Deck 13: Financial Statement Analysis

Question 1

One may expect a company's primary source of cash is from borrowing and investor contributions.

Answer 1

False
One may expect a company's primary source of cash is its basic operations - selling inventory or providing services,

Question 2

The two approaches to presenting cash flows provided by operating activities in the statement of cash flows are the internal approach and the external approach.

Answer 2

False
the two approaches to presenting cash flows provided by operating activities in the statement of cash flows are the direct method and the indirect method,

Question 3

The operating activities shown on the statement of cash flows reflect items on the income statement, and thus the amounts will be identical to those on the accrual basis income statement.

Answer 3

False
Although the operating activities shown on the statement of cash flows reflect items on the income statement, the amounts will not be identical to those on the income statement because of differences between the cash basis and accrual basis of accounting,

Question 4

The sources and uses of cash provided by operating activities represent the cash effect of the revenues and expenses reported on the income statement.

Question 5

Preparing the statement of cash flows using the indirect method starts with net income and converts it to cash flows provided by operating activities.

Question 6

Creditors are interested in determining the likelihood that a company will be able to meet future obligations, but shareholders are rarely interested in this information.

Question 7

There are two approaches to presenting cash flows provided by operating activities: the direct method and the indirect method.

Question 8

When preparing the statement of cash flows using the indirect method, a non-cash expense such as amortization is added to net income to arrive at cash flows from operating activities.

Question 9

Uses of cash are activities that require cash disbursements always decrease the amount of cash on hand.

Question 10

Activities that involve external funding are called financing activities.

Question 11

The statement of cash flows is organized into three sections: operating activities, investing activities, and financing activities.

Question 12

Operating activities are those that affect a company's investments in assets other than current operating assets.

Question 13

The statement of cash flows explains the change in the cash account balance between the beginning and the end of the period and shows how cash was generated and used.

Question 14

On the cash flow statement, paying a cash dividend to stockholders is a financing activity.

Question 15

Activities that affect a company's investments in assets other than current operating assets are called financing activities.

Question 16

Most companies use the direct method to prepare the statement of cash flows.

Question 17

On the cash flow statement, buying inventory on account is not a use of cash.

Question 18

Examining a company's statement of cash flows helps in evaluating a company's liquidity, but because it reflects activity that already occurred, does not aid in predicting future cash flows.

Question 19

On the cash flow statement, the gain on the sale of a delivery truck is an investing activity.

Question 20

On the cash flow statement, issuing new debt is an example of a use of cash.

Question 21

In interpreting a statement of cash flows, excessive sales of property, plant and equipment combined with a lack of cash from financing activities may indicate that the company is selling productive assets to raise cash to cover operating expenses which, in the long run, will limit future growth.

Question 22

A decrease in accounts receivable is added to income when using the indirect method of calculating cash flows provided by operating activities.

Question 23

Investing activities include purchases and sales of property and equipment, loans made and collected, and purchases and sales of another company's stock.

Question 24

A decrease in accounts payable is added to net income when using the indirect method of calculating cash flows provided by operating activities.

Question 25

Which of the following is a use of cash?

A)Interest received on investment
B)Issuing long-term bonds
C)Dividends paid to stockholders
D)Loss on sale of investment

Question 26

Dividends declared is not a cash flow.

Question 27

In interpreting a statement of cash flows, the first thing a manager should examine is the company's ability to generate cash from operations.

Question 28

Which of the following is a use of cash?

A)Purchasing equipment for cash
B)Purchasing supplies on account
C)Declaring a dividend
D)Collecting receivable payments from customers

Question 29

Which of the following is considered a financing activity and a source of cash on the statement of cash flows?

A)Purchase of treasury stock
B)Sale of land
C)Borrowing on a long-term basis
D)Payment from customers

Question 30

Which of the following is not a source of cash?

A)Dividends received on investment
B)Borrowing $5,000 on short-term note
C)Gain on sale of warehouse
D)Payments to suppliers

Question 31

Which of the following is considered a source of cash on the statement of cash flows?

A)Purchase of equipment
B)Receipt of interest income
C)Payments of accounts payable invoices
D)Payment of dividends to stockholders

Question 32

When an asset is sold at a gain or loss, the book value of the asset is reported as a sale in the investing section of the statement of cash flows.

Question 33

When preparing the statement of cash flows using the indirect method, losses from investing activities are deducted from net income to arrive at cash flows from operating activities.

Question 34

When preparing the statement of cash flows using the indirect method, gains from financing activities are added to net income to arrive at cash flows from operating activities.

Question 35

Which of the following is not a source of cash?

A)Gain on sale of investment
B)Interest received on investment
C)Issuing long-term bonds
D)Payment of interest on a note payable

Question 36

Which of the following is considered an investing activity and a source of cash?

A)Purchase of equipment
B)Sale of Amazon's stock held as an investment
C)Issuance of corporate stock
D)Receipt of interest on savings account

Question 37

Which of the following is considered a source of cash on the statement of cash flows?

