Deck 16: The Statement of Cash Flows

Question 1

The statement of cash flows helps users ________.

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

Answer 1

B

Question 2

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

Answer 2

False

Question 3

One of the purposes of the statement of cash flows is to ________.

A)determine the operating income of a business
B)to calculate inventory turnover
C)evaluate the level of debt and leverage of a company
D)predict the ability of a company to pay debts and dividends

Answer 3

D

Question 4

The three sections of the statement of cash flows report only activities that involve cash.

Question 5

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

Question 6

A company purchased machinery by issuing a long-term note payable.This is an example of a non-cash investing and financing activity for the statement of cash flows.

Question 7

Which of the following describes the financing activities section of the statement of cash flows?

A)It includes increases and decreases in long-term assets.
B)It includes cash inflows and outflows involved in long-term liabilities and equity.
C)It includes interest and dividend income and cash payments for interest expense.
D)It reports on activities that create revenue or expenses for the entity's business.

Question 8

The contribution of equipment by a stockholder in exchange for common stock is an example of ________.

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

Question 9

Which of the following describes the operating activities section of the statement of cash flows?

A)It reports cash receipts and cash payments that increase or decrease long-term assets.
B)It includes cash inflows and outflows involved in long-term liabilities and equity.
C)It reports on activities that create revenue or expenses for the entity's business.
D)It reports on how cash flows affect the total assets and total liabilities.

Question 10

The investing activities section of the statement of cash flows reports cash receipts and payments that increase or decrease long-term liabilities.

Question 11

The cash paid for the purchase of equipment will typically be shown in the investing activities section of the statement of cash flows.

Question 12

Which of the following is true of the statement of cash flows?

A)It indicates when long-term debt will mature.
B)It reports on the qualitative behavior of the company's performance.
C)It covers a span of time and is dated the same as the income statement.
D)It shows how the profits or losses of the company were generated.

Question 13

List and discuss three ways in which the statement of cash flows helps financial statement users.

Question 14

The operating activities section of the statement of cash flows includes activities that create revenue or expenses for the entity's business.

Question 15

A business's cash receipts and cash payments for a specific period are reported on a(n)________.

A)income statement
B)balance sheet
C)statement of cash flows
D)cash reconciliation statement

Question 16

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

Question 17

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

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

Question 18

The financing activities section of the statement of cash flows includes paying dividends and making payments on long-term liabilities.

Question 19

The statement of cash flows explains why net income as reported on the income statement does not equal the change in the cash balance.

Question 20

The purchase of equipment financed by a long-term notes payable is an example of ________.

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

Question 21

Nelson Corp.uses the indirect method to prepare the statement of cash flows.Refer to the following section of the comparative balance sheet:

The change in Accounts Payable is as a negative cash flow in the adjustments to net income.

Question 22

The operating and financing activities of the statement of cash flows are presented differently between the indirect and direct methods.

Question 23

Walker,Inc.uses the indirect method to prepare the statement of cash flows.Refer to the following section of the comparative balance sheet:

The change in Accounts Receivable is shown as a negative cash flow in the adjustments to net income.

Question 24

The indirect and direct methods use different computations but produce the same amount of net cash flow from operating activities.

Question 25

The ________ section of the statement of cash flows includes increases and decreases in long-term assets.

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

Question 26

Which of the following statements is true of the direct and indirect methods of preparing the statement of cash flows?

A)The indirect method and the direct method will produce the same amount of net cash flow from operating activities.
B)The investing activities section is the only section that differs between the direct and indirect methods.
C)The indirect method shows three types of cash flows,but the direct method does not.
D)There is no difference in the way the operating activities section is presented.

Question 27

While preparing a statement of cash flows using the indirect method,an increase in current assets is added to net income to arrive at net cash flow from operating activities.

Question 28

Which of the following statements is true?

A)The indirect method and the direct method will produce a different amount of net cash flow from investing activities.
B)The indirect method starts with net income and adjusts it to cash provided by (used for)operating activities.
C)The direct and indirect methods include different types of cash flows in the investing activities section.
D)The indirect method includes all non-cash activities,whereas the direct method includes only the cash activities.

