Deck 12: Statement of Cash Flows

Question 1

The statement of cash flows shows the effects on net income of a company's operating, investing, and financing activities for an accounting period.

Answer 1

False

Question 2

The growth phase of the product life cycle occurs when the company is purchasing fixed assets and beginning to produce and sell.

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

The statement of cash flows explains the difference between net income, as shown on the income statement, and the net cash flows generated from operations.

Question 7

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

Question 8

The primary purpose of the statement of cash flows is to provide information about a company's cash receipts and cash payments during an accounting period.

Question 9

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

Question 10

Noncash investing and financing transactions, such as the exchange of common stock to purchase assets, represent significant investing and financing activities and are reflected either in a schedule separate from the statement of cash flows or in a separate note to the financial statements.

Question 11

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

Question 12

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

Question 13

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 14

The activity from the balance sheet to be presented in the financing activities section of the statement of cash flows is based on an analysis of stockholders' equity only.

Question 15

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

Question 16

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

Question 17

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

Question 18

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 19

Operating activities include the cash effects of transactions that create revenues and expenses.

Question 20

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

Question 21

Cash provided by operations is generally equal to operating income.

Question 22

The change in cash is equal to the change in liabilities less the change in equity plus the change in noncash assets.

Question 23

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

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

A major disadvantage of the indirect method of reporting cash flows from operating activities is that the difference between the net amount of cash flows from operating activities and net income is not emphasized.

Question 26

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

Question 27

Under the indirect method, gains and losses from the sale of equipment used in operations would be included in the cash flows from operating activities section on the statement of cash flows.

Question 28

The current cash debt coverage ratio is considered a better representative of liquidity than the current ratio because it involves the entire year rather than a balance at one point in time.

Question 29

In computing 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 30

The current cash debt coverage ratio is computed by dividing net cash provided by operations by average total liabilities.

Question 31

The cash basis measure of liquidity is the cash debt coverage ratio.

Question 32

Free cash flow is cash from operations less dividends.

Question 33

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 34

An increase in inventory would be added to cost of goods sold to determine net purchases for the period.

Question 35

During the year, Income Tax Expense amounted to $12,500 and Income Taxes Payable increased by $1,500; therefore, the cash paid for income taxes was $11,000.

Question 36

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

Question 37

As an adjustment to operating expenses per the income statement, an increase in accrued liabilities would be added to operating expenses to determine cash payments for operating expenses.

Question 38

The cash debt coverage ratio indicates a company's ability to repay its liabilities from cash generated from operations.

Question 39

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

Question 40

During the maturity phase, cash from operations and net income are approximately the same.

Question 41

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 42

All of the following statements are true regarding cash flow presentations except

A) the balance sheet provides only limited information about a company's cash flows.
B) the balance sheet provides information about how property, plant, and equipment were financed.
C) the income statement does not show how much cash was generated by operating activities.
D) if cash from operations is compared to net income, information about the quality of reported net income is revealed.

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) Statement of Cash Flows.
C) Statement of Cash Inflows and Outflows.
D) The Cash Reconciliation.

Question 44

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 45

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 46

Assume that the Fitzgerald Corporation uses the indirect method to depict cash flows. Indicate where, if at all, inventory purchased with cash would be classified 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 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

Assume that the Fitzgerald Corporation uses the indirect method to depict cash flows. Indicate where, if at all, accounts receivable collected would be classified 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 49

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 50

Assume that the Fitzgerald Corporation uses the indirect method to depict cash flows. Indicate where, if at all, a stock dividend declared and issued would be classified 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 51

Assume that the Fitzgerald Corporation uses the indirect method to depict cash flows. Indicate where, if at all, long-term debt retired with cash would be classified 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 52

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 53

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 54

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 55

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 56

Analysis of the changes in all of the noncash balance sheet accounts will explain the change in the Cash account.