A)Payments from customers
B)Purchase of equipment
C)Payment of accounts payable invoices
D)Payment of dividends to stockholders

Question 38

Financing activities include issuing and repaying debt, loans made and collected, issuing and repurchasing stock, and paying dividends.

Question 39

The statement of cash flows does not include cash inflows and outflows for which of the following activities?

A)Financing activities
B)Investing activities
C)Operating activities
D)Revenue activities

Question 40

Which of the following is considered a use of cash on the statement of cash flows?

A)Purchase of equipment
B)Sale of Amazon's stock held as an investment
C)Issuance of corporate stock
D)Receipt of interest on savings account

Question 41

Which of the following cash flows results from an operating activity?

A)Paying dividends to stockholders
B)Repaying a note payable
C)Receiving interest on an investment
D)Purchasing equipment for cash

Question 42

Which of the following is not a use of cash?

A)Purchasing supplies for cash
B)Repayment of bonds payable
C)Paying dividends to stockholders
D)Buying inventory on account

Question 43

In preparing cash flows provided by operating activities using the indirect method, which of the following items is added to net income?

A)Non-cash expenses such as depreciation
B)Gains on investing and financing transactions
C)Increases in current asset balances
D)Decreases in current liability balances

Question 44

Which of the following cash flows results from an operating activity?

A)Paying employees' monthly payroll
B)Declaring a dividend of $5 per share
C)Selling an investment in another company
D)Purchasing a new delivery truck

Question 45

Which of the following is a cash flow resulting from a financing activity?

A)Purchasing an automobile by borrowing money from the bank
B)Receiving a cash dividend on an investment in another company
C)Declaring a dividend on common stock
D)Issuing 1,000 shares of preferred stock

Question 46

Which of the following methods of reporting cash flows provided by operating activities does the Financial Accounting Standards Board recommend?

A)The indirect method
B)The direct method
C)An option of either indirect method or the direct method
D)FASB does not state a preference.

Question 47

Which of the following cash flows results from a financing activity?

A)Borrowing money from the bank
B)Receiving a cash dividend of $3 per share
C)Paying income taxes at end of year
D)All of these answer choices result from financing activities

Question 48

According to the 2011 edition of Accounting Trends and Techniques, approximately what percentage of companies use the direct method to report cash flows provided by operating activities?

A)2%
B)33%
C)67%
D)98%

Question 49

Which of the following cash flows results from a financing activity?

A)Receiving dividends on investment in another company
B)Repaying long-term debt
C)Purchasing an investment in another company
D)Receiving payment from a customer

Question 50

In preparing cash flows provided by operating activities using the indirect method, which of the following items is deducted from net income?

A)Non-cash expenses such as amortization
B)Increases in current asset balances
C)Losses on investing and financing transactions
D)Increases in current liability balances

Question 51

In preparing cash flows provided by operating activities using the indirect method, which of the following items is deducted from net income?

A)Non-cash expenses such as amortization
B)Losses on investing and financing transactions
C)Decreases in current liability balances
D)Decreases in current asset balances

Question 52

Which of the following cash flows results from an investing activity?

A)Making a payment on a loan
B)Receiving a cash dividend on an investment in another company
C)Selling an investment in another company
D)Receiving payment from a customer for last month's accounts receivable

Question 53

Which of the following is a use of cash?

A)Exchanging old auto for new auto and taking a note for sales price due
B)Paying employees' monthly payroll
C)Issuing long-term bonds
D)Writing off an uncollectible account

Question 54

In preparing cash flows provided by operating activities using the indirect method, which of the following is deducted from net income?

A)Losses on investing transactions
B)Increases in current asset balances
C)Increases in current liability balances
D)Non-cash expenses such as depreciation

Question 55

In preparing cash flows provided by operating activities using the indirect method, which of the following items is added to net income?

A)Non-cash expenses such as depreciation
B)Decreases in current liability balances
C)Gains on investing and financing transactions
D)Increases in current asset balances

Question 56

Which of the following cash flows results from an investing activity?

A)Paying rent on a forklift to be used to move inventory
B)Purchasing inventory for cash
C)Purchasing a new forklift for cash
D)Purchasing 5% of the company's own outstanding common stock

Question 57

Which of the following cash flows results from an operating activity?

A)Purchasing an investment in another company
B)Issuing common stock
C)Receiving dividends on investment in another company
D)Repaying long-term debt

Question 58

The two approaches of reporting cash flows provided by operating activities are the

A)direct and indirect methods.
B)basic and standard methods.
C)gross margin and contribution margin methods.
D)liquidity and profitability methods.

Question 59

According to the 2011 edition of Accounting Trends and Techniques, approximately what percentage of companies use the indirect method to report cash flows provided by operating activities?

A)2%
B)33%
C)67%
D)98%

Question 60

In preparing cash flows provided by operating activities using the indirect method, which of the following items is added to net income?

A)Cash received from the sale of property, plant and equipment
B)Losses on investing and financing transactions
C)Increases in current asset balances
D)Decreases in current liability balances

Question 61

Jordan Corporation reported net income of $20,000 and paid cash dividends of $7,000.Changes in balance sheet accounts for the year were as follows: Based on the above information, what is the amount of net cash provided by operations?

