expense

Question 14

Reducing the amount of inventory on hand to improve a company's cash flow position is referred to as increasing capitalization.

Question 15

All of the following statements are true, except:

A)To analyze operations properly you need both the income statement and the cash flow statement.
B)In the long run total profits and net cash flows will be very similar.
C)The cash flow statement considers events that the income statement does not.
D)The cash flow statement and the income statement both cover the period of a year because profits and cash flows are very similar over the period of a year.

Question 16

The income statement reflects the lead\lag relationships in cash flows.

Question 17

Which of the following would cause a outflow of cash?

A)Sale of inventory for cash.
B)The sale of an investment for a loss
C)Issuing common shares to acquire capital assets
D)Purchase of a temporary investment

Question 18

Companies can raise an unlimited amount of cash from financing activities as long as they are willing to pay higher interest rates.

Question 19

In the early part of the cash-to-cash cycle net cash flows are normally inflows.

Question 20

Cash received from investments in government bonds is classified as an operating activity.

Question 21

If a company has made arrangements with a bank to borrow money in the months when they have a negative cash balance, this arrangement is a:

A)letter of credit.
B)demand loan
C)long-term loan.
D)term deposit.

Question 22

All of the following would reduce a company's lead\lag relationship except:

A)limiting the growth in sales.
B)accepting credit cards for payment of goods.
C)making its purchases on account.
D)reducing the credit period for customers who buy on account.

Question 23

On the cash flow statement, which of the following would equal cash paid for income taxes?

A)Income taxes payable plus change in cash
B)Income taxes expense plus ending balance in income taxes payable
C)Income taxes expense plus beginning balance in income taxes payable
D)Income taxes expense plus change in income taxes payable

Question 24

The direct approach differs from the indirect approach with regard to results in which section of the cash flow statement?

A)Operating activities
B)Investing activities
C)Financing activities
D)There is no difference between the two approaches

Question 25

Operating activities typically involve balance sheet accounts classified as:

A)current assets and current liabilities.
B)current assets and long-term liabilities.
C)long-term assets and current liabilities.
D)long-term assets and long-term liabilities.

Question 26

Which of the following is a deduction from net income when using the indirect approach to prepare the cash from operations section of the cash flow statement?

A)Increase in accounts payable
B)Decrease in prepaid expenses
C)Gain on sale of investments
D)Amortization expense

Question 27

Under the indirect approach adjustments must be made to net income in the operations section for all of the following items, except:

A)amortization
B)gain on the sale of equipment
C)loss on the sale of land
D)proceeds for the sale of temporary investments

Question 28

Which of the following is a cash equivalent?

A)A short-term bank loan
B)A demand note receivable from another company
C)A Government of Canada 180-day Treasury bill.
D)A note payable to a supplier

Question 29

Under the indirect approach, to preparing the cash from operations section of the cash flow statement, amortization is added to net income because:

A)it is not a cash expense.
B)it is a cash outflow.
C)it is a source of cash.
D)it is not an allowable expense in determining net income.

Question 30

Under the direct approach for cash flow statement preparation, which of the following would equal the payments to suppliers?

A)Inventory plus change in accounts payable
B)Cost of goods sold plus change in inventory
C)Purchases plus change in accounts payable
D)Inventory plus change in purchases

Question 31

Cash flows from financing activities include:

A)proceeds received from sale of equipment.
B)proceeds received from sale of the company's shares.
C)purchase of land.
D)proceeds from the sale of shares of another company.

Question 32

If a company is experiencing cash flow problems it can alleviate the problem by:

A)increasing sales...
B)increasing the amount of capitalization.
C)increasing the amount of goods sold on credit.
D)extending customer payment terms..

Question 33

Cash equivalents includes everything, except:

A)Government of Canada T-bills
B)Demand notes receivable
C)Short term bank loan
D)Lines of Credit

Question 34

Which of the following is normally disclosed as supplementary information on the cash flow statement?

A)Cash paid for dividends during the year
B)Amortization expense for the year
C)Proceeds from fixed asset sales during the year.
D)Cash paid for interest during the year

Question 35

Which of the following would be added to net income when using the indirect approach to prepare the cash from operations section of the cash flow statement?