Question 57

The acquisition of land by issuing common stock is

A) a noncash transaction that 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 58

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 59

Assume that the Quinn Corporation uses the indirect method to depict cash flows. Indicate where, if at all, interest paid on note would be classified 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 60

Financing activities involve

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

Question 61

Assume that the E-Zip Corporation uses the indirect method to depict cash flows. Indicate where, if at all, land purchased for cash would be classified 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 62

The issuance of debt to purchase assets would be classified as a(n)

A) operating activity.
B) investing activity.
C) financing activity.
D) none of these answers are correct.

Question 63

Which of the following activities would be classified as an investing activity?

A) Cash received from interest revenue.
B) Cash paid (loaned) to a borrower as a loan.
C) Cash received from dividend revenue.
D) Cash paid to reacquire capital stock.

Question 64

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 65

Zoum Corporation had the following transactions during 2014:
1) Issued $125,000 of par value common stock for cash.
2) Recorded and paid wages expense of $60,000.
3) Acquired land by issuing common stock of par value $50,000.
4) Declared and paid a cash dividend of $10,000.
5) Sold a long-term investment (cost $3,000) for cash of $3,000.
6) Recorded cash sales of $400,000.
7) Bought inventory for cash of $160,000.
8) Acquired an investment in Zynga stock for cash of $21,000.
9) Converted bonds payable to common stock in the amount of $500,000.
10) Repaid a 6 year note payable in the amount of $220,000.
What is the net cash provided by financing activities?

A) $<105,000>.
B) $395,000.
C) $<605,000>.
D) $115,000.

Question 66

Assume that the Quinn Corporation uses the indirect method to depict cash flows. Indicate where, if at all, stock issued for equipment would be classified 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

Assume that the Quinn Corporation uses the indirect method to depict cash flows. Indicate where, if at all, income taxes paid would be classified 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 68

Cash flows from operating activities, as reported on the statement of cash flows under the indirect method, would include

A) receipts from the sale of investments.
B) net income.
C) payments for dividends.
D) receipts from the issuance of capital stock.

Question 69

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) Redeeming bonds before maturity.

Question 70

Zoum Corporation had the following transactions during 2014:
1) Issued $125,000 of par value common stock for cash.
2) Recorded and paid wages expense of $60,000.
3) Acquired land by issuing common stock of par value $50,000.
4) Declared and paid a cash dividend of $10,000.
5) Sold a long-term investment (cost $3,000) for cash of $3,000.
6) Recorded cash sales of $400,000.
7) Bought inventory for cash of $160,000.
8) Acquired an investment in Zynga stock for cash of $21,000.
9) Converted bonds payable to common stock in the amount of $500,000.
10) Repaid a 6 year note payable in the amount of $220,000.
What is the net cash provided by operating activities?

A) $305,000.
B) $290,000.
C) $240,000.
D) $180,000.

Question 71

The payment of a cash dividend would be classified as a(n)

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

Question 72

Assume that the E-Zip Corporation uses the indirect method to depict cash flows. Indicate where, if at all, land and building purchased with a mortgage would be classified 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 73

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 74

If a company has both an inflow and outflow of cash related to property, plant, and equipment, the ______________ in the investing activities section.

A) two cash effects must be netted and presented as one item
B) cash inflow and cash outflow must be reported separately
C) cash outflow is only is presented
D) cash inflow and cash outflow can either be reported separately or presented as one item

Question 75

On the statement of cash flows, the cash flows from operating activities section would include

A) receipts from the issuance of capital stock.
B) receipts from the sale of investments.
C) payments for the acquisition of investments.
D) cash receipts from sales activities.

Question 76

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 77

Preferred stock issued in exchange for land would be reported in the statement of cash flows in

A) the cash flows from financing activities section.
B) the cash flows from investing activities section.
C) a separate schedule or note to the financial statements.
D) the cash flows from operating section.

Question 78

Assume that the E-Zip Corporation uses the indirect method to depict cash flows. Indicate where, if at all, common stock issued for cash would be classified.

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

Question 79

Assume that the Quinn Corporation uses the indirect method to depict cash flows. Indicate where, if at all, dividends received on securities held would be classified 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 80

Assume that the E-Zip Corporation uses the indirect method to depict cash flows. Indicate where, if at all, treasury stock purchased with cash would be classified 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.