Deck 14: The Statement of Cash Flows

Question 1

Which of the following describes the investing activities as shown in the statement of cash flows?

A) Includes increases and decreases in long-term assets
B) Includes transactions affecting the capitalization of the business
C) Includes transactions that primarily impact current assets and current liabilities
D) Shows the beginning and ending balance of cash

Answer 1

A

Question 2

Which one of the following is a principal function of the statement of cash flows?

A) To predict future profit growth
B) To calculate the turnover of inventory
C) To evaluate the level of debt and leverage of a company
D) To predict the ability to pay debts and dividends

Answer 2

D

Question 3

For anything to be considered a cash equivalent, the asset must be:

A) convertible to cash within 5 years.
B) convertible to cash within 3 months or less.
C) convertible to cash within 6 months or less.
D) convertible to cash within 1 year.

Answer 3

B

Question 4

Which of the following statements accurately describes the statement of cash flows?

A) It shows the relative proportion of debt and assets.
B) It shows the link between accrual based income and the cash reported on the balance sheet.
C) It indicates when long-term debt will mature.
D) It shows the link between book income and earnings per share.

Question 5

Which one of the following is a principal function of the statement of cash flows?

A) To predict future net income
B) To evaluate management decisions
C) To evaluate the company's earnings per share
D) To predict the growth of company assets

Question 6

Which of the following describes the operating activities as shown in the statement of cash flows?

A) Includes increases and decreases in long-term assets
B) Includes transactions affecting the capitalization of the business
C) Includes transactions that primarily impact current assets and current liabilities
D) Shows the beginning and ending balance of cash

Question 7

The statement of cash flows explains the difference between net income and the change in cash balance.

Question 8

Which of the following describes the financing activities as shown in the statement of cash flows?

A) Includes increases and decreases in long-term assets
B) Includes transactions affecting the capitalization of the business
C) Includes transactions that primarily impact current assets and current liabilities
D) Shows the beginning and ending balance of cash

Question 9

Which of the following is NOT a true statement about the statement of cash flows?

A) It shows where cash came from and how it was spent.
B) It reports why cash increased or decreased.
C) It covers a specific span of time the same as the income statement.
D) It shows how the profits or losses of the company were generated.

Question 10

The financing activities section of the statement of cash flows includes paying dividends and paying off loans.

Question 11

The investing activities section of the statement of cash flows reflects the cash flows that increase or decrease long-term assets.

Question 12

Financing activities include activities that affect current assets and liabilities on the balance sheet.

Question 13

Cash equivalents are assets that can be converted to cash within one year.

Question 14

Operating activities include activities that affect long-term liabilities and stockholders' equity.

Question 15

The term cash as used on the statement of cash flows includes all of the following EXCEPT:

A) cash due from customers within 30 days.
B) cash on hand.
C) cash equivalents.
D) cash in bank.

Question 16

Investors and management use the statement of cash flows to evaluate a firm's profitability.

Question 17

The financing activities section of the statement of cash flows reflects the cash flows that affect current assets and liabilities.

Question 18

A statement of cash flows is generated to show:

A) the revenues the company has earned.
B) the expenses the company incurred during the time period.
C) the inflow and outflow of cash during the time period.
D) how profits were generated.

Question 19

Investing activities include activities that affect the long-term asset section of the balance sheet.

Question 20

For purposes of the statement of cash flows, cash includes cash on hand, cash in the bank and cash equivalents.

Question 21

Interest expense incurred on a note payable would be included in the financing section of the statement of cash flows.

Question 22

Arturo Sales purchased some equipment for $12,000 by issuing a 6-month note payable. Because this was a noncash transaction, it would not be shown in the main body of the statement of cash flows, but in a separate section for noncash investing and financing activities.

Question 23

Partisan Services purchased 10 delivery vehicles by issuing a 10-year installment note payable for $320,000. This transaction would be shown in the investment section of the statement of cash flows.

