Deck 16: Reporting and Analyzing Cash Flows

Question 1

The purpose of the statement of cash flows is to report the major items comprising cash receipts and cash payments during a period.

Answer 1

True

Question 2

A purchase of land in exchange for shares is disclosed in a separate schedule attached to the statement of cash flows or in a note to the statement.

Answer 2

True

Question 3

Cash dividends and interest received can only be considered cash inflows from investing activities.

Answer 3

False

Question 4

The statement of cash flows only measures outflows of cash during a period.

Question 5

Conversion of preferred shares to common shares is disclosed in the financing section of the statement of cash flows.

Question 6

Decisions on whether a company can pay its existing debts as they mature can be evaluated by looking at the company's statement of cash flows.

Question 7

Investments must be within 6 months of their maturity dates to be classified as cash equivalents.

Question 8

Many business decisions are based on cash flow evaluations.

Question 9

The statement of cash flows helps financial statement users evaluate a company's earnings performance at a point in time.

Question 10

On the statement of cash flows, business operations are classified as operating, investing, or financing activities.

Question 11

The statement of cash flows explains the difference between the beginning and ending balances of cash and cash equivalents.

Question 12

Under IFRS, the payment of cash dividends to shareholders can be classified as either a financing activity or operating activity.

Question 13

Noncash financing activities are disclosed in a note in the financing section of the statement of cash flows.

Question 14

Cash outflows to repurchase shares is an example of a cash flow from a financing activity.

Question 15

Burton purchased equipment for $150,000 by paying $50,000 and signing a $100,000note payable. The entire transaction is disclosed to users on the statement of cash flows.

Question 16

Bank overdrafts repayable on demand may be included in the cash and cash equivalent balance.

Question 17

Internal users of the statement of cash flows use cash flow information to plan day-to-day operating activities and make non-current investments.

Question 18

Financing activities include a) the purchase and sale of non-current assets, b) the purchase and sale of trading investments, and c) lending and collecting on loans.

Question 19

A noncash purchase of land is reported in the investing section of the statement of cash flows as a separate line item.

Question 20

The full disclosure principle requires that noncash investing and financing activities be disclosed in a separate schedule attached to the statement of cash flows, or in theaccompanying notes.

Question 21

Under the indirect method, an increase in income taxes payable is added to net income when preparing the operating section of the statement of cash flows.

Question 22

Information to prepare the statement of cash flows usually comes from a) comparative balance sheets, b) current income statements, and c) additional information.

Question 23

The indirect method for preparation of the statement of cash flows calculates the net cash inflows outflows) from operating activities by adjusting accrual net income to a cash basis.

Question 24

The increase or decrease in cash equals the current period's cash balance minus the prior period's cash balance.

Question 25

The direct method calculates the net cash inflows outflows) from operating activities by adjusting accrual net income to a cash basis.

Question 26

Both the direct and indirect methods yield the same net cash flow provided used) by investing activities.

Question 27

Under the indirect method, a decrease in accounts payable will be added to net income.

Question 28

Under the direct method, the gain or loss from retirement of debt is reported in the operating section of the statement of cash flows.

Question 29

The direct method of preparing the statement of cash flows separately lists each major item of operating cash receipts and each major item of operating cash payments.

Question 30

Bad debts expense is an item that does not provide or use cash.

Question 31

Under the indirect method, depreciation expense is subtracted from net income.

Question 32

A noncash investing transaction should be disclosed as a note to the statement of cash flows.

Question 33

Firms have the option of using either the direct or indirect method to prepare the statement of cash flows.

Question 34

The direct method is required by IFRS because it provides greater detail regarding operating cash flows.

Question 35

Accounting standards require companies to include a statement of cash flows in a complete set of financial statements.

Question 36

The proceeds from the disposal of property, plant and equipment are reported on the statement of cash flows as cash used by investing activities.

Question 37

Under the indirect method, decreases in non-cash current assets are added to net income.

Question 38

The statement of cash flows explains how transactions and events impact the end-of-period cash balance to produce the end-of-period cash balance.

Question 39

If accounts receivable have a positive effect on cash flow that is because accounts receivable increased during the year.

Question 40

Most acquisitions of property, plant and equipment are reported on the statement of cash flows as cash used by investing activities.

Question 41

Financing activities include receiving dividends from investments in other companies.

Question 42

Investing activities include: a) the purchase and sale of non-current assets, b) lending and collecting on notes receivable, c) the purchase and sale of investments other than cash equivalents.

Question 43

Financing activities include receiving cash from issuing debt and receiving dividends from investments in other corporations.

Question 44

Under the indirect method, noncash operating expenses are added back to net income when preparing the investing section of the statement of cash flows.

