Deck 11: Statement of Cash Flows

Question 1

Under the indirect method,an increase in prepaid rent is added to net income to arrive at net cash flows from operating activities.

Answer 1

False

Question 2

We report interest and dividends received from investments with investing activities.

Answer 2

False

Question 3

Operating activities are both inflows and outflows of cash resulting from the external financing of a business.

Answer 3

False

Question 4

Under the indirect method,a decrease in accounts receivable is added to net income to arrive at net cash flows from operating activities.

Question 5

The total net cash flows from operating activities differ between the direct and indirect methods.

Question 6

The three primary categories of cash flows are cash flows from operating activities,cash flows from investing activities,and cash flows from financing activities.

Question 7

Using the indirect method,we begin with net income and then list adjustments to net income in order to arrive at operating cash flows.

Question 8

A statement of cash flows provides a summary of cash inflows and cash outflows during the reporting period.

Question 9

We record dividends received as a financing activity.

Question 10

Using the direct method we adjust the items on the income statement to directly show the cash inflows and outflows from operations.

Question 11

Under the indirect method,an increase in inventory is added to net income and a decrease in inventory is subtracted from net income to arrive at net cash flows from operating activities.

Question 12

We report interest paid on bonds or notes payable with operating activities rather than financing activities.

Question 13

A loss on the sale of long-term assets is added to net income to arrive at net cash flows from operating activities under the indirect method.

Question 14

Transactions that don't increase or decrease cash,but that result in significant investing and financing activities,are reported either directly after the cash flow statement or in a separate note to the financial statements as noncash activities.

Question 15

Investing activities include cash transactions involving the purchase and sale of long-term assets and current investments.

Question 16

Financing activities include cash receipts and cash payments for transactions relating to revenue and expense activities.

Question 17

Since depreciation expense reduces net income,companies will add depreciation expense back to net income as a step in arriving at net cash flows from operations under the indirect method.

Question 18

The purchase of long-term assets by issuing debt is recorded as both an investing activity and a financing activity.

Question 19

We record dividends paid as a financing activity.

Question 20

A gain on the sale of long-term assets is added to net income to arrive at net cash flows from operating activities under the indirect method.

Question 21

We can find most financing activities by examining changes in long-term liabilities and stockholders' equity accounts.

Question 22

If no cash was exchanged in the purchase of equipment financed entirely with a note payable,we represent this as both an investing activity and a financing activity in the statement of cash flows.

Question 23

We calculate cash return on assets as the change in cash divided by average total assets.

Question 24

The total of the cash flows from operating,investing,and financing activities equals the net increase or decrease in cash for the year.

Question 25

Income statement items that have no cash effect are still reported under the direct method.

Question 26

If accounts receivable decreases,this indicates that revenues exceed cash receipts from customers.

Question 27

The long-term assets section of the balance sheet is the place to look for investing activities.

Question 28

Under the indirect method,a decrease in accounts payable is added to net income to arrive at net cash flows from operating activities.

Question 29

The sale of land is reported in the operating section of the statement of cash flows.

Question 30

To maximize cash flow from operations,a company strives to increase both cash flows per dollar of sales and sales per dollar of assets invested.

Question 31

The balance in Retained Earnings is increased by net income and is decreased by dividends.

Question 32

We report the payment of cash dividends as a cash outflow from investing activities.

Question 33

Cash return on assets can be separated to examine two important business strategies: cash flow to sales and asset turnover.

Question 34

When preparing a statement of cash flows using the indirect method,a decrease in accounts payable is subtracted from net income.

Question 35

We report the actual amount of cash proceeds received from the sale of land as a cash inflow from investing activities.

Question 36

We report the purchase of stock in another corporation as a cash outflow from investing activities.

Question 37

Using the direct method,we examine each account in the income statement and convert it from an accrual amount to a cash amount.

Question 38

Cash return on assets indicates the amount of operating cash flow generated for each dollar invested in assets.

Question 39

The inflow of cash received from issuing common stock is reported as an investing activity.

Question 40

Under the indirect method,an increase in accounts payable is added to net income to arrive at net cash flows from operating activities.

Question 41

If there are no current assets or liabilities associated with operating expenses,the amounts we report for these expenses in the income statement must equal the amount of cash we paid for these items.

Question 42

Which of the following is correct about the statement of cash flows?

Question 43

All classifications on the Balance Sheet have a general relationship with sections identified on the Statement of Cash Flows.Indicate which relationships are correctly identified in the table below.

Question 44

Which of the following is not true regarding cash flows?

Question 45

The purchase of land is classified in the statement of cash flows as a(n):

A)Operating activity.
B)Investing activity.
C)Financing activity.
D)Noncash activity.

Question 46

Which of the following transactions would not create a cash flow?

Question 47

Depreciation expense is not reported on the statement of cash flows under the direct method.

Question 48

Under what section of the Statement of Cash Flows would you classify the purchase of equipment by issuing a long-term note payable?

Question 49

Operating cash flows exclude:

A)Interest received.
B)Interest paid.
C)Dividends received.
D)Dividends paid.

Question 50

We add an increase in interest payable to interest expense in arriving at cash paid for interest under the direct method.

Question 51

When accounts payable decrease,cash paid to suppliers must have been more than purchases.

Question 52

The purchase of treasury stock is classified in the statement of cash flows as a(n):

A)Operating activity.
B)Investing activity.
C)Financing activity.
D)Noncash activity.

Question 53

The indirect method begins with net income,while the direct method considers each of the individual accounts that make up net income.