Question 29

The direct method restates the income statements in terms of cash.

Question 30

The direct method starts with net income and adjusts it to net cash provided by operating activities.

Question 31

When preparing the statement of cash flows using the indirect method,depreciation expense is subtracted from net income under operating activities.

Question 32

Which of the following is the typical 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 33

Which of the following sections of the statement of cash flows is presented differently between the direct method and indirect method?

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

Question 34

When preparing the statement of cash flows using the indirect method,a decrease in current liabilities is added to the net income to arrive at net cash flow from operating activities.

Question 35

Ross Corp.uses the indirect method to prepare the statement of cash flows.Refer to the following section of the comparative balance sheet:

The change in Accrued Liabilities is shown as a negative cash flow in the adjustments to net income.

Question 36

Wellesley,Inc.uses the indirect method to prepare the statement of cash flows.Refer to the following section of the comparative balance sheet:

The change in Merchandise Inventory is shown as a negative cash flow in the adjustments to net income.

Question 37

Samuel Corp.has provided the following information for the year ended December 31,2017.





Additional information provided by the company includes the following:
Equipment costing $60,000 was purchased for cash.
Equipment with a net book value of $10,000 was sold for $16,000.
Depreciation expense of $16,000 was recorded during the year.
During 2017,the company repaid $43,000 of long-term notes payable.
During 2017,the company borrowed $34,000 on a new long-term note payable.
There were no stock retirements during the year.
There were no sales of treasury stock during the year.
All sales are on credit.
Prepare the 2017 statement of cash flows,using the indirect method.

Question 38

The three major categories included on the statement of cash flows are ________.

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 39

When preparing the statement of cash flows using the indirect method,a loss on the sale of plant assets must be shown as a subtraction from the investing activities section.

Question 40

Johnson Tires Company uses the indirect method to prepare the statement of cash flows.Refer to the following comparative balance sheet for Johnson Tires Company and complete the third column to show the increases or decreases.

Question 41

A-Z Auto Parts Company uses the indirect method to prepare the statement of cash flows.Refer to the following section of the comparative balance sheet:

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

A)as an addition to Net Income
B)as a deduction from Net Income
C)as a deduction from operating cash flows
D)as an addition to operating cash flows

Question 42

Selling property,plant,and equipment for $10,000 cash is considered a cash inflow from investing activities on the statement of cash flows.

Question 43

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

A)the financing activities section
B)the operating activities section
C)the investing activities section
D)the non-cash investing and financing section

Question 44

Manning Tint,Inc.uses the indirect method to prepare its statement of cash flows.Refer to the following portion of the comparative balance sheet:

Additional information provided by the company includes the following:
1.Equipment was purchased for $68,000.
2.Equipment with a cost of $36,000 and accumulated depreciation of $7,400 was sold for $50,000.
What was the amount of net cash provided by (used for)investing activities?

A)$177,000
B)$18,000
C)$(177,000)
D)$(18,000)

Question 45

Which of the following will be shown under the investing activities section of the statement of cash flows?

A)purchased treasury stock for cash
B)issued notes payable to purchase equipment
C)paid cash dividends to stockholders
D)loaned money to a third party

Question 46

In preparing a statement of cash flows using the indirect method,the Depreciation Expense ________.

A)is added back as an adjustment to Net Income in the operating activities section
B)is shown as a negative cash flow in the investing activities section
C)is added back to Purchases of Plant Assets under investing activities
D)is shown as a negative cash flow under operating activities

Question 47

Which of the following will be listed in the operating section of the statement of cash flows that is prepared using the indirect method?

A)collections from customers
B)payments to suppliers
C)interest received
D)increases/decreases in current liabilities

Question 48

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

A)the financing activities section
B)the operating activities section
C)the investing activities section
D)the non-cash investing and financing section

Question 49

Starfire Telescopes Company uses the indirect method to prepare the statement of cash flows.Refer to the following income statement:


Additional information provided by the company includes the following:
Current assets other than cash decreased by $25,000.
Current liabilities increased by $3,000.
Prepare the operating activities section of the statement of cash flows.

Question 50

Avatar Auto Parts Company uses the indirect method to prepare the statement of cash flows.Refer to the following section of the comparative balance sheet:

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

A)as an addition to Net Income
B)as a deduction from Net Income
C)as a deduction from investing cash flows
D)as an addition to operating cash flows

Question 51

Rodriguez Tint,Inc.uses the indirect method to prepare the statement of cash flows.Refer to the following income statement:

Additional information provided by the company includes the following:
Current assets,other than cash,decreased by $5,200.
Current liabilities increased by $2,400.
Compute the net cash provided by (used for)operating activities.

A)$(37,500)
B)$(65,200)
C)$10,600
D)$42,900

Question 52

Which of the following sections of the statement of cash flows includes activities that affect current assets and current liabilities on the balance sheet? (Assume the indirect method is used. )

A)the investing activities section
B)the financing activities section
C)the operating activities section
D)the non-cash investing and financing section

Question 53

Budget Auto Parts Company uses the indirect method to prepare the statement of cash flows.Refer to the following income statement:


Additional information provided by the company includes the following:
Current assets other than cash increase by $36,000.
Current liabilities decrease by $1,500.
Prepare the operating activities section of the statement of cash flows.

Question 54

Which of the following sections of the statement of cash flows includes activities that create revenue and expenses of the business?

A)the investing activities section
B)the financing activities section
C)the operating activities section
D)the non-cash investing and financing section

Question 55

Felix Skateboards Company uses the indirect method to prepare the statement of cash flows.Refer to the following income statement:

Additional information provided by the company includes the following:
1.Current assets,other than cash,increased by $21,000.
2.Current liabilities decreased by $1,500.
Compute the net cash provided by (used for)operating activities.

A)$26,200
B)$40,200
C)$34,700
D)$12,500

Question 56

The activities that are included in the operating activities section of the statement of cash flows are ________.

A)activities that involve stockholders' equity
B)activities that create revenue or expenses
C)activities that increase or decrease long-term assets
D)activities that pertain to construction of new facilities

Question 57

Valentine Corp.uses the indirect method to prepare the statement of cash flows.Refer to the following section of the comparative balance sheet:

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

A)addition to net income under the operating activities section
B)subtraction from net income under the operating activities section
C)positive cash flow under the financing activities section
D)negative cash flow under the investing activities section

Question 58

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

A)the financing activities section
B)the operating activities section
C)the investing activities section
D)the non-cash investing and financing section

Question 59

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

Question 60

Cat Nap Corp.uses the indirect method to prepare the statement of cash flows.Refer to the following section of the comparative balance sheet:

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

A)addition to net income under the operating activities section
B)subtraction from net income under the operating activities section
C)positive cash flow under the financing activities section
D)negative cash flow under the investing activities section

Question 61

Cash borrowed on a mortgage note is a(n)________ activity on the statement of cash flows.

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

Question 62

Allen Moving Company uses the indirect method to prepare its statement of cash flows.Refer to the following portion of the comparative balance sheet:

If the net income for the year was $61,000,the company must have declared $26,000 as dividends during the year.

Question 63

Martin Ceramics Company sold equipment for cash.The income statement shows a gain on the sale of $920.The net book value of the asset was $3,610.Which of the following statements describes the cash effect of the transaction?

A)negative cash flow of $4,530 for financing activities
B)negative cash flow of $2,690 for operating activities
C)positive cash flow of $4,530 from investing activities
D)positive cash flow of $2,690 from investing activities

Question 64

Hector Production Company uses the indirect method to prepare its statement of cash flows.The Treasury Stock account had a debit balance of $7,000 at the beginning of the year and a debit balance of $18,000 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 positive cash flow of $11,000 for the buy back of Treasury Stock.

