Deck 11: The Statement of Cash Flows

Question 1

Free cash flow is equal to net cash flow from operating activities minus capital expenditures and dividends.

Answer 1

True

Question 2

To be classified as a cash equivalent, an item must be readily convertible to a known amount of cash and have an original maturity to the investor of 3 months or more.

Answer 2

False

Question 3

In terms of the statement of cash flows, cash includes actual cash items minus certain cash equivalents such as commercial paper, money market funds, and treasury bills.

Answer 3

False

Question 4

Significant noncash transactions are not reported on the statement of cash flows, but in a separate schedule shown either at the bottom of the statement of cash flows or in a note to the financial statements.

Question 5

The statement of cash flows helps users understand the reasons for the differences between net income and related cash receipts and payments.

Question 6

Cash flows from purchases, sales, and maturities of investments are classified as financing activities.

Question 7

Under the indirect method, the first line in the operating activities section of the statement of cash flows is the net income or loss for the period.

Question 8

The Statement of Cash Flows is considered to be a good indicator of current cash inflows and outflows.

Question 9

Issuing stock increases the company's cash flows from investing activities.

Question 10

Depreciation is a noncash expense that is subtracted from net income in determining cash provided from operating activities under the indirect method.

Question 11

Both the indirect and direct method arrive at an identical amount of net cash provided (used)by operating activities.

Question 12

An investment in common stock is not considered to be a cash equivalent.

Question 13

The statement of cash flows summarizes the operating, investing, and financing activities of a business for a period of time.

Question 14

Cash flows from operating activities often relate to an increase or decrease in either a current asset or a current liability.

Question 15

For the statement of cash flows, companies are required to classify their cash activities into three categories: operating, investing, and financing.

Question 16

Cash flows from selling machinery would be classified as investing activities.

Question 17

Companies can use two different methods to report the amount of cash flow from their investing and financing activities.

Question 18

The issuance of common stock in exchange for a building would appear both as a cash inflow in the financing activities section of the cash flow statement and also as a cash outflow in the investing activities section.

Question 19

Operating activities involve the acquiring and selling of goods and services for cash or on account.

Question 20

The indirect method of reporting cash flows from operating activities involves reconciling net income and cash flows from operations.

Question 21

The financial statement that summarizes the operating, investing, and financing activities of a business over a period of time is the ____________________.

Question 22

If the December 31, 2014, balance of accounts payable is lower than the January 1, 2014, balance, then the amount of cash payments will exceed the purchases on account for the year.

Question 23

Increases in Cash = Increases in Liabilities + Increases in Stockholders' Equity + Decreases in Noncash Assets.

Question 24

Cash flows from operating activities correspond to the cash effects of items that determine ____________________.

Question 25

Determining the cash flows from operating activities generally requires analyzing each item on the income statement as well as the current asset (except cash)and current liability accounts.

Question 26

An increase in retained earnings indicates that a cash dividend has been paid.

Question 27

Under the indirect method, instead of reporting cash receipts and payments, net income is reconciled with net cash from operating activities.

Question 28

The collection of accounts receivable results in a cash ____________________ reported in the operating activities section of the statement of cash flows using the indirect method.

Question 29

____________________ activities involve long-term liabilities and stockholders' equity.

Question 30

If the December 31, 2014, balance of accounts receivable is lower than the January 1, 2014, balance, then the amount of cash collections will be more than the sales on account for the year.

Question 31

If the beginning balance in Accounts Receivable is $11,000 and the ending balance is $9,000, then credit sales must have exceeded collections on account.

Question 32

Operating cash flows generally involve income statement items (which are reflected in Retained Earnings)and balance sheet items (such as changes in current assets and current liabilities).

Question 33

Many companies use software such as Microsoft PowerPoint to construct their cash flow statements.

Question 34

Because the cash received from the sale of long-term assets is reported in the investing activities section of the statement of cash flows, any gain or loss is ignored when reporting the cash flow from operating activities under the indirect method.

Question 35

The information in a statement of cash flows helps investors, creditors and others judge a company's ability to meet its obligations and pay ____________________.

Question 36

Cash ________________ are items readily convertible into a known amount of cash which have an original maturity to the investor of 3 months or less.