Question 54

Under what section of the Statement of Cash Flows would you classify dividends paid on common stock?

Question 55

Which one of the following is correct about the statement of cash flows?

Question 56

We add a decrease in income tax payable to income tax expense to calculate cash paid for income taxes.

Question 57

The issuance of notes payable for borrowing is classified in the statement of cash flows as a(n):

A)Operating activity.
B)Investing activity.
C)Financing activity.
D)Noncash activity.

Question 58

The statement of cash flows reports cash flows from the activities of:

A)Operating,purchasing,and investing.
B)Borrowing,paying,and investing.
C)Operating,investing,and financing.
D)Using,investing,and financing.

Question 59

The Statement of Cash Flows:

Question 60

Which of the following is an example of a noncash activity?

A)Sale of land for less than its cost.
B)Purchase of land by issuing debt.
C)Sale of land for more than its cost.
D)Purchase of land using cash proceeds from issuance of common stock.

Question 61

Which of the following is deducted from net income as an adjustment under the indirect method of preparing the statement of cash flows?

A)Salaries payable decrease.
B)Inventory decrease.
C)Depreciation expense.
D)Accounts receivable decrease.

Question 62

Use the following information to answer the next 3 questions:
Bad Brad's BBQ had cash flows for the year as follows ($ in millions):

Bad Brad's would report net cash inflows (outflows)from operating activities in the amount of:

A)$(80).
B)$120.
C)$200.
D)$420.

Question 63

In the operating activities section of the statement of cash flows,we start with net income when using:

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

Question 64

The indirect and direct methods:

A)Are used by companies about equally in actual practice.
B)Affect the presentations of operating,investing,and financing activities.
C)Arrive at different amounts for net cash flows from operating activities.
D)Are two allowable methods to present operating activities in the statement of cash flows.

Question 65

Which of the following is NOT a correct practice when adjusting net income to net operating cash flows?

Question 66

Given the items below,which of the following is a subtraction from net income to arrive at Operating Cash Flows using the indirect method?
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Question 67

Which of the following is added to net income as an adjustment under the indirect method of preparing the statement of cash flows?

A)Salaries payable increase.
B)Gain on the sale of land.
C)Inventory increase.
D)Accounts receivable increase.

Question 68

Use the following information to answer the next 3 questions:
Bad Brad's BBQ had cash flows for the year as follows ($ in millions):

Bad Brad's would report net cash inflows (outflows)from investing activities in the amount of:

A)$(4,000).
B)$100.
C)$(3,900).
D)$(1,900).

Question 69

Rachel's Recordings reported net income of $200,000.Beginning balances in Accounts Receivable and Accounts Payable were $15,000 and $20,000,respectively.Ending balances in these accounts were $12,000 and $22,000,respectively.Assuming that all relevant information has been presented,Rachel's cash flows from operating activities would be:

A)$200,000.
B)$195,000.
C)$205,000.
D)$199,000.

Question 70

The collection of cash from customers would be classified as which type of cash flow on the Statement of Cash Flows?

Question 71

Use the following information to answer the next 3 questions:
Bad Brad's BBQ had cash flows for the year as follows ($ in millions):

Bad Brad's would report net cash inflows (outflows)from financing activities in the amount of:

A)$ 1,100.
B)$(1,100).
C)$ 820.
D)$ 900.

Question 72

Dividends received from an investment is classified as a(an)__________ cash flow,and paying dividends on stock issued is classified as a(an)____________ cash flow on the Statement of Cash Flows.

Question 73

We can identify operating activities from income statement information and changes in

A)Long-term asset accounts.
B)Long-term liability accounts.
C)Current asset and current liability accounts.
D)Stockholders' equity accounts.

Question 74

Kela Corporation reports net income of $450,000 that includes depreciation expense of $70,000.Also,cash of $50,000 was borrowed on a 5-year note payable.Based on this data,total cash inflows from operating activities are:

Question 75

In preparing a statement of cash flows under the indirect method,an increase in accounts payable would be reported as a(n):

Question 76

Innovative Products reported net income of $205,000.Beginning and ending Inventory balances were $40,000 and $45,000,respectively.Accounts Payable balances at the beginning and end of the year were $35,000 and $33,000,respectively.Assuming that all relevant information has been presented,the company would report operating cash flows of:

A)$202,000.
B)$198,000.
C)$212,000.
D)$205,000.

Question 77

In preparing a statement of cash flows under the indirect method,a decrease in accounts receivable would be reported or included as a(n):

Question 78

Mary's Music Store reported net income of $135,000.Beginning balances in Accounts Receivable and Accounts Payable were $29,000 and $26,000,respectively.Ending balances in these accounts were $30,000 and $24,000,respectively.Assuming that all relevant information has been presented,Mary's cash flows from operating activities would be:

A)$132,000.
B)$134,000.
C)$136,000.
D)$138,000.

Question 79

Arrow Printers paid $2,000 interest on short-term notes payable,$10,000 interest on long-term bonds,and $6,000 in dividends on its common stock.Arrow would report cash outflows from activities,as follows:

A)Operating,$2,000;Financing $16,000.
B)Operating,$0;Financing $18,000.
C)Operating,$12,000;Financing $6,000.
D)Operating,$18,000;Financing $0.

Question 80

Assume net income was $100,000,depreciation expense was $8,000,accounts receivable decreased by $7,500,and accounts payable decreased by $2,500.The amount of cash flows from operating activities is: