Deck 5: Revenue Recognition and the Statement of Income

Question 1

The Statement of Cash Flows and Statement of Income are both important measurements of long term profitability.

Answer 1

False

Question 2

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

Answer 2

False

Question 3

The Statement of Income reflects the lead/lag relationships in cash flows.

Answer 3

False

Question 4

All companies must present operating activities first on the statement of cash flows.

Question 5

Non-cash expenses will reduce the amount of cash a company is able to generate from its operations.

Question 6

Accounting standard setters have established three acceptable methods for preparing a Statement of Cash Flows.

Question 7

A positive cash flow from operating activities indicates that a company's financing activities are generating more cash than required for operations.

Question 8

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

Question 9

The Statement of Cash Flows and the Statement of Income both measure a company's performance.

Question 10

If a company has used a line of credit, then the amount of the borrowing can be considered "positive cash".

Question 11

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

Question 12

The Statement of Cash Flows provides a perspective of an organization's performance by highlighting the results in the net change in its cash position during the year.

Question 13

A company can only analyze its operations properly provided it has all detailed financial statements.

Question 14

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

Question 15

The direct method is also known as the reconciliation method.

Question 16

The most common type of non-cash item is depreciation expense.

Question 17

Cash from operating activities will be the same using either the direct or indirect method to prepare the Statement of Cash Flows.

Question 18

Cash position takes into consideration cash and cash equivalents.

Question 19

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

Question 20

The components of a Statement of Cash Flows are investing, financing, and operating activities.

Question 21

A large increase in accounts receivable may indicate that a company is having difficulties collecting its receivables.

Question 22

The information presented on the statement of cash flows enables users to

A) assess the company's ability to generate cash flows from its core operations.
B) evaluate the cash flows the company has been able to obtain from investors and creditors.
C) Assess the extent to which the company has invested cash to replace or add revenue-generating capital assets.
D) all of the above

Question 23

Investing activities typically involve accounts classified as

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

Question 24

All of the following statements are true, EXCEPT

A) to analyze operations properly you need both the Statement of Income and the Statement of Cash Flows.
B) in the long run total profits and net cash flows will be very similar.
C) the Statement of Cash Flows considers events that the Statement of Income does not.
D) the Statement of Cash Flows and the Statement of Income both cover the period of a year because profits and cash flows are very similar over the period of a year.

Question 25

Inadequate financing is the major reason new business start-ups experience cash shortages.

Question 26

Free cash flow is a commonly used measure in the management discussion and analysis section of annual reports.

Question 27

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

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

Question 28

A large increase in accounts payable indicates that a company is paying its suppliers on time.

Question 29

Which of the following would cause an 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 30

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 depreciation expense

Question 31

Operating activities typically involve 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 32

Financing activities typically involve 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 33

The cash-to-cash cycle is the time between when a company pays out cash to purchase goods until those goods are ultimately paid for by the supplier.

Question 34

Information on a company's cash flows is used for all of the following, EXCEPT

A) assess the company's ability to repay debt in the future.
B) evaluate the potential for the company to be able to pay dividends in the future.
C) evaluate the past performance of a company.
D) estimate the company's future cash requirements.

Question 35

One way to solve cash flow challenges is to slow down the sales growth rate.

Question 36

The cash flows to total liabilities ratio is used to assess company's ability to meet its liability through its operating cash flows.

Question 37

A banker contemplating a loan to a company should focus on which section(s) of the Statement of Cash Flows 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 38

The Statement of ___ is for shareholders to assess company profitability.

A) Cash Flows
B) Shareholders' Equity
C) Financial Position
D) Income

Question 39

Capitalization refers to the long term assets on the Statement of Financial Position.

Question 40

A negative net free cash flow is considered to be a good thing.

Question 41

Cash equivalents includes everything, EXCEPT

A) demand deposits.
B) money market funds.
C) short term bank loan.
D) lines of credit.

Question 42

On the Statement of Cash Flows, 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 43

Which of the following is a deduction from net income when using the indirect approach to prepare the cash from operating activities of the Statement of Cash Flows?

