Deck 12: The Statement of Cash Flows

Question 1

The statement of cash flows:

A) can be prepared instead of an income statement.
B) must be prepared daily.
C) summarizes the operating, financing, and investing activities of an entity.
D) is part of the income statement.

Answer 1

C

Question 2

The statement of cash flows will NOT report:

A) the number of checks not written at the end of the period.
B) how cash was used in the current period.
C) changes in the cash balance for the current period.
D) the sources of cash in the current period.

Answer 2

A

Question 3

When preparing a statement of cash flows, cash equivalents are subtracted from cash in order to calculate the net change in cash during a period.

Answer 3

False

Question 4

If a company reports a net loss, it:

A) cannot pay cash dividends.
B) cannot obtain a loan.
C) cannot purchase property.
D) may still have an increase in cash.

Question 5

Cash equivalents do NOT include highly liquid short-term investments.

Question 6

Highly liquid short-term investments that are easily convertible into cash are called:

A) trading securities.
B) cash equivalents.
C) current assets.
D) accounts receivable.

Question 7

The statement of cash flows shows the relationship of assets to cash flows.

Question 8

The statement of cash flows is an optional statement that can be prepared along with the income statement, balance sheet, and statement of retained earnings.

Question 9

Creditors analyze the statement of cash flows to determine:

A) total interest earned during the period.
B) the quality of the company's earnings.
C) whether or not the company can pay interest on debt.
D) if management was overpaid.

Question 10

The statement of cash flows will NOT help predict future cash flows.

Question 11

The financial statement that reports cash receipts and cash payments classified according to the company's major activities of operating, investing, and financing is the:

A) income statement.
B) balance sheet.
C) statement of cash flows.
D) statement of operating activities.

Question 12

The statement of cash flows is presented for a period of time.

Question 13

A statement of cash flows accomplishes all of the following EXCEPT:

A) determines the ability of the company to pay dividends and interest.
B) provides information about the cash receipts and cash payments during a period.
C) determines whether revenues equal expenses.
D) predicts future cash flows.

Question 14

For reporting purposes, a company must prepare both an income statement and a statement of cash flows.

Question 15

A statement of cash flows:

A) may be combined with the income statement at the option of management.
B) is typically prepared at the request of major creditors.
C) is a basic financial statement required for publicly-held companies.
D) may be combined with the balance sheet.

Question 16

The main purpose of the statement of cash flows is to:

A) provide information about the cash receipts and cash payments during a period.
B) provide information about the investing and financing activities during a period.
C) prove that revenues exceed expenses if there is a net income.
D) assist banking relationships.

Question 17

An example of a cash equivalent is a money-market account.

Question 18

If a company has high net income, it may still have difficulty paying its bills.

Question 19

In addition to preparing the income statement, balance sheet, and statement of retained earnings, which of the following is also a required financial statement?

A) Statement of Cash Inflows and Outflows
B) Statement of Cash Flows
C) Cash Reserve Statement
D) Cash Reconciliation Statement

Question 20

A statement of cash flows indicates the sources and uses of cash at a point in time.

Question 21

Of the three types of business activities reported on a statement of cash flows, investing activities are the most important when evaluating a business.

Question 22

Which of the following is considered to be a cash equivalent?

A) Investments in short-term U.S. Government securities
B) Accounts receivable
C) Notes receivable
D) Trading securities

Question 23

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

Question 24

The best gauge of a company's ability to produce ample cash to continue as a going concern is net cash provided by:

A) operating activities.
B) investing activities.
C) financing activities.
D) analytical activities.

Question 25

The three sections contained in the statement of cash flows are presented in the following order:

A) operating, investing, and financing.
B) financing, operating, and investing.
C) investing, operating, and financing.
D) financing, investing, and operating.

Question 26

All income statement line items are either a cash inflow or cash outflow from operating activities.

Question 27

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

Question 28

The three categories on the statement of cash flows are listed in order of dollar amount.

Question 29

Most of the time, net income will be the same as cash flows from operating activities.

Question 30

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

Question 31

There are two ways to format operating activities on the statement of cash flows.

Question 32

The statement of cash flows is designed to fulfill all the following purposes EXCEPT to:

A) show the relationship of net income to changes in the company's cash.
B) assess the collectability of accounts receivable.
C) evaluate management decisions.
D) help predict future cash flows.

Question 33

Which of the three types of activities reported on the statement of cash flows is the most critical?

A) Investing activities
B) Operating activities
C) Financing activities
D) Investing and financing activities

Question 34

Cash equivalents do NOT include:

A) treasury bills.
B) money market funds.
C) 4-year certificates of deposit.
D) short-term corporate notes.

Question 35

The three types of activities reported on the statement of cash flows are:

A) operating, investments, and financing.
B) operating, investing, and free flow.
C) operating, investing, and financing.
D) operating, indirect, and direct.

Question 36

Cash flow from financing activities is the most important category on the statement of cash flows because it is considered the best way to evaluate future income.

Question 37

Financing activities involve:

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

Question 38

Which of the following does NOT apply to cash equivalents?

A) Highly-liquid
B) Readily convertible into cash
C) Short-term
D) Fluctuates with the market interest rate

Question 39

Collections on a loan are reported as investing activities on the statement of cash flows.

Question 40

All critical investing and financing activities will affect cash.

Question 41

The receipt of interest on loans would be reported on a statement of cash flows under:

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

Question 42

Acquisitions of treasury stock would be reported on a statement of cash flows as:

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

Question 43

The purchase of treasury stock would be reported on a statement of cash flows as a:

A) cash outflow under the financing activities.
B) cash inflow under the investment activities.
C) cash inflow under the operating activities.
D) cash outflow under the investment activities.

Question 44

Tech Support, Inc. issued common stock for $470,000 cash in 2012. The company paid cash dividends of $50,000 and purchased treasury stock at a cost of $20,000. The financing section of the statement of cash flows will report net cash inflows of:

A) $540,000.
B) $500,000.
C) $440,000.
D) $400,000.

Question 45

Cash received from the issuance of bonds would be reported on a statement of cash flows under:

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

Question 46

Which of the following transactions does NOT affect cash during a period?

A) Sale of treasury stock
B) Write-off of an uncollectible account
C) Purchase of property
D) Payment of an accounts payable

Question 47

Usually, the most important category on the statement of cash flows is cash flows from:

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

Question 48

Cash received from customers would be reported on the statement of cash flows under:

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

Question 49

On the statement of cash flows, in which section would the purchase of land appear?

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

Question 50

Which of the following would be reported on a statement of cash flows as an investing activity?

A) Depreciation expense
B) Purchase of treasury stock
C) Sale of equipment for cash
D) Paying cash dividends

Question 51

Cash receipts from interest and dividends are classified as:

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

Question 52

Increases and decreases in the long-term assets available to a company are reported on the statement of cash flows as:

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

Question 53

Interest paid on debt would be reported on a statement of cash flows under:

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

Question 54

Increases and decreases in the long-term liability accounts are reported on the statement of cash flows as:

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

Question 55

Investing activities include:

A) obtaining cash from creditors.
B) collecting cash on loans.
C) obtaining capital from owners.
D) repaying borrowed money.

Question 56

In 2012, Simply Simple, Inc. sold land for $150,000 cash, purchased equipment for $30,000 cash and issued bonds for $100,000 cash. The net cash provided by investing activities is:

A) $280,000.
B) $220,000.
C) $120,000.
D) $20,000.

Question 57

Which of the following would be reported on a statement of cash flows as a financing activity?

A) Sale of equipment
B) Amortization expense
C) Collection of notes receivable
D) Purchase of treasury stock

Question 58

Where would income taxes paid appear on the statement of cash flows?

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

Question 59

In preparing a statement of cash flows, converting bonds into common stock would be reported in:

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

Question 60

In 2012, ABC Corporation purchased treasury stock with a cost of $25,000. During the year, the company paid dividends of $15,000 and issued bonds payable for $750,000. Cash flows from financing activities for 2012 are:

A) $710,000 cash inflow.
B) $760,000 cash inflow.
C) $790,000 cash outflow.
D) $740,000 cash inflow.

Question 61

Under the indirect method of preparing the statement of cash flows, the starting point to determine net cash from operating activities is:

A) the beginning cash balance.
B) the ending cash balance.
C) net income.
D) sales.

Question 62

Under the direct method of preparing the financing section of the statement of cash flows, net cash provided by financing activities is $388,000. If the indirect method of preparing the financing section of the statement of cash flows was used:

A) cash provided by financing activities would be less than $388,000.
B) cash provided by financing activities would be more than $388,000.
C) cash provided by financing activities would be the same, $388,000.
D) cash provided by operating activities would equal $388,000.

Question 63

When preparing the statement of cash flows using the indirect method, which statement is NOT true?

A) Gains on the sale of long-term assets are subtracted from net income.
B) Losses on the sale of long-term assets are subtracted from net income.
C) Depreciation expense is added to net income.
D) Increases in current liabilities are added to net income.

Question 64

Operating income is typically equal to cash flow from operating activities.

Question 65

Under the indirect method, a decrease in accounts payable is deducted from net income under the operating activities.

Question 66

Under the indirect method, a decrease in a current asset other than cash indicates a decrease in cash.

Question 67

Using the indirect method, an increase in accounts receivable is subtracted from net income in calculating cash flows from operating activities.

Question 68

The change in total assets is the "check figure" for the statement of cash flows.

Question 69

A gain on sale of equipment is subtracted from net income when determining cash provided by operations under the indirect method.

Question 70

Only the balance sheet is used to prepare the statement of cash flows.

Question 71

All of the following may appear as an adjustment of net income when preparing the statement of cash flows using the indirect method EXCEPT:

A) payment of cash dividends.
B) depreciation expense.
C) loss on sale of long-term assets.
D) an increase in accounts payable.

Question 72

Under the indirect method, a loss on the sale of long-term assets is added to net income under the operating activities.

Question 73

Various transactions of Plymouth Corporation are shown below:
1. Bonds payable are issued for cash at a premium.
2. Equipment is sold for cash at book value.
3. Land is purchased by signing a 5-year, 8% note payable.
4. 1,000 shares of ABC Corporation's common stock are purchased for cash.
5. The conversion option is utilized and bonds payable are converted into common stock.
6. Common stock, with a $1 par value, is sold for $10 per share.
7. Interest receivable on a short-term note receivable is received.
8. Cash is paid on accounts payable.
9. Cash dividends are declared and paid.
10. Merchandise is sold for cash to customers.
Required: Categorize each transaction as either an operating activity, investing activity, financing activity, or a noncash activity.

Question 74

Under the indirect method, depletion expense must be subtracted from net income under the operating activities.

Question 75

To convert net income to cash flows under the indirect method, depreciation expense is added to net income.

Question 76

Under the indirect method, when calculating cash flows from operating activities, a gain on the sale of equipment is:

A) subtracted from net income.
B) added to net income.
C) only the proceeds are added to net income.
D) ignored since this transaction does not affect cash.

Question 77

An increase in common stock would be an investing activity under the statement of cash flows.

Question 78

Under the indirect method of preparing the operating section of the statement of cash flows, net cash provided by operating activities is $207,000. If the direct method of preparing the operating section of the statement of cash flows was used:

A) cash provided by operating activities would be the same, $207,000.
B) cash provided by operating activities would be more than $207,000.
C) cash provided by operating activities would be less than $207,000.
D) cash provided by financing and investing activities would equal $207,000.

Question 79

Using the indirect method to calculate net cash provided by operating activities, a decrease in prepaid expenses is:

A) subtracted from net income.
B) added to net income.
C) ignored since it does not affect expenses.
D) ignored since it does not affect income.

Question 80

The method that starts with net income and adjusts it for items that affect net income, but do not affect cash is called the:

A) lower-of-cost or market method.
B) direct method.
C) indirect method.
D) gross profit method.