Question 24

Companies sometimes make investments that do NOT require cash. Such transactions are called noncash investing activities and appear in a separate section of the cash flow statement.

Question 25

In creating a statement of cash flows using the indirect method, we consider that an increase in current assets causes a decrease in cash.

Question 26

Which of the following statements about the statement of cash flows is FALSE?

A) The indirect method and the direct method will produce the same amount of cash flow.
B) The indirect method begins with net income and adjusts to calculate operating cash flows.
C) Both the direct and indirect methods include 3 types of cash flows.
D) The operating activities section of both the direct and the indirect method are the same.

Question 27

Issuing preferred stock to stockholders would be a financing activity.

Question 28

Which of the following statements about the statement of cash flows is TRUE?

A) The indirect method and the direct method will both show the same end results.
B) The direct method begins with net income and adjusts to calculate operating cash flows.
C) The indirect method shows three types of cash flows, but the direct method does not.
D) The operating activities section of both the direct and the indirect method are the same.

Question 29

Companies sometimes obtain financing other than cash. Although such transactions do not directly involve cash, they still must be reported in the financing section of the cash flow statement.

Question 30

The financing section of the statement of cash flows reflects transactions in the equity accounts and the long-term liability accounts.

Question 31

Buying property, plant and equipment would be considered a cash outflow from financing.

Question 32

Avatar Company uses the indirect method to prepare its statement of cash flows. The treasury stock account had a debit balance of $5,000 at the beginning of the year, and a debit balance of $8,000 at the end of the year. No treasury stock was sold during the year.
The financing section of the statement of cash flows will show a negative cash flow of $3,000 for purchases of treasury stock.

Question 33

In creating a statement of cash flows using the indirect method, depreciation expense is added back as an adjustment to net income under operating activities.

Question 34

The financing section of the statement of cash flows reflects transactions in the equity accounts only.

Question 35

In creating a statement of cash flows using the indirect method, a gain on the sale of plant assets must be shown as an addition to Net income in the operating activities section.

Question 36

Transnational Company just started in business and was looking for additional capital in order to purchase a property to build their headquarters. They found an investor who was willing to sell them land worth $500,000 in exchange for stock in the company. This transaction would be shown in the investing activities section of the statement of cash flows.

Question 37

Sonesta Company owed one of its creditors $250,000, but did not have enough cash to repay the debt. Following lengthy negotiations, the parties agreed that Sonesta would issue 100,000 shares of common stock to settle the debt. This transaction would be reported in the financing section of the statement of cash flows.

Question 38

Avatar Company uses the indirect method to prepare its statement of cash flows. Please refer to the following portion of the comparative balance sheet:
$\begin{array}{|l|r|r|r|}\hline&2014 & 2013 & \text { Increase/decrease }\\\hline \text { Common stock } & \$ 30,000 & \$, 000 & \$ 28,000 \\\hline \text { Retained earnings } & 113,000 & 74,000 & 39,000 \\\hline \text { Treasury stock } & (8,000) & (5,000) & (3,000) \\\hline \text { Total equity } & \$ 135,000 & \$ 71,000 & \$ 64,000 \\\hline\end{array}$

Note: Net income for the year was $49,000.
Dividends of $10,000 will be shown as a positive cash flow in the financing section of the statement of cash flows.

Question 39

The first section presented on the statement of cash flows is the operating activities section.

Question 40

In creating a statement of cash flows using the indirect method, we consider that a decrease in current liabilities causes an increase in cash.

Question 41

Selling property, plant and equipment would be considered a cash inflow from investing.

Question 42

An outflow of cash from an investing activity would be:

A) purchasing treasury stock.
B) issuing notes payable.
C) paying cash dividends to stockholders.
D) making loans to third parties.

Question 43

Which of the following sections from the statement of cash flows includes the purchase and sale of treasury stock?

A) The financing section
B) The operating section
C) The investing section
D) The noncash investing and financing section

Question 44

Which of the following sections from the statement of cash flows includes activities that increase and decrease long-term assets?