A) increase in accounts payable
B) decrease in prepaid expenses
C) loss on sale of investments
D) depreciation expense

Question 44

The direct method of Statement of Cash Flows preparation is

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

Question 45

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) bank overdraft.
B) demand loan.
C) long-term loan.
D) term deposit.

Question 46

Crump Ltd. reported the following for 2015: Using the indirect method, the net cash flow is

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

Question 47

Which of the following would be added to net income when using the indirect approach to prepare the cash from operating activities of the Statement of Cash Flows?

A) increase in inventory
B) gain on sale of investments
C) increase in dividends payable
D) decrease in accounts receivable

Question 48

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 Statement of Cash Flows?

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

Question 49

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 50

Under the indirect approach, in preparing the cash from operations section of the Statement of Cash Flows, depreciation 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 51

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

A) as an Net change 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 52

The direct approach differs from the indirect approach with regard to preparing which section of the Statement of Cash Flows?

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

Question 53

Obtaining resources for the corporation from investors or debt-holders and the return of resources to shareholders and debt-holders is considered part of which of these activities on the Statement of Cash Flows?

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

Question 54

Babin Co. reported the following for 2015: Using the indirect method, the net cash flow from operating activities was

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

Question 55

Which of the following would be an example of an investing activity on the Statement of Cash Flows?

A) purchase of capital assets
B) sale of preferred shares
C) repurchase of shares issued
D) dividends paid to shareholders

Question 56

Which of the following would be an example of a financing activity on the Statement of Cash Flows?

A) payment of interest on debt
B) payment of a dividend
C) receipt of interest on investments
D) sale of equipment

Question 57

Which of the following is NOT normally disclosed as supplementary information on the Statement of Cash Flows?

A) cash paid for dividends during the year
B) depreciation expense for the year
C) income taxes paid during the year
D) cash paid for interest during the year

Question 58

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

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

Question 59

Which of the following would be an example of an investing activity on the Statement of Cash Flows?

A) issuance of bonds payable
B) purchase of bonds payable
C) sale of common shares
D) receipt of dividend income from investments

Question 60

How should a gain on the sale of equipment be reflected in the operating section of the Statement of Cash Flows 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 61

Blasik Corp. books revealed the following for the current year: What was the net cash flow from operating activities for the year?

A) cash flow from (inflow) $8,000
B) cash flow from (inflow) $0
C) cash flow used (outflow) $2,000
D) cash flow used (outflow) $4,000

Question 62

Staffen Co. reported a cash position of $35,000 and as of December 31, after its first year of operations. Staffen also reported the following: How much cash was provided through Staffen's financing activities?

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

Question 63

Alder Corp. had the following activity during 2015: What was the cash flow from financing activities?

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

Question 64

Folio Co. had the following activity during 2015: What was the cash flow from investing activities?

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

Question 65

Determine the cash inflows from investing and financing activities given the following data:

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 66

Perth Company had reported the following items: 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 67

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 68

Hawthorne Co. had the following activity during 2015: What was the cash flow from operating activities?

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

Question 69

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 70

Patricio Co. reported $10,000 cash used in the operating activities section of the Statement of Cash Flows and the following data: depreciation 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. Patricio 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 71

Paltrow Co. reported $26,000 of cash from operating activities and the following data: Paltrow'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 72

Use the following information to answer questions 72-73.
Kingsway Co. had the following activity during 2015:
What was the cash flow from financing activities?

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

Question 73

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 74

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 75

Use the following information to answer questions 72-73.
Kingsway Co. had the following activity during 2015:
What was the cash flow from investing activities?

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

Question 76

Use the following information to answer questions 69-70.
Klaus' Ltd had the following activity during 2015:
What was the cash flow from investing activities?

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

Question 77

Leduc 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 depreciation 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 78

Use the following information to answer questions 69-70.
Klaus' Ltd had the following activity during 2015:
What was the cash flow from financing activities?

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

Question 79

Given the following activities: 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 80

If a company reported net income for the year of $160,000, cash from operating activities of $105,000, cash flows 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