Deck 17: Statement of Cash Flows

Question 1

All major financing and investing activities affect cash.

Answer 1

False

Question 2

Any item that appears on the income statement would be considered as either a cash inflow or cash outflow from operating activities.

Answer 2

False

Question 3

For external reporting, a company must prepare either an income statement or a statement of cash flows, but not both.

Answer 3

False

Question 4

In preparing a statement of cash flows, the issuance of debt should be reported separately from the retirement of debt.

Question 5

Cash equivalents are highly-liquid investments that have maturities of less than three months.

Question 6

The statement of cash flows is a required statement that must be prepared along with an income statement, balance sheet, and retained earnings statement.

Question 7

A primary objective of the statement of cash flows is to show the income or loss on investing and financing transactions.

Question 8

A statement of cash flows indicates the sources and uses of cash during a period.

Question 9

Noncash investing and financing activities must be reported in the body of a statement of cash flows.

Question 10

The acquisition of a building by issuing bonds would be considered an investing and financing activity that did not affect cash.

Question 11

Cash provided by operations is generally equal to operating income.

Question 12

The receipt of dividends from long-term investments in stock is classified as a cash inflow from investing activities.

Question 13

The payment of interest on bonds payable is classified as a cash outflow from operating activities.

Question 14

The sale of land for cash would be classified as a cash inflow from an investing activity.

Question 15

The use of cash to purchase highly liquid short-term investments (cash equivalents) would be reported on the statement of cash flows as an investing activity.

Question 16

Cash flow from investing activities is considered the most important category on the statement of cash flows because it is considered the best measure of expected income.

Question 17

Using the indirect method, an increase in accounts receivable during a period is deducted from net income in calculating cash provided by operations.

Question 18

The statement of cash flows classifies cash receipts and payments as operating, nonoperating, financial, and extraordinary activities.

Question 19

In preparing a statement of cash flows, cash equivalents are subtracted from cash in order to compute the net change in cash during a period.

Question 20

Using the indirect method, an increase in accounts payable during a period is deducted from net income in calculating cash provided by operations.

Question 21

Free cash flow equals cash provided by operations less capital expenditures and cash dividends.

Question 22

The statement of cash flows classifies cash receipts and cash payments into two categories: operating activities and nonoperating activities.

Question 23

The statement of cash flows should help investors and creditors assess each of the following except the

A) entity's ability to generate future income.
B) entity's ability to pay dividends.
C) reasons for the difference between net income and net cash provided by operating activities.
D) cash investing and financing transactions during the period.

Question 24

A loss on sale of equipment is added to net income in determining cash provided by operations under the indirect method.

Question 25

Operating expenses + an increase in prepaid expenses - a decrease in accrued expenses payable = cash payments for operating expenses.

Question 26

The use of a worksheet to prepare a statement of cash flows is optional.

Question 27

The adjusted trial balance is the only item needed to prepare the Statement of Cash Flows.

Question 28

The reconciling entry for depreciation expense in a worksheet is a credit to Accumulated Depreciation and a debit to Operating-Depreciation Expense.

Question 29

Which one of the following items is not generally used in preparing a statement of cash flows?

A) Adjusted trial balance
B) Comparative balance sheets
C) Current income statement
D) Additional information

Question 30

Financing activities include the obtaining of cash from issuing debt and repaying the amounts borrowed.

Question 31

During a period, cost of goods sold + an increase in inventory + an increase in accounts payable = cash paid to suppliers.

Question 32

Using the direct method, major classes of investing and financing activities are listed in the operating activities section.

Question 33

Cash provided by operating activities fails to take into account that a company must invest in new fixed assets just to maintain its current level of operations.

Question 34

During the year, Income Tax Expense amounted to $30,000 and Income Taxes Payable increased by $4,000; therefore, the cash paid for income taxes was $26,000.

Question 35

Under the direct method, the formula for computing cash collections from customers is sales revenues plus the increase in accounts receivable or minus the decrease in accounts receivable.

Question 36

Under the indirect method, retained earnings is adjusted for items that affected reported net income but did not affect cash.

Question 37

The statement of cash flows

A) must be prepared on a daily basis.
B) summarizes the operating, financing, and investing activities of an entity.
C) is another name for the income statement.
D) is a special section of the income statement.

Question 38

The primary purpose of the statement of cash flows is to

A) provide information about the investing and financing activities during a period.
B) prove that revenues exceed expenses if there is a net income.
C) provide information about the cash receipts and cash payments during a period.
D) facilitate banking relationships.

Question 39

In preparing net cash flow from operating activities using the direct method, each item in the income statement is adjusted from the accrual basis to the cash basis.

Question 40

In preparing a statement of cash flows, an increase in the Common Stock and Treasury Stock accounts during a period would be an investing activity.

Question 41

Cash equivalents are generally investments with maturities of

A) $1,000 or more.
B) three months or less.
C) at least six months.
D) one year or the operating cycle, whichever is less.

Question 42

Financing activities involve

A) lending money.
B) acquiring investments.
C) issuing debt.
D) acquiring long-lived assets.

Question 43

In addition to the three basic financial statements, which of the following is also a required financial statement?

A) the "Cash Budget"
B) the Statement of Cash Flows
C) the Statement of Cash Inflows and Outflows
D) the "Cash Reconciliation"

Question 44

Each of the following is an example of a significant noncash activity except

A) conversion of bonds into common stock.
B) exchanges of plant assets.
C) issuance of debt to purchase assets.
D) stock dividends.

Question 45

In preparing a statement of cash flows, a conversion of bonds into common stock will be reported in

A) the financing section.
B) the "extraordinary" section.
C) a separate schedule or note to the financial statements.
D) the stockholders' equity section.

Question 46

Investing activities include

A) collecting cash on loans made.
B) obtaining cash from creditors.
C) obtaining capital from owners.
D) repaying money previously borrowed.

Question 47

If a company reports a net loss, it

A) may still have a net increase in cash.
B) will not be able to pay cash dividends.
C) will not be able to get a loan.
D) will not be able to make capital expenditures.

Question 48

Cash equivalents do not include

A) short-term corporate notes.
B) treasury bills.
C) money market funds.
D) 2-year certificates of deposit.

Question 49

Which of the following transactions does not affect cash during a period?

A) Write-off of an uncollectible account
B) Collection of an accounts receivable
C) Sale of treasury stock
D) Exercise of the call option on bonds payable

Question 50

Cash receipts from interest and dividends are classified as

A) financing activities.
B) investing activities.
C) operating activities.
D) either financing or investing activities.

Question 51

The best measure of a company's ability to generate sufficient cash to continue as a going concern is net cash provided by

A) financing activities.
B) investing activities.
C) operating activities.
D) processing activities.

Question 52

The category that is generally considered to be the best measure of a company's ability to continue as a going concern is

A) cash flows from operating activities.
B) cash flows from investing activities.
C) cash flows from financing activities.
D) usually different from year to year.

Question 53

Generally, the most important category on the statement of cash flows is cash flows from

A) operating activities.
B) investing activities.
C) financing activities.
D) significant noncash activities.

Question 54

The acquisition of land by issuing common stock is

A) a noncash transaction which is not reported in the body of a statement of cash flows.
B) a cash transaction and would be reported in the body of a statement of cash flows.
C) a noncash transaction and would be reported in the body of a statement of cash flows.
D) only reported if the statement of cash flows is prepared using the direct method.

Question 55

The statement of cash flows will not report the

A) amount of checks outstanding at the end of the period.
B) sources of cash in the current period.
C) uses of cash in the current period.
D) change in the cash balance for the current period.

Question 56

Significant noncash transactions would not include

A) conversion of bonds into common stock.
B) asset acquisition through bond issuance.
C) treasury stock acquisition.
D) exchange of plant assets.

Question 57

The order of presentation of activities on the statement of cash flows is

A) operating, investing, and financing.
B) operating, financing, and investing.
C) financing, operating, and investing.
D) financing, investing, and operating.

Question 58

If a company has both an inflow and outflow of cash related to property, plant, and equipment, the

A) two cash effects can be netted and presented as one item in the investing activities section.
B) cash inflow and cash outflow should be reported separately in the investing activities section.
C) two cash effects can be netted and presented as one item in the financing activities section.
D) cash inflow and cash outflow should be reported separately in the financing activities section.

Question 59

Of the items below, the one that appears first on the statement of cash flows is

A) noncash investing and financing activities.
B) net increase (decrease) in cash.
C) cash at the end of the period.
D) cash at the beginning of the period.

Question 60

Which of the following characteristics does not apply to cash equivalents?

A) Short-term
B) Highly-liquid
C) Readily convertible into cash
D) Sensitive to interest rate changes

Question 61

Which one of the following items is not necessary in preparing a statement of cash flows?

A) Determine the change in cash
B) Determine the cash provided by operations
C) Determine cash from financing and investing activities
D) Determine the cash in all bank accounts

Question 62

In Gentry Company, land decreased $140,000 because of a cash sale for $140,000, the equipment account increased $40,000 as a result of a cash purchase, and Bonds Payable increased $130,000 from issuance for cash at face value. The net cash provided by investing activities is

A) $140,000.
B) $230,000.
C) $100,000.
D) $110,000.

Question 63

Miller Company purchased treasury stock with a cost of $15,000 during 2010. During the year, the company paid dividends of $20,000 and issued bonds payable for proceeds of $866,000. Cash flows from financing activities for 2010 total

A) $846,000 net cash inflow.
B) $861,000 net cash inflow.
C) $866,000 net cash outflow.
D) $831,000 net cash inflow.

Question 64

Joy Elle's Vegetable Market had the following transactions during 2010:
1) Issued $50,000 of par value common stock for cash.
2) Repaid a 6 year note payable in the amount of $22,000.
3) Acquired land by issuing common stock of par value $100,000.
4) Declared and paid a cash dividend of $2,000.
5) Sold a long-term investment (cost $63,000) for cash of $6,000.
6) Acquired an investment in IBM stock for cash of $12,000.
What is the net cash provided by investing activities?

A) $12,000
B) $32,000
C) ($6,000)
D) $6,000

Question 65

Buster Company reported a net loss of $6,000 for the year ended December 31, 2010. During the year, accounts receivable increased $14,000, merchandise inventory decreased $10,000, accounts payable decreased by $20,000, and depreciation expense of $10,000 was recorded. During 2010, operating activities

A) used net cash of $20,000.
B) used net cash of $28,000.
C) provided net cash of $28,000.
D) provided net cash of $18,000.

Question 66

Indicate where the event paid income taxes would appear, if at all, on the statement of cash flows.

A) Operating activities section
B) Investing activities section
C) Financing activities section
D) Does not represent a cash flow

Question 67

Indicate where the event purchased land and a building with a mortgage would appear, if at all, on the indirect statement of cash flows.

A) Operating activities section
B) Investing activities section
C) Financing activities section
D) Does not represent a cash flow

Question 68

Cline Company issued common stock for proceeds of $372,000 during 2010. The company paid dividends of $66,000 and issued a long-term note payable for $90,000 in exchange for equipment during the year. The company also purchased treasury stock that had a cost of $14,000. The financing section of the statement of cash flows will report net cash inflows of

A) $292,000.
B) $404,000.
C) $306,000.
D) $358,000.

Question 69

Indicate where the event purchased land for cash would appear, if at all, on the indirect statement of cash flows.

A) Operating activities section
B) Investing activities section
C) Financing activities section
D) Does not represent a cash flow

Question 70

If a loss of $20,000 is incurred in selling (for cash) office equipment having a book value of $80,000, the total amount reported in the cash flows from investing activities section of the statement of cash flows is

A) $60,000.
B) $80,000.
C) $100,000.
D) $20,000.

Question 71

Accounts receivable arising from sales to customers amounted to $35,000 and $40,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $150,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is

A) $150,000.
B) $155,000.
C) $185,000.
D) $145,000.

Question 72

Indicate where the event common stock issued for cash would appear, if at all, on the indirect statement of cash flows.

A) Operating activities section
B) Investing activities section
C) Financing activities section
D) Does not represent a cash flow

Question 73

The net income reported on the income statement for the current year was $240,000. Depreciation was $50,000. Account receivable and inventories decreased by $10,000 and $30,000, respectively. Prepaid expenses and accounts payable increased, respectively, by $1,000 and $8,000. How much cash was provided by operating activities?

A) $301,000
B) $337,000
C) $321,000
D) $329,000

Question 74

Joy Elle's Vegetable Market had the following transactions during 2010:
1) Issued $50,000 of par value common stock for cash.
2) Repaid a 6 year note payable in the amount of $22,000.
3) Acquired land by issuing common stock of par value $100,000.
4) Declared and paid a cash dividend of $2,000.
5) Sold a long-term investment (cost $63,000) for cash of $6,000.
6) Acquired an investment in IBM stock for cash of $12,000.
What is the net cash provided by financing activities?

A) $26,000
B) $50,000
C) $28,000
D) $18,000

Question 75

The net income reported on the income statement for the current year was $225,000. Depreciation recorded on plant assets was $38,000. Accounts receivable and inventories increased by $2,000 and $8,000, respectively. Prepaid expenses and accounts payable decreased by $1,000 and $11,000 respectively. How much cash was provided by operating activities?

A) $205,000
B) $243,000
C) $225,000
D) $259,000

Question 76

Harbor Company reported net income of $90,000 for the year ended December 31, 2010. During the year, inventories decreased by $12,000, accounts payable decreased by $18,000, depreciation expense was $20,000 and a gain on disposal of equipment of $9,000 was recorded. Net cash provided by operating activities in 2010 using the indirect method was

A) $149,000.
B) $95,000.
C) $107,000.
D) $85,000.

Question 77

If a gain of $15,000 is incurred in selling (for cash) office equipment having a book value of $100,000, the total amount reported in the cash flows from investing activities section of the statement of cash flows is

A) $95,000.
B) $115,000.
C) $100,000.
D) $15,000.

Question 78

Wilton Company reported net income of $50,000 for the year. During the year, accounts receivable decreased by $7,000, accounts payable increased by $3,000 and depreciation expense of $5,000 was recorded. Net cash provided by operating activities for the year is

A) $40,000.
B) $65,000.
C) $49,000.
D) $45,000.

Question 79

The third (final) step in preparing the statement of cash flows is to

A) analyze changes in noncurrent asset and liability accounts.
B) compare the net change in cash with the change in the cash account reported on the balance sheet.
C) determine net cash provided by operating activities.
D) list the noncash activities.

Question 80

Accounts receivable arising from sales to customers amounted to $80,000 and $70,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $280,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is

A) $280,000.
B) $290,000.
C) $350,000.
D) $270,000.