Question 65

Financing activities on the statement of cash flows affect the long-term liability and equity accounts.

Question 66

To Go Company is preparing its statement of cash flows using the indirect method.During the year,they purchased equipment for $15,000 cash.Which of the following statements is true?

A)$15,000 would be shown as a negative cash flow in the operating activities section.
B)$15,000 would be shown as a negative cash flow in the investing activities section.
C)$15,000 would be shown as a positive cash flow in the investing activities section.
D)$15,000 would be shown as a positive cash flow in the financing activities section.

Question 67

Caleb Auto Parts Company uses the indirect method to prepare its statement of cash flows.Refer to the following portion of the comparative balance sheet:


Additional information provided by the company includes the following:
Equipment costing $104,000 was purchased for cash.
Equipment with a net book value of $20,000 was sold for $28,000.
Depreciation expense of $24,000 was recorded during the year.
Prepare the investing activities section of the statement of cash flows.

Question 68

Issuing preferred stock to stockholders in exchange for cash is shown under the financing activities section of the statement of cash flows.

Question 69

Which of the following is a cash outflow for a financing activity on the statement of cash flows?

A)payment of interest on a loan
B)payment for purchasing Merchandise Inventory
C)payment of dividends
D)payments to the government for taxes

Question 70

The financing section of the statement of cash flows involves transactions relating to the equity accounts and the long-term liability accounts.

Question 71

Which of the following sections from the statement of cash flows includes the cash paid for the purchase of Treasury Stock?

A)the financing activities section
B)the operating activities section
C)the investing activities section
D)the non-cash investing and financing section

Question 72

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

A)the investing activities section
B)the financing activities section
C)the operating activities section
D)the non-cash investing and financing section

Question 73

Christopher Corp.is preparing its statement of cash flows using the indirect method.It provides the following information about transactions for the year:
Plant assets,net-beginning balance: $108,000
Plant assets,net-ending balance: $149,000
Equipment was purchased for $67,000.
Equipment with a net asset value of $12,000 was sold for $19,000.
Depreciation Expense of $19,000 was recorded during the year.
What was the amount of net cash provided by (used for)investing activities?

A)$(48,000)
B)$48,000
C)$(67,000)
D)$(41,000)

Question 74

Which of the following is a cash outflow for a financing activity on the statement of cash flows?

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 75

Sonesta Farm Equipment Company sold equipment for cash.The income statement shows a loss on the sale of $9,000.The net book value of the asset was $30,900.Which of the following statements describes the cash effect of the transaction?

A)positive cash flow of $39,900 from financing activities
B)negative cash flow of $21,900 for operating activities
C)negative cash flow of $21,900 for financing activities
D)positive cash flow of $21,900 from investing activities

Question 76

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

A)the financing activities section
B)the operating activities section
C)the investing activities section
D)the non-cash investing and financing section

Question 77

Buying property,plant,and equipment for cash is considered a cash outflow for the financing activities section of the statement of cash flows.

Question 78

Kevin Woodworking Company is preparing its statement of cash flows using the indirect method.During the year,Kevin sold equipment for $7,490 cash.The net book value of the asset was $4,670.Which of the following statements is true?

A)The gain on sale of $2,820 is added back to net income in the operating activities section.
B)The book value of the assets sold is shown as a negative cash flow in the investing activities section.
C)The cash receipt of $7,490 is shown as a positive cash flow in the investing activities section.
D)The gain on sale of $2,820 is shown as a positive cash flow in the financing activities section.

Question 79

Lewis,Inc.uses the indirect method to prepare its statement of cash flows.Refer to the following portion of the comparative balance sheet:


Additional information provided by the company includes the following:
Equipment costing $104,000 was purchased for cash.
Equipment with a net book value of $20,000 was sold for $28,000.
Depreciation Expense of $24,000 was recorded during the year.
Use the T-account format and evaluate the transactions affecting Property,Plant,and Equipment,net.

Question 80

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

A)the investing activities section
B)the operating activities section
C)the financing activities section
D)the non-cash investing and financing section