Question 45

A machine with a cost of $190,000 and accumulated depreciation of $95,000 was sold for $50,000 cash. The amount that should be reported as a source of cash under cashflows from investing activities is:

A) $80,000.
B) $50,000.
C) $120,000.
D) $45,000.
E) $35,000.

Question 46

Genesis reported that bonds with a face value of $100,000 and a carrying value of$67,000 are retired for $60,000 cash, resulting in a loss of $7,000. The amount to be reported in the financing section is:

A) $57,000.
B) $3,000).
C) $58,000.
D) $60,000.
E) This item is not reported.

Question 47

Deena Inc. reported $32,000 of cash provided by operating activities and the following data:

A) $36,000 loss
B) $30,000 profit
C) $18,000 loss
D) $20,000 loss

Question 48

Received a settlement on a lawsuit.A - Operating activities. B - Investing activities. C - Financing activities.D - Schedule of noncash financing and investing activities. E - Not reported on the statement of cash flows.

A) 1 = C; 2 = B; 3 = A; 4 = B; 5 = A.
B) 1 = D; 2 = A; 3 = A; 4 = B; 5 = E.
C) 1 = D; 2 = A; 3 = B; 4 = C; 5 = A.
D) 1 = B; 2 = A; 3 = C; 4 = B; 5 = E.
E) 1 = C; 2 = C; 3 = B; 4 = C; 5 = E.

Question 49

A transfer from retained earnings to common shares in a share dividend transaction should be reported in the statement of cash flows as:

A) A note or separate schedule.
B) An investing activity.
C) A financing activity.
D) An operating activity.
E) Should not be reported in the statement of cash flows.

Question 50

The statement of cash flows is:

A) A financial statement that lists the types and amounts of assets, liabilities, and equity of a business on a specific date.
B) A financial statement that reports the cash inflows and outflows for an accounting period.
C) A financial statement that presents information about what happened to equity during a period.
D) Another name for the statement of financial position.
E) A financial statement that lists the types and amounts of the revenues and expenses of a business.

Question 51

Use the indirect method to calculate the net cash provided or used) by operating activities based on the following information:

A) $58,000.
B) $45,700.
C) $43,200.
D) $35,000.
E) $50,000.

Question 52

The Merchandise Inventory for Year 1 was $100,000 and for Year 2 was $94,000. The Accounts Payable account for Year 1 was $40,000 and for Year 2 was $42,000. Cost of goods sold for Year 2 was $460,000. What was the total amount for cash payments for merchandise for Year 2?

A) $452,000.
B) $456,000.
C) $448,000.
D) $84,000.
E) $449,000.

Question 53

Amy Corporation's income statement showed the following: net income, $72,000;depreciation expense, $8,000; and gain on sale of plant assets, $6,000. An examination of the company's current assets and current liabilities showed the following changes as a result of operating activities: accounts receivable decreased $5,700; merchandiseinventory increased $8,000; prepaid expenses decreased $2,100; accounts payable increased $1,700. Calculate the net cash provided or used) by operating activities.

A) $71,800.
B) $75,500.
C) $82,500.
D) $68,800.
E) $66,500.

Question 54

A change in retained earnings can be due to payment of cash dividends.

Question 55

Reporting of financing activities is the same under both the direct and the indirect methods.

Question 56

The sale of equipment increases investing cash flows.

Question 57

Use the information provided about the current year operations of Upper Down Company to calculate cash paid for merchandise.

A) $111,600.
B) $112,900.
C) $112,800.
D) $111,200.
E) $110,800.

Question 58

Reconstruction analysis is used to identify the types of purchases and disposals of property, plant and equipment by reproducing the entries that occurred in the year.

Question 59

The three-step process in determining net cash inflows outflows) from investing activities are: 1) identify changes in investing-related accounts; 2) explain these changes using reconstruction analysis; 3) report cash flow effects.

Question 60

Equipment costing $100,000 with accumulated depreciation of $40,000 is sold at a loss of $10,000. The cash received from the sale was $40,000.

Question 61

The accounting principle which requires that noncash financing and investing activities are reported on the statement of cash flows is the principle of:

A) Materiality.
B) Going concern.
C) Historical cost.
D) Full disclosure.
E) Business entity.

Question 62

Which of the following is included in cash flows from financing activities?

A) Sale of equipment.
B) Purchase of treasury shares.
C) Interest revenue.
D) Interest expense.
E) Purchase of shares in another company.

Question 63

A calculation of the net cash provided or used by operating activities that lists the major classes of operating cash receipts, such as receipts from customers, and subtracts themajor classes of operating cash disbursements, such as cash paid for merchandise, is the:

A) Direct method of calculating net cash provided or used) by operating activities.
B) Cash basis of accounting.
C) Indirect method of calculating net cash provided or used) by operating activities.
D) Classified statement of cash flows.
E) Net method of recording cash flows from operating activities.