A) The financing section
B) The operating section
C) The investing section
D) The noncash investing and financing section

Question 45

Avatar Company uses the indirect method to prepare the statement of cash flows. Please refer to the following section of the comparative balance sheet:
$$\begin{array} { | l | r | r | r | } \hline&2014 & 2013 & \text { Increase/decrease }\\\hline \text { Accounts payable } & \$ 4,000 & \$ 6,000 & \$ ( 2,000 ) \\\hline \text { Accrued liabilities } & 2,000 & 1,000 & 1,000 \\\hline \text { Long-term notes payable } & 84,000 & 90,000 & ( 6,000 ) \\\hline \text { Total liabilities } & \$ 90,000 & \$ 97,000 & \$ ( 7,000 ) \\\hline\end{array}$$

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The change in accounts payable will be shown as a positive cash flow in the adjustments to Net income.

Question 46

Which of the following are the three major categories included on the statement of cash flows?

A) Investing, operating and financing activities
B) Investing, capital and financing activities
C) Investing, operating and contracting activities
D) Financial, operating and internal control activities

Question 47

Of the following, which is NOT a cash inflow from a financing activity?

A) Sell treasury stock
B) Issue common stock
C) Earn interest revenue
D) Borrow money on a long-term note

Question 48

Which of the following sections from the statement of cash flows includes activities that affect net income on the income statement?

A) The financing section
B) The operating section
C) The investing section
D) The noncash investing and financing section

Question 49

Which of the following sections from the statement of cash flows includes activities that affect current assets and current liabilities on the balance sheet?

A) The investing section
B) The financing section
C) The operating section
D) The noncash investing and financing section

Question 50

Which of the following sections from the statement of cash flows includes activities that increase and decrease long-term liabilities and stockholders' equity?

A) The financing section
B) The operating section
C) The investing section
D) The noncash investing and financing section

Question 51

Which of the following are the activities that are included in the operating activities section of the statement of cash flows?

A) Activities that obtain the cash needed to launch and sustain the business are included in the operating activities section.
B) Activities that create revenue or expenses in the entity's major line of business are included in the operating activities section.
C) Activities that increase or decrease long-term assets are included in the operating activities section.
D) Activities that pertain to construction of new facilities are included in the operating activities section.

Question 52

Avatar Company uses the indirect method to prepare the statement of cash flows. Please refer to the following section of the comparative balance sheet:
$\begin{array}{|l|r|r|r|}\hline&2014 & 2013 & \text { Increase/decrease }\\\hline \text { Cash } & \$ 33,000 & \$ 18,000 & \$ 15,000 \\\hline \text { Accounts receivable } & 22,000 & 35,000 & (13,000) \\\hline \text { Inventory } & 170,000 & 115,000 & 55,000 \\\hline \text { Total assets } & \$ 225,000 & \$ 168,000 & \$ 57,000 \\\hline\end{array}$

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The change in accounts receivable will be shown as a positive cash flow in the adjustments to Net income.

Question 53

Which of the following sections from the statement of cash flows includes borrowing money and paying off loans?

A) The investing section
B) The operating section
C) The financing section
D) The noncash investing and financing section

Question 54

Which of the following sections from the statement of cash flows includes activities that create revenue, expenses, gains and losses?

A) The investing section
B) The financing section
C) The operating section
D) The noncash investing and financing section

Question 55

Of the following, which is NOT a cash outflow from an investing activity?

A) Purchase of long-term investments, such as the stock of another company
B) Loans made to another party
C) Purchase of treasury stock
D) Purchase of land

Question 56

Avatar Company uses the indirect method to prepare the statement of cash flows. Please refer to the following section of the comparative balance sheet:
$\begin{array}{|l|r|r|r|}\hline&2014 & 2013 & \text { Increase/decrease }\\\hline \text { Cash } & \$ 33,000 & \$ 18,000 & \$ 15,000 \\\hline \text { Accounts receivable } & 22,000 & 35,000 & (13,000) \\\hline \text { Inventory } & 170,000 & 115,000 & 55,000 \\\hline \text { Total assets } & \$ 225,000 & \$ 168,000 & \$ 57,000 \\\hline\end{array}$

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The change in inventory will be shown as a positive cash flow in the adjustments to Net income.