Question 37

Some companies use a work sheet approach as a tool to aid in preparing the statement of cash flows.

Question 38

The purchase of inventory is an important ____________________ activity for a retailer.

Question 39

The cash flow adequacy ratio is defined as Free Cash Flow / Average Amount of Debt Maturing over the Next Five Years.

Question 40

Unlike the income statement, no financial ratios are reported on the statement of cash flows.

Question 41

The indirect method of preparing a statement of cash flows begins with net income and then adjusts it for noncash items to produce net cash flow from ____________________.

Question 42

If the balance of prepaid insurance was the same on January 1, 2014, and December 31, 2014, then the insurance expense must have been ____________________ the cash payments made for insurance during the year.

Question 43

When a company sells its own common stock, it is a(n)____________________ activity on the statement of cash flows.

Question 44

Beginning equipment minus equipment sold and minus ending equipment equals ____________________.

Question 45

MATCHING
Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a statement of cash flows if the operating activities section is prepared using the direct method. (Choices may be used more than once.)
a.Inflow from operating activity
b.Outflow from operating activity
c.Inflow from investing activity
d.Outflow from investing activity
e.Inflow from financing activity
f.Outflow from financing activity
g.Noncash investing and financing activity
h.Not reported on statement of cash flows
Issued long term mortgage to acquire land and a building.

Question 46

MATCHING
Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a statement of cash flows if the operating activities section is prepared using the direct method. (Choices may be used more than once.)
a.Inflow from operating activity
b.Outflow from operating activity
c.Inflow from investing activity
d.Outflow from investing activity
e.Inflow from financing activity
f.Outflow from financing activity
g.Noncash investing and financing activity
h.Not reported on statement of cash flows
Purchased truck for cash.

Question 47

A decrease in retained earnings represents dividends that were ____________________ during the period, not necessarily those that were paid.

Question 48

____________________ represents the cash flow that a company is able to generate after considering the maintenance or expansion of its assets (capital expenditures)and payment of dividends.

Question 49

MATCHING
Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a statement of cash flows if the operating activities section is prepared using the direct method. (Choices may be used more than once.)
a.Inflow from operating activity
b.Outflow from operating activity
c.Inflow from investing activity
d.Outflow from investing activity
e.Inflow from financing activity
f.Outflow from financing activity
g.Noncash investing and financing activity
h.Not reported on statement of cash flows
Paid employee insurance expense.

Question 50

MATCHING
Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a statement of cash flows if the operating activities section is prepared using the direct method. (Choices may be used more than once.)
a.Inflow from operating activity
b.Outflow from operating activity
c.Inflow from investing activity
d.Outflow from investing activity
e.Inflow from financing activity
f.Outflow from financing activity
g.Noncash investing and financing activity
h.Not reported on statement of cash flows
Declared stock dividends.

Question 51

MATCHING
Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a statement of cash flows if the operating activities section is prepared using the direct method. (Choices may be used more than once.)
a.Inflow from operating activity
b.Outflow from operating activity
c.Inflow from investing activity
d.Outflow from investing activity
e.Inflow from financing activity
f.Outflow from financing activity
g.Noncash investing and financing activity
h.Not reported on statement of cash flows
Sold common stock for cash.

Question 52

A(n)____________________ occurs when the cash received from selling an item of property, plant, and equipment is greater than the book value of the asset sold. It is also shown in the operating activities section of the statement of cash flows prepared using the indirect method.

Question 53

MATCHING
Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a statement of cash flows if the operating activities section is prepared using the direct method. (Choices may be used more than once.)
a.Inflow from operating activity
b.Outflow from operating activity
c.Inflow from investing activity
d.Outflow from investing activity
e.Inflow from financing activity
f.Outflow from financing activity
g.Noncash investing and financing activity
h.Not reported on statement of cash flows
Received payments from accounts receivable.

Question 54

Under the indirect method, a gain from the sale of land is subtracted from ___________ in the operating activities section of the statement of cash flows.

Question 55

If an analysis of the balance sheet shows that Accounts Payable increased during the period, then the increase would have to be _______________ to net income to convert net income to cash.

Question 56

If Accounts Receivable decreased during the year, then cash collections must have been ____________________ than sales on account for the period.