Question 64

Using the indirect method to calculate net cash provided or used) by operating activities, which of the following is subtracted from net income?

A) Decrease in income taxes payable.
B) Bad debts expense.
C) Amortization of intangible assets.
D) Depreciation expense.
E) None of these answers is correct.

Question 65

When using the direct method, which of the following should be reported as a source of cash from operating activities?

A) Sale of treasury shares.
B) Collections from customers.
C) Credit sales.
D) Depreciation expense.
E) Sale of a building.

Question 66

Preparation of the statement of cash flows involves:

A) Calculation and reporting of net cash provided or used by investing activities.
B) Calculation and reporting of net cash provided or used by operating activities.
C) Calculation and reporting of net cash provided or used by financing activities.
D) Calculation of the net increase or decrease in cash.
E) All of these answers are correct.

Question 67

Dispositions of non-current assets:

A) Are investing activities.
B) Are investing activities and can involve cash inflows.
C) Can involve cash inflows.
D) Have no impact on cash flows.
E) Have no impact on cash flows and are investing activities.

Question 68

A loss on the disposal of a non-current asset:

A) Involves cash inflows.
B) Involves cash outflows.
C) Does not reflect any cash flow and is the result of an investing activity.
D) Does not reflect any cash flow.
E) Is the result of an investing activity.

Question 69

The first item reported in the operating activities section for a statement of cash flows prepared according to the indirect method is:

A) Cash.
B) Net income.
C) Increase decrease) in accounts receivable.
D) Cash received from customers.
E) Adjustments to net income.

Question 70

Activities that involve the production or purchase of merchandise and the sale of goods and services to customers, including expenditures related to administering the business are:

A) Investing activities.
B) Operating activities.
C) Direct activities.
D) Financing activities.
E) Indirect activities.

Question 71

The indirect method for preparation of the operating activities section of the statement of cash flows involves adjustments:

A) For income statement items involving operating activities that do not affect cash inflows or outflows.
B) For income statement items involving operating activities that do not affect cash inflows or outflows and for changes in noncash current assets and current liabilities.
C) To eliminate gains and losses resulting from investing and financing activities.
D) For changes in noncash current assets and current liabilities.
E) All of these answers are correct.

Question 72

Which of the following items is reported in the body of the statement of cash flows?

A) Declaration of a share dividend.
B) Share split.
C) Distribution of a share dividend.
D) Declaration of a cash dividend.
E) Payment of a cash dividend.

Question 73

If a company borrows money from a bank, the interest paid should be reported on the statement of cash flows as an):

A) Financing activity.
B) Operating activity.
C) Investing activity.
D) Noncash investing and financing activity.
E) Cannot be determined from the information given.

Question 74

Changes in notes payable, non-current liabilities, and equity accounts are usually used in calculating and reporting:

A) Non-cash balance sheet accounts.
B) Cash flows from investing activities.
C) Non-cash financing activities.
D) Cash flows from financing activities.
E) Cash flows from operating activities.

Question 75

A statement of cash flows should reconcile the differences between the beginning and ending balances of:

A) Working capital.
B) Cash.
C) Cash equivalents.
D) Cash and cash equivalents.
E) Cash, cash equivalents, and non-current investments.

Question 76

In each of the following cases, use the information provided about the current year operations of Lora Company to calculate the indicated cash flow item.

A) Case A = $14,500; Case B = $81,900.
B) Case A = $14,900; Case B = $84,000.
C) Case A = $15,300; Case B = $86,100.
D) Case A = $15,300; Case B = $81,900.
E) Case A = $14,500; Case B = $86,100.

Question 77

Using the indirect method to calculate the net cash provided or used) by operating activities, net income is adjusted for:

A) Gains and losses from investing and financing activities and revenues and expenses that did not provide or use cash.
B) Changes in noncash current assets and current liabilities related to operating activities.
C) Gains and losses from investing and financing activities.
D) Revenues and expenses that did not provide or use cash.
E) All of these answers are correct.

Question 78

A gain on the disposal of a non-current asset:

A) Involves cash inflows.
B) Is the result of an investing activity.
C) Does not reflect any cash flow.
D) Does not reflect any cash flow and is the result of an investing activity.
E) Involves cash outflows.

Question 79

Non-cash investing and financing activities may be disclosed:

A) In the investing section of the statement of cash flows.
B) In a separate schedule attached to the bottom of the statement of cash flows.
C) In the financing section of the statement of cash flows.
D) In a note to the statement of cash flows.
E) In a note to the statement of cash flows or in a separate schedule attached to the bottom of the statement of cash flows.

Question 80

Acquisitions of non-current assets:

A) Have no impact on cash flows.
B) Have no impact on cash flows and are investing activities.
C) Are investing activities.
D) Can involve cash outflows.
E) Are investing activities and can involve cash outflows.