Deck 11: The Statement of Cash Flows

Question 1

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.

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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 three months or more.

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

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

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

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

Question 20

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.

Question 21

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 22

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 23

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 24

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 25

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

Question 26

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

Question 27

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 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

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 33

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

Question 34

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

Question 35

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 36

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

Question 37

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 38

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

Question 39

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

Question 40

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

Question 41

The primary purpose of the statement of cash flows is to provide information about

A)the financial position of the company.
B)the profitability of the company.
C)the investing and financing activities of the company.
D)the cash inflows and outflows of the company.

Question 42

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 43

____________________ 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 44

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

Question 45

A company reported net income of $150,000 for 2014,but its cash balance decreased by $40,000.Which financial statement should management refer to for an explanation of this situation?

A)Balance Sheet
B)Income Statement
C)Statement of retained Earnings
D)Statement of Cash Flows

Question 46

A company reported a net loss of $30,000 for 2014,yet its cash balance increased during the year.Which financial statement should management refer to for an explanation of this situation?

A)Balance Sheet
B)Income Statement
C)Statement of Retained Earnings
D)Statement of Cash Flows

Question 47

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 48

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 49

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 50

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

Question 51

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

Question 52

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 53

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 54

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

Question 55

A company reported net income for the current year.Which of the following business transactions would cause its cash from operating activities to be higher than its net income?

A)Cash dividends were paid to stockholders during the year.
B)Depreciation expense was recorded for the year.
C)A bank loan was repaid during the year.
D)Equipment was purchased for cash during the year.

Question 56

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

A)The statement of cash flows analyzes the changes in consecutive balance sheets in conjunction with the income statement.
B)The statement of cash flows is organized to present classifications for total cash inflows and cash outflows.
C)The statement of cash flows analyzes only the changes in current assets and current liabilities.
D)The statement of cash flows is an optional financial statement.

Question 57

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 58

Which of the following statements is not true? The information in the statement of cash flows helps investors,creditors and others:

A)assess a company's ability to produce future cash inflows.
B)judge a company's ability to meet it obligations and pay dividends.
C)estimate the company's needs for external financing.
D)show the inflows and outflow of net income on the accrual basis.

Question 59

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 60

Which of the following statements is false?

A)A balance sheet reports a company's cash balance at a specific date.
B)An income statement reports the amounts of revenue and expense on an accrual basis.
C)A statement of retained earnings reports the amount of cash received from operating activities and the amount of cash paid for dividends.
D)A statement of cash flows explains the changes in cash from operating,investing,and financing activities.

Question 61

Which of the following is not an operating activity?

A)Cash collections from credit customers.
B)Cash payments for operating expenses.
C)Cash receipts for interest earned.
D)Cash payments for dividends to stockholders.

Question 62

The statement of cash flows

A)along with the balance sheet and income statement is prepared on the accrual basis.
B)along with the balance sheet and statement of retained earnings is dated as of a specific year end date.
C)along with the balance sheet is used to analyze liquidity.
D)ties the balance sheet to the statement of retained earnings.

Question 63

Upon reviewing Mack's Truck Stop's Statement of Cash Flows,the following was noted: From this information,the most likely explanation is that this company is

A)using cash from operations and selling long-term assets to pay back debt.
B)using cash from operations and borrowing to purchase long-term assets.
C)using its profits to expand growth.
D)using cash from investors to provide for operations

Question 64

Upon reviewing Myert Company's Statement of Cash Flows,the following was noted: From this information,the most likely explanation is that this company is

A)using cash from operations and selling long-term assets to pay back debt.
B)using cash from operations and borrowing to purchase long-term assets.
C)using its profits to expand growth.
D)using cash from investors to provide for operations.

Question 65

Which of the following is not a financing activity?

A)Issuing bonds for cash.
B)Selling an investment in IBM stock for cash.
C)Purchasing a company's own stock (treasury stock)for cash.
D)Making a cash payment to repay a bank loan.

Question 66

On December 31,2014,a restaurant purchased a $19,000 truck to be used for catering.It made a down payment of one-fourth of the purchase price.What combination of amounts would affect the 2014 income statement and statement of cash flows for the purchase of the truck? Statement of Cash Flow Income Statement

A)$ -0- $19,000
B)$19,000 $ -0-
C)$ 4,750 $19,000
D)$ 4,750 $ -0-

Question 67

Which balance sheet accounts are most affected by financing activities?

A)Current assets.
B)Current liabilities.
C)Long-term assets.
D)Long-term liabilities and stockholders' equity.

Question 68

Which of the following is not an investing activity?

A)Purchase of investments for cash.
B)Purchase of equipment for cash.
C)Sale of merchandise for cash.
D)Sale of land for cash.

Question 69

A company reported net income of $950,000.Cash from operations

A)will always be more than $950,000.
B)will always be less than $950,000.
C)will be equal to $950,000.
D)cannot be determined without more information.

Question 70

Mustard Seed Gifts had the following results for December 31,2013 and 2014,respectively: What was the amount of cash flows from investing activities for 2014?

A)Cash inflow of $290,000
B)Cash outflow of $290,000
C)Cash outflow of $10,000
D)Cash outflow of $30,000

Question 71

Cash flows from issuing and repurchasing stock or issuing and repaying debt are classified as

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

Question 72

Cash flows from acquiring and selling products are classified as

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

Question 73

Midtown Diner,Inc. ,purchased $10,000 of paper napkins for its restaurants.At the end of the period,three-fourths of the bill for the napkins is unpaid while an inventory revealed that 40% of the napkins were still on hand.What combination of amounts would affect the income statement and statement of cash flows? Statement of Cash Flow Income Statement

A)$6,000 $6,000
B)$7,500 $4,000
C)$2,500 $6,000
D)$6,000 $2,500

Question 74

Cash flows from borrowing and paying off a 90-day bank loan are classified as

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

Question 75

Which balance sheet accounts are most affected by operating activities?

A)Current assets and current liabilities.
B)Long-term assets.
C)Long-term liabilities.
D)Stockholders' equity.

Question 76

Which of the following is not a current reporting requirement for a statement that reports changes in cash over a period of time?

A)This statement must classify cash flows into three categories: operating,investing,and financing activities.
B)Cash equivalents must be combined with cash in preparing this statement.
C)Working capital may be used as a substitute for cash in preparing this statement.
D)The title for this statement is "Statement of Cash Flows."

Question 77

Cash flows from acquiring and disposing of long-term assets are classified as

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

Question 78

Which balance sheet accounts are most affected by investing activities?

A)Current assets and current liabilities.
B)Long-term assets.
C)Long-term liabilities.
D)Stockholders' equity.

Question 79

Which method of preparing the operating activities section of a statement of cash flows adjusts net income to remove the effects of deferrals and accruals for revenues and expenses?

A)The direct method
B)The indirect method
C)Both the direct and indirect methods
D)Neither the direct method nor the indirect method

Question 80

Upon review of a statement of cash flows,the following was noted: From this information,it is likely that the company is

A)using cash from operations and selling long-term assets to pay back debt
B)using cash from operations and borrowing to purchase long-term assets.
C)using its profits to expand growth.
D)using cash from investors to provide for operations.