A)Increase in inventory
B)Gain on sale of investments
C)Increase in dividends payable
D)Decrease in accounts receivable

Question 36

Which of the following statements is true concerning how interest paid on debt is classified on the cash flow statement for U.S.GAAP and International Financial Reporting Standards IFRS)?

A)It is a cash from operations for both.
B)It is a cash from financing activities from both.
C)It may be classified as either a cash from operations or a cash from financing activities for U.S.GAAP.
D)It may be classified as either a cash from operations or a cash from financing activities for IFRS.

Question 37

Investing activities typically involve balance sheet accounts classified as:

A)long-term assets.
B)long-term liabilities.
C)shareholders' equity.
D)short-term assets.

Question 38

How should a gain on the sale of equipment be reflected in the operating section of the cash flow statement when using the indirect method?

A)As a deduction from net income
B)As a cash inflow
C)As an addition to net income
D)It is not reflected in the operating section.

Question 39

Financing activities typically involve balance sheet accounts classified as:

A)current assets and current liabilities.
B)current liabilities and shareholders' equity.
C)long-term liabilities and shareholders' equity.
D)current liabilities and long-term liabilities.

Question 40

The direct method of cash flow statement preparation is:

A)widely used in practice.
B)CICA preferred.
C)harder to read and interpret than the indirect method
D)inconsistent and provided different operating results.

Question 41

Hayden Co.reported $26,000 of cash provided by operating activities and the following data: $$\begin{array} { l r } \text { Amortization } & \$ 45,000 \\\text { Increase in accountspayable } & 12,000 \\\text { Increase in wagespayable } & 8,000 \\\text { Increase in inventory } & 9,000 \\\text { Decrease in taxes payable } & 2,000\end{array}$$
Hayden's net income\loss for the period was:

A)$10,000 income
B)$54,000 loss
C)$28,000 loss
D)$8,000 loss

Question 42

Which of the following would be an example of an investing activity on the cash flow statement?

A)Purchase of capital assets
B)Sale of preferred shares
C)Repurchase of shares issued
D)Dividends paid to shareholders

Question 43

Which of the following statements is true? Users want to assess if:

A)cash from financing activities is sufficient to cover investing activities in the long run.
B)cash from continuing operations is sufficient to cover investing and financing activities in the long run.
C)cash from continuing operations is sufficient to cover investing activities in the long run.
D)cash from investing activities is sufficient to cover financing activities in the long run.

Question 44

Janey Ltd.reported the following for 2011: $\begin{array} { cc }\text { Income Statement }&\text { Additional data }\\\begin{array}{lr}\text { Sales } & \$750,000 \\\text { Cost of sales } & 300,000 \\\text { Gross profit } & 450,000 \\\text { Cash operating expenses } & 750,000 \\\text { Amortization } & 25,000 \\\text { Loss on sale of land } &{15,000} \\\text { Net income } & \underline{\$ 335,000}\end{array}&\begin{array}{lr}\text { Dividends paid } & \$ 5,000 \\\text { Decrease in accounts payable } & 25,000 \\\text { Sale of land } & 100,000 \\\text { Increase in inventory } & 40,000 \\\text { Decrease in accounts receivable } & 15,000\end{array}\\\end{array}$
The net cash flow is:

A)$380,000
B)$375,000
C)$350,000
D)$345,000

Question 45

Ally Co.reported the following for 2011: $\begin{array} { cc }\text { Income Statement }&\text { Additional data }\\\begin{array}{lr}\text { Sales } & \$ 800,000 \\\text { Cost of sales } & 400,000 \\\text { Gross profit } & 400,000 \\\text { Cash operating expenses } & 100,000 \\\text { Amortization } & 40,000 \\\text { Loss on sale of land } &{20,000} \\\text { Net income } & \underline{\$ 240,000}\end{array}&\begin{array}{lr}\text { Dividends paid } & \$ 18,000 \\\text { Decrease in accounts payable } & 30,000 \\\text { Sale of land } & 40,000 \\\text { Increase in inventory } & 40,000 \\\text { Decrease in accounts receivable } & 5,000\end{array}\\\end{array}$
The net cash flow from operating activities was:

A)$365,000
B)$300,000
C)$235,000
D)$240,000

Question 46

The _______________statement is used by shareholders to assess company profitability.