Question 57

MATCHING
Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a statement of cash flows if the operating activities section is prepared using the direct method. (Choices may be used more than once.)
a.Inflow from operating activity
b.Outflow from operating activity
c.Inflow from investing activity
d.Outflow from investing activity
e.Inflow from financing activity
f.Outflow from financing activity
g.Noncash investing and financing activity
h.Not reported on statement of cash flows
Repaid a long-term bonds payable.

Question 58

The use of a ______________ provides a means of systematically analyzing changes in the balance sheet amounts, along with the information from the income statement and any additional information, to produce the statement of cash flows.

Question 59

Under the ____________________ method of preparing a statement of cash flows, the net cash flow from operating activities is computed by adjusting net income to remove the effect of all deferrals of past operating cash receipts and payments, and all accruals of future operating cash receipts or payments.

Question 60

If the balance of wages payable increases during the year, then the ____________________ for the period will be greater than the actual cash wages paid in the period.

Question 61

Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method. (Choices may be used more than once.)
a.Operating activity--add to net income
b.Operating activity--deduct from net income
c.Inflow from investing activity
d.Outflow from investing activity
e.Inflow from financing activity
f.Outflow from financing activity
g.Noncash investing and financing activity
h.Not reported on statement of cash flows
Increase in the inventory balance.

Question 62

Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method. (Choices may be used more than once.)
a.Operating activity--add to net income
b.Operating activity--deduct from net income
c.Inflow from investing activity
d.Outflow from investing activity
e.Inflow from financing activity
f.Outflow from financing activity
g.Noncash investing and financing activity
h.Not reported on statement of cash flows
Issued long-term bonds.

Question 63

Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method. (Choices may be used more than once.)
a.Operating activity--add to net income
b.Operating activity--deduct from net income
c.Inflow from investing activity
d.Outflow from investing activity
e.Inflow from financing activity
f.Outflow from financing activity
g.Noncash investing and financing activity
h.Not reported on statement of cash flows
Recorded depreciation expenses for the year.

Question 64

Match these terms with their correct definition.
a.Cash flow adequacy ratio
b.Cash flows from financing activities
c.Cash flows from investing activities
d.Cash flow from operating activities
e.Direct method
f.Free cash flow
g.Income statement
h.Indirect method
i.Noncash investing & financing activities
j.Statement of cash flows
Determines operating cash flow which begins with net income and then adjusts it for noncash items.

Question 65

Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method. (Choices may be used more than once.)
a.Operating activity--add to net income
b.Operating activity--deduct from net income
c.Inflow from investing activity
d.Outflow from investing activity
e.Inflow from financing activity
f.Outflow from financing activity
g.Noncash investing and financing activity
h.Not reported on statement of cash flows
Declared cash dividends.

Question 66

Match these terms with their correct definition.
a.Cash flow adequacy ratio
b.Cash flows from financing activities
c.Cash flows from investing activities
d.Cash flow from operating activities
e.Direct method
f.Free cash flow
g.Income statement
h.Indirect method
i.Noncash investing & financing activities
j.Statement of cash flows
Determines operating cash flow by adjusting each item on the income statement by the changes in the related current asset or liability accounts.

Question 67

Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method. (Choices may be used more than once.)
a.Operating activity--add to net income
b.Operating activity--deduct from net income
c.Inflow from investing activity
d.Outflow from investing activity
e.Inflow from financing activity
f.Outflow from financing activity
g.Noncash investing and financing activity
h.Not reported on statement of cash flows
Issued a twenty-year mortgage note for cash.

Question 68

Match these terms with their correct definition.
a.Cash flow adequacy ratio
b.Cash flows from financing activities
c.Cash flows from investing activities
d.Cash flow from operating activities
e.Direct method
f.Free cash flow
g.Income statement
h.Indirect method
i.Noncash investing & financing activities
j.Statement of cash flows
Include cash received from the sale of property, plant, and equipment and cash paid to purchase equity securities.

Question 69

Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method. (Choices may be used more than once.)
a.Operating activity--add to net income
b.Operating activity--deduct from net income
c.Inflow from investing activity
d.Outflow from investing activity
e.Inflow from financing activity
f.Outflow from financing activity
g.Noncash investing and financing activity
h.Not reported on statement of cash flows
Received cash from the sale of securities.