A)$3,000
B)$11,000
C)$19,000
D)$35,000

Question 62

Michael's Industries reported net income of $10,000 and paid cash dividends of $2,000.Changes in balance sheet accounts for the year were as follows: What is the amount of net cash provided by operations?

A)$1,000
B)$14,000
C)$19,000
D)$30,000

Question 63

Which of the following items is not included in the calculation of cash flows provided by operating activities using the indirect method?

A)Repayment of long-term debt
B)Net income
C)Depreciation expense
D)Gain on the sale of equipment

Question 64

Investing activities involve

A)borrowing and repaying of debt.
B)sale of inventory.
C)receipt of interest.
D)investments in assets other than current assets.

Question 65

A company's taxes payable account decreased by $1,000 during the year.Which of the following will appear on the statement of cash flows prepared using the indirect method?

A)An addition under investing activities
B)A deduction under investing activities
C)An addition under operating activities
D)A deduction under operating activities

Question 66

Which of the following items is subtracted from net income when using the indirect method of calculating cash flows provided by operating activities?

A)Depreciation expense
B)Repayment of bonds payable
C)A gain on the sale of land
D)A loss on the sale of equipment

Question 67

A company's unearned revenue account increased by $1,000 during the year.Which of the following will appear on the statement of cash flows prepared using the indirect method?

A)An addition under financing activities
B)A deduction under financing activities
C)An addition under operating activities
D)A deduction under operating activities

Question 68

Investing activities include

A)purchases and sales of property and equipment.
B)loans made and collected.
C)purchase and sales of another company's stock.
D)All of these answer choices are correct.

Question 69

Which of the following items is subtracted from net income when using the indirect method of calculating cash flows provided by operating activities?

A)A decrease in accounts receivable
B)Depreciation expense
C)A decrease in salaries payable
D)A loss on the sale of equipment

Question 70

A company's inventory account decreased by $1,000 during the year.Which of the following will appear on the statement of cash flows prepared using the indirect method?

A)An addition under investing activities
B)A deduction under investing activities
C)An addition under operating activities
D)A deduction under operating activities

Question 71

A company's prepaid insurance account decreased by $1,000 during the year.Which of the following will appear on the statement of cash flows prepared using the indirect method?

A)An addition under investing activities
B)A deduction under investing activities
C)An addition under operating activities
D)A deduction under operating activities

Question 72

Brandon, Inc.had a $1,000 increase in accounts payable during the year.Which of the following will appear on the statement of cash flows prepared using the indirect method?

A)Do not include the $1,000 in the statement of cash flows but show it in an accompanying schedule of non-cash transactions.
B)Add $1,000 to net income in order to arrive at net cash provided by operating activities.
C)Deduct $1,000 from net income in order to arrive at net cash provided by operating activities.
D)Deduct $1,000 to arrive at net cash flows from investing activities.

Question 73

Which of the following items is not included in the calculation of cash flows provided by operating activities using the indirect method?

A)An increase in accounts receivable
B)An increase in salaries payable
C)Receipt of cash dividends
D)Repayment of a 2-year note payable

Question 74

Which of the following items is added to net income when using the indirect method of calculating cash flows provided by operating activities?

A)An increase in accounts payable
B)An increase in prepaid expenses
C)A decrease in accrued revenues
D)A decrease in taxes payable

Question 75

Investing activities include all of the following except

A)loans made to others and collected.
B)purchases and sales of another company's stock.
C)issuing and repaying debt.
D)purchases and sales of property and equipment.

Question 76

Monroe's Industries reported net income of $18,000 and paid cash dividends of $2,000.Changes in balance sheet accounts for the year were as follows: Based on the above information, what is the amount of net cash provided by operations?

A)$1,000
B)$15,000
C)$21,000
D)$30,000

Question 77

Which of the following items is added to net income when using the indirect method of calculating cash flows provided by operating activities?

A)A decrease in accounts payable
B)A decrease in prepaid expenses
C)A decrease in accrued expenses
D)A decrease in taxes payable

Question 78

A company's salaries payable account decreased by $1,000 during the year.Which of the following will appear on the statement of cash flows prepared using the indirect method?

A)An addition under investing activities
B)A deduction under investing activities
C)An addition under operating activities
D)A deduction under operating activities

Question 79

Brandon, Inc.had a $1,000 decrease in accounts receivable during the year.Which of the following will appear on the statement of cash flows prepared using the indirect method?

A)Add $1,000 to net income in order to arrive at net cash provided by operating activities.
B)Deduct $1,000 from net income in order to arrive at net cash provided by operating activities.
C)Deduct $1,000 to arrive at net cash flows from investing activities.
D)Do not include the $1,000 in the statement of cash flows but show it in an accompanying schedule of non-cash transactions.

Question 80

Which of the following items is subtracted from net income when using the indirect method of calculating cash flows provided by operating activities?

A)A gain on the sale of equipment
B)Repayment of notes payable
C)Receipt of cash dividends
D)Declaration of cash dividends