A)Cash flow
B)Retained earnings
C)Cash position
D)Income

Question 47

Miriam Co.reported a cash position of $35,000 and as of December 31, after its first year of operations.Miriam also reported the following: Net Income $\$ 23,000$
Amortization Expense $\$ 17,000$
Gain on the sale of equipment $\$ 5,000$
Cash from operating activities $\$ 42,000$
Cash used in investing activities $\$ 100,000$
How much cash was provided through Miriam's financing activties?

A)$100,000
B)$ 93,000
C)$ 90,000
D)$ 0

Question 48

Use the following information to answer questions
Player's Ltd had the following activity during 2011: $\begin{array}{lr} \text {Proceeds from sale of long-term investments }&\$ 156,000 \\ \text {Gain on the sale of long-term investments } & 16,000\\ \text {Loss on the disposal of equipment }\\\text { (\$0 proceeds from disposal) } & 17,000 \\\text { Proceeds from sale of preferred shares } & 182,000 \\\text { Repayment of long-term debt } & 30,000\end{array}$

-What was the cash flow from financing activities?

A)$135,000
B)$168,000
C)$169,000
D)$152,000

Question 49

Marina Corp.books revealed the following for the current year: $$\begin{array} { l r } \text { Increase in inventory } & \$ 7,000 \\\text { Amortization expense } & 24,000 \\\text { Decrease in accounts payable } & 3,000 \\\text { Decrease in accounts receivable } & 9,000 \\\text { Dividends paid } & 2,000 \\\text { Net loss } & 25,000\end{array}$$
What was the net cash flow from operating activities for the year?

A)Cash provided $8,000
B)Cash provided $0
C)Cash used $2,000
D)Cash used $4,000

Question 50

Pierre Co.reported $10,000 cash used in the operating activities section of the cash flow statement and the following data: amortization expense $10,000; an accounts payable increase of $12,000; a $3,000 decrease in accounts receivable; an increase in wages payable of $8,000; and a $15,000 gain on the sale of long-term investments.Pierre Co.'s net income\loss for the period was:

A)$8,000 income
B)$28,000 loss
C)$38,000 loss
D)$2,000 income

Question 51

Slater Co.reported sales of $350,000 and total expenses of $280,000; wages payable increased by $12,000; inventory decreased by $25,000; accounts payable decreased by $50,000; and amortization was $30,000.What was the net cash flow from operating activities?

A)$87,000
B)$40,000
C)$15,000
D)$63,000

Question 52

Use the following information to answer questions
Player's Ltd had the following activity during 2011: $\begin{array}{lr} \text {Proceeds from sale of long-term investments }&\$ 156,000 \\ \text {Gain on the sale of long-term investments } & 16,000\\ \text {Loss on the disposal of equipment }\\\text { (\$0 proceeds from disposal) } & 17,000 \\\text { Proceeds from sale of preferred shares } & 182,000 \\\text { Repayment of long-term debt } & 30,000\end{array}$

-What was the cash flow from investing activities?

A)$16,000
B)$156,000
C)$173,000
D)$189,000

Question 53

Obtaining resources for the corporation from investors or debtholders and the return of resources to shareholders and debtholders is considered part of which of these activities on the cash flow statement?

A)Operating activities
B)Investing activities
C)Financing activities
D)None of these

Question 54

The activities of a corporation that are directed to investing the resources of the corporation over extended periods of time in long-term assets is considered part of which of these activities on the cash flow statement?

A)Operating activities
B)Financing activities
C)Investing activities
D)None of these

Question 55

Which of the following would be an example of a financing activity on the cash flow statement?

A)Payment of interest on debt
B)Payment of a dividend
C)Receipt of interest on investments
D)Sale of equipment

Question 56

Assume a company reported net income of $53,000, loss on the sale of equipment of $10,000, and gain on sale of investments of $21,000.If there were no other adjustments to reconcile net income to cash from operating activities, the cash inflow from operating activities must have been:

A)$42,000
B)$63,000
C)$84,000
D)$32,000

Question 57

A company has surplus cash available and decides to purchase a 270-day treasury bill.The correct classification of the purchase on the cash flow statement would be:

A)as an increase in cash equivalents.
B)as a cash outflow in operating activities.
C)as a cash outflow in investing activities.
D)as a cash outflow in financing activities.

