Deck 4: Statement of Cash Flows

Question 1

The statement of cash flows shows the changes in the income statement accounts between periods.

Answer 1

False

Question 2

The statement of cash flows is helpful in determining the capacity of a firm to meet obligations for cash.

Answer 2

True

Question 3

Cash flows from operating activities represent cash generated internally, while
Cash flows from investing and financing activities provide cash from external sources.

Answer 3

True

Question 4

Cash flow from operations is especially important for those firms that are heavily invested in inventories and use accounts receivables and accounts payables as a major part of business operations.

Question 5

Gains and losses from asset sales are considered an operating activity.

Question 6

Cash from sales of property, plant and equipment and cash collections from loans to others are examples of investing cash flows.

Question 7

Proceeds from borrowing and issuing the firm's own equity securities are examples of financing cash inflows.

Question 8

Temporary shortfalls of cash can be satisfied by borrowing or other means, such as selling long-lived assets, but ultimately a company must generate cash from operations.

Question 9

An increase in accounts receivable means the firm has collected cash from customers.

Question 10

The four parts of a cash flow statement are cash, operating activities, profit activities, and financing activities.

Question 11

The change in retained earnings is often the product of both an operating and a financing activity.

Question 12

A decrease in an asset account constitutes a cash outflow on the cash flow statement.

Question 13

An increase in accounts payable means the firm has not yet paid their suppliers.

Question 14

An increase in cash is equal to net cash provided by operating activities plus net cash provided by financing activities minus net cash provided by investing activities.

Question 15

While creditors rely heavily on cash flow information, investors do not need to be concerned with cash flows and can rely exclusively on earnings.

Question 16

Depreciation and amortization expense are added back to net income because they represent the recognition of a cash expense.

Question 17

Payments for purchases of inventory, operating expenses, and interest are all classified as operating activities on the statement of cash flows.

Question 18

An increase in an asset account or decrease in a liability or equity account is a cash outflow.

Question 19

Using the indirect method to prepare a statement of cash flows requires converting net income to cash flow from operating activities.

Question 20

It is possible for a company to post a healthy net income but still not have the cash needed to pay its employees, suppliers, and creditors.

Question 21

The summary analysis of the statement of cash flows categorizes yearly cash flows as inflows or outflows.

Question 22

What is cash from financing activities for Casey Company?

A) $75
B) $125
C) ($125)
D) $55

Question 23

In theory, firms should only pay dividends if the company has excess cash not needed for expansion, capital expenditures, or repayment of debt.

Question 24

Which item may be of concern when analyzing cash flow from operating activities?

A) Increasing inventories.
B) Decreasing accounts receivable.
C) Repayment of debt.
D) Payments of dividends.

Question 25

Which of the following could be indicative of cash flow problems or a result of an expansion?

A) Increasing accounts receivable and decreasing inventories.
B) Increasing accounts receivable and increasing inventories.
C) Decreasing accounts receivable and increasing inventories.
D) Decreasing accounts receivable and decreasing inventories.
Short Answer/Problem

Question 26

Generating cash from investing activities is the preferred method for obtaining excess cash.

Question 27

Which of the following is not true with regard to the preparation of a cash flow statement?

A) Cash flows are categorized by operating, investing, and financing activities.
B) The changes in all income statement accounts are calculated and then listed as cash inflows or outflows.
C) The direct method or the indirect method may be used to prepare the statement of cash flows.
D) The changes in all of the balance sheet accounts are calculated and then listed as inflows or outflows, except for cash.

Question 28

The following items would be classified as investing activities on the statement of cash flows:

A) Proceeds from borrowing, payment of dividends, receipt of dividends.
B) Sale of goods, receipt of dividends, repurchase of firm's own stock.
C) Sale of property, purchase of equity securities, loans to others.
D) Payment to lenders, proceeds from issuing common stock, revenue.

Question 29

Which of the following items are included in the adjustments to net income to obtain cash flow from operating activities?

A) Payment of dividends and depreciation expense.
B) The change in accounts receivable and the acquisition of land.
C) The gain from an asset sale and the payment of dividends.
D) The change in inventory and depreciation expense.

Question 30

Why is the statement of cash flows useful to the analyst?

A) It is the only source in financial statements for learning about cash generation.
B) Focusing on net income can be misleading if a company has a healthy profit, but cannot translate the profit into cash.
C) The statement of cash flows reveals why a company was able to generate a profit.
D) Both (a) and (b).

Question 31

The following items would be classified as operating activities on the statement of cash flows:

A) Payments for inventory, payments for salaries, cash received from sale of goods.
B) Acquisitions of equipment, payment of dividends, revenue.
C) Proceeds from borrowing, payments of dividends, purchases of supplies.
D) Payments on loans, payments for taxes, payments for rent.

Question 32

The preferred method to support expansion is to use external sources of cash.

Question 33

What is implied if the accounts payable account has decreased?

A) Cash flow from financing activities has decreased relative to net income.
B) Cash flow from operating activities has increased relative to net income.
C) Cash flow from operating activities has decreased relative to net income.
D) Cash flow from financing activities has increased relative to net income.

Question 34

It is best to use long-term debt to support increases in inventories and accounts receivable.

Question 35

What is cash from investing activities for Casey Company?

A) ($215)
B) $215
C) ($90)
D) $90

Question 36

What is the change in cash for Casey Company?

A) $85
B) $375
C) $125
D) $195

Question 37

What impact does depreciation have on the cash account?

A) Depreciation has no impact on the cash account.
B) Depreciation results in a decrease to cash.
C) Depreciation results in an increase to cash.
D) Depreciation only impacts the cash account if inflation has occurred.

Question 38

What is cash flow from operating activities for Casey Company?

A) $195
B) $310
C) $210
D) $290