Question 70

Match these terms with their correct definition.
a.Cash flow adequacy ratio
b.Cash flows from financing activities
c.Cash flows from investing activities
d.Cash flow from operating activities
e.Direct method
f.Free cash flow
g.Income statement
h.Indirect method
i.Noncash investing & financing activities
j.Statement of cash flows
Provides information that can be used to judge a company's ability to meet its obligations and pay dividends.

Question 71

MATCHING
Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a statement of cash flows if the operating activities section is prepared using the direct method. (Choices may be used more than once.)
a.Inflow from operating activity
b.Outflow from operating activity
c.Inflow from investing activity
d.Outflow from investing activity
e.Inflow from financing activity
f.Outflow from financing activity
g.Noncash investing and financing activity
h.Not reported on statement of cash flows
Paid the cash dividends.

Question 72

Match these terms with their correct definition.
a.Cash flow adequacy ratio
b.Cash flows from financing activities
c.Cash flows from investing activities
d.Cash flow from operating activities
e.Direct method
f.Free cash flow
g.Income statement
h.Indirect method
i.Noncash investing & financing activities
j.Statement of cash flows
Represents the cash flow that a company is able to generate after considering the maintenance or expansion of its assets and the payment of dividends.

Question 73

MATCHING
Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a statement of cash flows if the operating activities section is prepared using the direct method. (Choices may be used more than once.)
a.Inflow from operating activity
b.Outflow from operating activity
c.Inflow from investing activity
d.Outflow from investing activity
e.Inflow from financing activity
f.Outflow from financing activity
g.Noncash investing and financing activity
h.Not reported on statement of cash flows
Sold office building for cash.

Question 74

Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method. (Choices may be used more than once.)
a.Operating activity--add to net income
b.Operating activity--deduct from net income
c.Inflow from investing activity
d.Outflow from investing activity
e.Inflow from financing activity
f.Outflow from financing activity
g.Noncash investing and financing activity
h.Not reported on statement of cash flows
Issued stock to buy a building.

Question 75

MATCHING
Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a statement of cash flows if the operating activities section is prepared using the direct method. (Choices may be used more than once.)
a.Inflow from operating activity
b.Outflow from operating activity
c.Inflow from investing activity
d.Outflow from investing activity
e.Inflow from financing activity
f.Outflow from financing activity
g.Noncash investing and financing activity
h.Not reported on statement of cash flows
Paid interest on a capital lease.

Question 76

Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method. (Choices may be used more than once.)
a.Operating activity--add to net income
b.Operating activity--deduct from net income
c.Inflow from investing activity
d.Outflow from investing activity
e.Inflow from financing activity
f.Outflow from financing activity
g.Noncash investing and financing activity
h.Not reported on statement of cash flows
Purchased land for cash.

Question 77

Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method. (Choices may be used more than once.)
a.Operating activity--add to net income
b.Operating activity--deduct from net income
c.Inflow from investing activity
d.Outflow from investing activity
e.Inflow from financing activity
f.Outflow from financing activity
g.Noncash investing and financing activity
h.Not reported on statement of cash flows
Increase in the unearned revenue balance.

Question 78

Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method. (Choices may be used more than once.)
a.Operating activity--add to net income
b.Operating activity--deduct from net income
c.Inflow from investing activity
d.Outflow from investing activity
e.Inflow from financing activity
f.Outflow from financing activity
g.Noncash investing and financing activity
h.Not reported on statement of cash flows
Recognized a gain on the sale of securities.

Question 79

Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method. (Choices may be used more than once.)
a.Operating activity--add to net income
b.Operating activity--deduct from net income
c.Inflow from investing activity
d.Outflow from investing activity
e.Inflow from financing activity
f.Outflow from financing activity
g.Noncash investing and financing activity
h.Not reported on statement of cash flows
Paid cash dividends.

Question 80

Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method. (Choices may be used more than once.)
a.Operating activity--add to net income
b.Operating activity--deduct from net income
c.Inflow from investing activity
d.Outflow from investing activity
e.Inflow from financing activity
f.Outflow from financing activity
g.Noncash investing and financing activity
h.Not reported on statement of cash flows
Resold treasury stock for cash.