Question 58

If a company reported net income for the year of $160,000, cash from operating activities of $105,000, cash provided from financing activities of $225,000, and cash used in investing activities of $450,000, what was their change in cash for the year?

A)$120,000 decrease
B)$170,000 decrease
C)$40,000 increase
D)$65,000 decrease

Question 59

Oracle Co.had the following activity during 2011: $\begin{array}{lr}\text { Proceeds from sale of equipment } & \$ 193,000 \\\text { Dividends paid on common shares } & 7,000 \\\text { Purchase of long-term investments } & 29,000 \\\text { Repurchase of shares issued } & 17,000\end{array}$
What was the cash flow from investing activities?

A)$157,000
B)$140,000
C)$164,000
D)$147,000

Question 60

Which of the following would be an example of an investing activity on the cash flow statement?

A)Issuance of bonds payable
B)Purchase of bonds payable
C)Sale of common shares
D)Receipt of dividend income from investments

Question 61

If a company had growing sales, which of the following would normally be expected on the cash flow statement?

A)An increase in both accounts receivable and accounts payable.
B)A decrease in both accounts receivable and accounts payable.
C)A decrease in accounts receivable and an increase in accounts payable.
D)An increase in accounts receivable and a decrease in accounts payable.

Question 62

An analyst reviewing a company's cash flow statement noticed that the company reported a large increase in inventory, but no increase in accounts receivable.Which of the following is not a possible explanation for this?

A)The company experienced a decrease in demand for its products.
B)The company is stockpiling inventory in anticipation of a strike at a supplier.
C)The company has obsolete inventory on hand.
D)The company increased its credit terms but not its production time.

Question 63

A banker contemplating a loan to a company should focus on which sections) of the cash flow statement in order to determine the company's ability to repay the loan?

A)Operating activities
B)Operating and financing activities
C)Investing activities
D)Operating and investing activities

Question 64

Stock analysts are focused on company cash flows because they are concerned about:

A)debt \ equity ratio
B)company solvency
C)return on share investment
D)the company's investing activities

Question 65

Which of the following would present a continuing need for cash?

A)The payment of dividends
B)The repurchase of shares
C)The repayment of debt
D)The purchase of a large amount of capital assets

Question 66

Which of the following would be a reasonable short-cut approach to calculating cash from operations?

A)Net income plus amortization
B)Net income minus amortization
C)Net income plus the increase in accounts receivable
D)Net income minus the increase in accounts receivable

Question 67

Which of the following would an analyst use when trying to determine if a company operating in a stable industry were generating enough cash flow from operations to maintain its productive capacity?

A)Cash from operations should equal cash outflows from investing activities.
B)Cash from operations should equal cash from financing activities.
C)Cash spent on new equipment equals approximately one-tenth of total assets.
D)Cash spent on new equipment equals approximately one-half of total assets.

Question 68

Which of the following would raise a red flag about the cash-to-cash cycle when reviewing the cash flow statement?

A)Increase in both accounts receivable and accounts payable
B)Decrease in both accounts receivable and accounts payable
C)Increase in accounts receivable and decrease in accounts payable
D)Stable levels of accounts receivable and accounts payable.

Question 69

Bali Company had reported the following items: $\begin{array}{ll}\text { Cash from operations } & \$ 60,000 \\\text { Cash for investing activities } & 250,000 \\\text { Cash from financing activities } & 175,000\end{array}$
If cash and cash equivalents at the beginning of the year were $18,500, the ending cash and cash equivalents are closest to:

A)$15,000)
B)$ 3,500
C)$153,500
D)$360,000

Question 70

Which of the following statements is true regarding a company's management of its debt?

A)Companies try to pay off all their debt as quickly as possible.
B)There is no maximum amount of debt a company can borrow.
C)A company will try to replace old debt with new debt to maintain an optimal level of debt.
D)The process of replacing old debt with new debt is called turnover.