Question 57

Which of the following is the CORRECT order of the sections on a statement of cash flows?

A) Operating, financing, investing
B) Financing, investing, operating
C) Investing, operating, financing
D) Operating, investing, financing

Question 58

Which of the following sections from the statement of cash flows includes the issuance of stock and the payment of dividends?

A) The investing section
B) The financing section
C) The operating section
D) The noncash investing and financing section

Question 59

Which of the following sections from the statement of cash flows includes purchases and sales of long-term assets?

A) The financing section
B) The operating section
C) The investing section
D) The noncash investing and financing section

Question 60

Avatar Company uses the indirect method to prepare the statement of cash flows. Please refer to the following section of the comparative balance sheet:
$$\begin{array} { | l | r | r | r | } \hline&2014 & 2013 & \text { Increase/decrease }\\\hline \text { Accounts payable } & \$ 4,000 & \$ 6,000 & \$ ( 2,000 ) \\\hline \text { Accrued liabilities } & 2,000 & 1,000 & 1,000 \\\hline \text { Long-term notes payable } & 84,000 & 90,000 & ( 6,000 ) \\\hline \text { Total liabilities } & \$ 90,000 & \$ 97,000 & \$ ( 7,000 ) \\\hline\end{array}$$

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The change in accrued liabilities will be shown as a positive cash flow in the adjustments to Net income.

Question 61

The Sonesta Company uses the indirect method for the statement of cash flows. In 2013, they sold equipment for $4,800 cash. The net book value of the asset prior to sale was $4,000. Which of the following statements is true?

A) The gain on sale of $800 would be added back to net income in the operating activities section.
B) The book value of the assets sold would be shown as a negative cash flow in the investing activities section.
C) The cash receipt of $4,800 would be shown as a positive cash flow in the investing activities section.
D) The gain on sale of $800 would be shown as a positive cash flow in the financing activities section.

Question 62

Avatar Company uses the indirect method to prepare the statement of cash flows. Please refer to the following section of the comparative balance sheet:
$$\begin{array} { | l | r | r | r | } \hline&2014 & 2013 & \text { Increase/decrease }\\\hline \text { Cash } & \$ 33,000 & \$ 18,000 & \$ 15,000 \\\hline \text { Accounts receivable } & 22,000 & 35,000 & ( 13,000) \\\hline \text { Inventory } & 170,000 & 115,000 & 55,000 \\\hline \text { Total assets } & \$ 225,000 & \$ 168,000 & \$ 57,000 \\\hline\end{array}$$

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How will the change in Inventory be shown on the statement of cash flows?

A) Operating activities minus positive cash flow
B) Operating activities minus negative cash flow
C) Financing activities minus positive cash flow
D) Investing activities minus negative cash flow

Question 63

In creating a statement of cash flows using the indirect method, which of the following statements is TRUE about depreciation expense?

A) It is added back as an adjustment to net income in the operating activities section.
B) It is shown as a negative cash flow in the investing activities section.
C) It is added back to purchases of plant assets under investing activities.
D) It is shown as a negative cash flow under operating activities.

Question 64

Avatar Company uses the indirect method to prepare its statement of cash flows. Please refer to the following portion of the comparative balance sheet:
$$\begin{array} { | l | r | r | r | } \hline&2014 & 2013 & \text { Increase/decrease }\\\hline \text { Common stock } & \$ 30,000 & \$ 2,000 & \$ 28,000 \\\hline \text { Retained earnings } & 113,000 & 74,000 & 39,000 \\\hline \text { Treasury stock } & ( 8,000 & ( 5,000 ) & ( 3,000 ) \\\hline \text { Total equity } & \$ 135,000 & \$ 71,000 & \$ 64,000 \\\hline\end{array}$$

Note: There were no stock retirements during the year.
There were no sales of treasury stock during the year.

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Which of the following statements would be TRUE?

A) There was zero net cash flow from transactions involving common stock.
B) There was a negative cash flow of $28,000 from the issuance of common stock.
C) There was a positive cash flow of $28,000 from the issuance of common stock.
D) There was positive cash flow of $30,000 from issuance of common stock.

Question 65

The Sonesta Company sold equipment for cash. The income statement shows a gain on sale of $800. The net book value of the asset prior to sale was $4,000. Which of the following statements describes the cash effect of the transaction?

A) Negative cash flow of $4,800 in investing activities
B) Negative cash flow of $3,200 in operating activities
C) Positive cash flow of $4,800 in investing activities
D) Negative cash flow of $800 in financing activities

Question 66

Cash received from selling merchandise would be considered a:

A) cash inflow from investing activities.
B) cash inflow from operating activities.
C) cash inflow from financing activities.
D) cash outflow from operating activities.

Question 67

Creditor and stockholder transactions are considered ________ activities.

A) noncash
B) financing
C) operating
D) investing

Question 68

The Sonesta Company sold equipment for cash. The income statement shows a loss on sale of $5,000. The net book value of the asset prior to sale was $24,000. Which of the following statements describes the cash effect of the transaction?

A) Positive cash flow of $29,000 in investing activities
B) Negative cash flow of $19,000 in operating activities
C) Positive cash flow of $19,000 in investing activities
D) Negative cash flow of $14,000 in financing activities

Question 69

Avatar Company uses the indirect method to prepare the statement of cash flows. Please refer to the following section of the comparative balance sheet:
$$\begin{array} { | l | r | r | r | } \hline&2014 & 2013 & \text { Increase/decrease }\\\hline \text { Accounts payable } & \$ 4,000 & \$ 6,000 & \$ ( 2,000 ) \\\hline \text { Accrued liabilities } & 2,000 & 1,000 & 1,000 \\\hline \text { Long-term notes payable } & 84,000 & 90,000 & ( 6,000 ) \\\hline \text { Total liabilities } & \$ 90,000 & \$ 97,000 & \$ ( 7,000 ) \\\hline\end{array}$$


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How will the change in Accounts payable be shown on the statement of cash flows?

A) Operating activities minus positive cash flow
B) Operating activities minus negative cash flow
C) Financing activities minus positive cash flow
D) Investing activities minus negative cash flow

Question 70

The Sonesta Company uses the indirect method for the statement of cash flows. In 2013, they purchased equipment for $10,000 cash. Which of the following statements is TRUE?

A) $10,000 would be shown as a negative cash flow in the operating activities section.
B) $10,000 would be shown as a negative cash flow in the investing activities section.
C) $10,000 would be shown as a positive cash flow in the investing activities section.
D) $10,000 would be shown as a positive cash flow in the financing activities section.

Question 71

Which of the following would be considered an operating activity on the statement of cash flows?

A) Dividends paid to stockholders
B) The sale of inventory
C) Payment to purchase equipment
D) The receipt of cash from sale of equipment

Question 72

Avatar Company uses the indirect method to prepare its statement of cash flows. Please refer to the following information:
• Repayments on long-term notes payable: $40,000
• New borrowing on long-term notes payable: $34,000
Which of the following statements is accurate regarding the statement of cash flows?

A) $34,000 will be shown as a positive cash flow in the investing section.
B) $40,000 will be shown as a positive cash flow in the financing section.
C) $34,000 will be shown as a positive cash flow in the financing section.
D) $40,000 will be shown as a negative cash flow in the investing section.

Question 73

Avatar Company uses the indirect method to prepare the statement of cash flows. Please refer to the following section of the comparative balance sheet:
$$\begin{array} { | l | r | r | r | } \hline&2014 & 2013 & \text { Increase/decrease }\\ \hline \text { Cash } & \$ 33,000 & \$ 18,000 & \$ 15,000 \\\hline \text { Accounts receivable } & 22,000 & 35,000 & ( 13,000) \\\hline \text { Inventory } & 170,000 & 115,000 & 55,000 \\\hline \text { Total assets } & \$ 225,000 & \$ 168,000 & \$ 57,000 \\\hline\end{array}$$

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How will the change in Accounts receivable be shown on the statement of cash flows?

A) Operating activities minus positive cash flow
B) Operating activities minus negative cash flow
C) Financing activities minus positive cash flow
D) Investing activities minus negative cash flow

Question 74

A payment of interest on a loan would be considered a:

A) cash outflow from operating activities.
B) cash outflow from investing activities.
C) cash outflow from financing activities.
D) noncash activity.

Question 75

Avatar Company uses the indirect method to prepare the statement of cash flows. Please refer to the following section of the comparative balance sheet:
$$\begin{array} { | l | r | r | r | } \hline&2014 & 2013 & \text { Increase/decrease }\\\hline \text { Accounts payable } & \$ 4,000 & \$ 6,000 & \$ ( 2,000 ) \\\hline \text { Accrued liabilities } & 2,000 & 1,000 & 1,000 \\\hline \text { Long-term notes payable } & 84,000 & 90,000 & ( 6,000 ) \\\hline \text { Total liabilities } & \$ 90,000 & \$ 97,000 & \$ ( 7,000 ) \\\hline\end{array}$$


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How will the change in Accrued liabilities be shown on the statement of cash flows?

A) Operating activities minus positive cash flow
B) Operating activities minus negative cash flow
C) Financing activities minus positive cash flow
D) Investing activities minus negative cash flow

Question 76

Cash borrowed on a mortgage note would be a(n) ________ activity.

A) operating
B) investing
C) financing
D) non-cash

Question 77

Which of the following is NOT a cash outflow from an operating activity?

A) Payment of interest on a loan
B) Payment for purchasing inventory
C) Payment of dividends
D) Payments to the government for taxes

Question 78

Avatar Company uses the indirect method to prepare the statement of cash flows. Please refer to the following section of the comparative balance sheet:
$$\begin{array} { | l | r | r | r | } \hline&2014 & 2013 & \text { Increase/decrease }\\\hline \text { Accounts payable } & \$ 4,000 & \$ 6,000 & \$ ( 2,000 ) \\\hline \text { Accrued liabilities } & 2,000 & 1,000 & 1,000 \\\hline \text { Long-term notes payable } & 84,000 & 90,000 & ( 6,000 ) \\\hline \text { Total liabilities } & \$ 90,000 & \$ 97,000 & \$ ( 7,000 ) \\\hline\end{array}$$


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Additional information provided:
During 2014, the company repaid $40,000 of long-term notes payable.
During 2014, the company borrowed $34,000 on a new note payable.
Based on the above information only, what amount of net cash flow would be shown in the financing section of the statement of cash flows?

A) $6,000 negative
B) $6,000 positive
C) $5,000 positive
D) $7,000 negative

Question 79

How would a new issue of common stock be shown on the statement of cash flows?

A) Negative cash flow in the investing section
B) Positive cash flow in the investing section
C) Negative cash flow in the financing section
D) Positive cash flow in the financing section

Question 80

Avatar Company uses the indirect method to prepare its statement of cash flows and provides following information about transactions for the year:
• Plant assets, net-beginning balance: $90,000
• Plant assets, net-ending balance: $120,000
• Equipment costing $52,000 was purchased for cash
• Equipment with a net asset value of $10,000 was sold for $14,000
• Depreciation expense of $12,000 was recorded during the year
What was the net amount of Cash from investing activities?

A) $38,000 negative
B) $60,000 positive
C) $52,000 negative
D) $30,000 negative