Question 71

Given the following activities: $\begin{array}{lr}\text { Payment of cash dividends to shareholders } & \$ 75,000 \\\text { Payment of interest on debt } & 35,000 \\\text { Purchase of machinery } & 175,000 \\\text { Payment on mortgage payable } & 200,000 \\\text { Payment to suppliers } & 65,000 \\\text { Purchase of short-term marketable securities } & 15,000\end{array}$
The cash outflows for investing and financing activities were:

A)Investing $175,000; financing $310,000
B)Investing $190,000; financing $275,000
C)Investing $190,000; financing $310,000
D)Investing $175,000; financing $275,000

Question 72

Colin Corp.had the following activity during 2011: $$\begin{array} { l r } \text { Payment of long-term note payable } & \$ 375,000 \\\text { Interest paid on debt } & 67,200 \\\text { Proceeds from sale of common shares } & 500,000 \\\text { Dividends received on investments } & 15,000\end{array}$$
What was the cash flow from financing activities?

A)$57,800
B)$72,800
C)$125,000
D)$140,000

Question 73

A company wants to maintain its current debt\equity ratio.Which of the following relationships would most likely occur on the cash flow statement?

A)Cash from operations would be equal to any debt paid off during the year.
B)Cash from operations would be equal to cash from financing activities for the year.
C)New borrowings would replace any debt paid off.
D)New borrowings would be less than cash from operations for the year.

Question 74

What would be the cash inflows from investing and financing activities given the following data if the cash flow statement was prepared using GAAP? $$\begin{array} { l r } \text { Proceeds from issuance of preferred shares } & \$ 80,000 \\\text { Interest received on investments } & 8,000 \\\text { Proceeds from sale of equipment } & 89,000 \\\text { Proceeds from issuance of bonds } & 300,000 \\\text { Dividends received on investments } & 3,000 \\\text { Proceeds from sale of investments } & 43,000 \\\text { Gain on the sale of a temporary investment } & 4,000\end{array}$$

A)Investing $132,000; financing $380,000
B)Investing $135,000; financing $391,000
C)Investing $143,000; financing $380,000
D)Investing $148,000; financing $391,000

Question 75

When a company replaces old debt with new debt, this is known as:

A)restructuring
B)refinancing
C)re-evaluating
D)re-investing

Question 76

Use the following information to answer questions
Crocker Co.had the following activity during 2011: $\begin{array}{lr}\text { Proceeds from sale of bonds payable } & \$ 200,000 \\\text { Loss of disposal of equipment } & \\\text { (\$0 proceeds from disposal) } & 18,000 \\\text { Dividends paid to shareholders } & 25,000 \\\text { Sale of shares } & 125,000 \\\text { Gain on the sale of short term investments } & 75,000\end{array}$

-What was the cash flow from financing activities?

A)$300,000
B)$292,000
C)$325,000
D)$275,000

Question 77

Which of the following would be considered a continuing source of cash?

A)Cash from issuing common shares
B)Cash from refinancing debt
C)Cash from reducing cash and cash equivalents
D)Cash from operations

Question 78

Junior Co.had the following activity during 2011: Net Income $\$ 50,000$
Cash Receipts from customers $\$ 1,750,000$
Cash Payments to suppliers $\$ 1,050,000$
Amortization Expense $\$ 35,000$
Cash Payments for operations $\$ 640,000$
What was the cash flow from operating activities?

A)$ 25,000
B)$ 50,000
C)$ 60,000
D)$ 95,000

Question 79

Use the following information to answer questions
Crocker Co.had the following activity during 2011: $\begin{array}{lr}\text { Proceeds from sale of bonds payable } & \$ 200,000 \\\text { Loss of disposal of equipment } & \\\text { (\$0 proceeds from disposal) } & 18,000 \\\text { Dividends paid to shareholders } & 25,000 \\\text { Sale of shares } & 125,000 \\\text { Gain on the sale of short term investments } & 75,000\end{array}$

-What was the cash flow from investing activities?

A)$ 57,000
B)$ 75,000
C)$ 93,000
D)$ - 0 -

Question 80

Cash from operations is negatively impacted by all of the following, except:

A)increasing inventory
B)increasing accounts receivable
C)decreasing accounts payable
D)increasing accounts payable