Deck 13: Statement of Cash Flows

Question 1

Depreciation expense reduces net income but does not reduce the net cash flow from operating activities.

Answer 1

True

Question 2

Whether one uses the direct or the indirect method of presentation of the statement of cash flows,the totals from each of the three sections (activities)will be the same regardless of the method used.

Answer 2

True

Question 3

The purchase of equipment for the manufacturing of inventory belongs in the operating activities section of the statement of cash flows.

Answer 3

False

Question 4

For a company to survive in the long-run it must have positive cash flows from investing activities.

Question 5

When preparing a statement of cash flows,money held in cash equivalents is considered the same as cash.

Question 6

In a statement of cash flows,the term cash includes both cash and cash equivalents.

Question 7

If cash increased during the year and there was also a net loss for the year,there must be positive cash flows from financing and investing activities.

Question 8

The statement of cash flows helps investors and creditors assess both the cash and noncash aspects of a company's investing and financing activities.

Question 9

Collections of interest revenue are classified as operating activities.

Question 10

Depreciation is a non-cash expense.

Question 11

Companies that show profits on the income statement will always show positive cash flows from operating activities.

Question 12

Both FASB and IASB require the cash flow statement to be organized in three categories,operating activities,investing activities,and financing activities.

Question 13

The SEC requires public companies to use the indirect method for the statement of cash flows.

Question 14

Any "non-cash" investing and financing transactions should be disclosed in a supplementary schedule accompanying a statement of cash flows.

Question 15

The purchase or sale of marketable securities is reported in the statement of cash flows as a financing activity.

Question 16

Interest paid belongs in the operating activities section of the statement of cash flows.

Question 17

Dividends paid belong in the operating activities section of the statement of cash flows.

Question 18

The operating activities section of the cash flow statement includes the cash effects of those transactions reported on the income statement.

Question 19

The principal purpose of a statement of cash flows is to measure the profitability of a business that maintains its accounting records on the cash basis.

Question 20

When credit sales exceed collections of cash from accounts receivable,the increase in accounts receivable is added to net sales to determine the amount of cash collected from customers during the period.

Question 21

When applying the direct method in a statement of cash flows,the amount of depreciation is added to net income.

Question 22

If accounts receivable decrease during the period,cash received from customers probably exceeds net sales.

Question 23

The indirect method of computing cash flows from operations begins with net income.

Question 24

Both the direct method and the indirect method of computing net cash flow from operating activities convert accrual-based income statement amounts into cash flows.

Question 25

Free cash flow is computed as net cash flow from operating activities plus cash used to acquire plant assets minus cash paid for dividends.

Question 26

In the long run,it is more important for a business to generate positive cash flows from investing activities than from operating activities.

Question 27

The "bottom line" in a statement of cash flows shows:

A)The cash (including cash equivalents)on the balance sheet at the end of the period.
B)Net increase or decrease in cash during the period.
C)Net income,computed by the cash basis of accounting.
D)Net cash flow from operating activities.

Question 28

A statement of cash flows is not intended to assist investors in evaluating:

A)Reasons for differences between the amount of net income and net cash flow from operations.
B)The company's ability to meet its obligations and to pay dividends.
C)Non-cash aspects of investing and financing activities.
D)The profitability of business operations.

Question 29

The "worksheet approach" to preparing a statement of cash flows involves analyzing changes in non-cash balance sheet accounts.

Question 30

If accounts receivable increased during the year,deducting the increase from net sales determines the amount of cash received.

Question 31

When a company uses peak pricing,it is charging the highest or "peak" prices the public will be willing to pay during periods of low demand.

Question 32

Net cash flows from operating activities will have the same total no matter which method is used,direct or indirect.

Question 33

Under the indirect method,depreciation,increase in inventories,and "non-operating" losses are added to net income to arrive at net cash flow from operating activities.

Question 34

A net decrease in accounts payable to suppliers indicates that cash payments to suppliers were less than purchases made during the period.

Question 35

Deferring income taxes by using legal accounting methods is one strategy to permanently improve cash flow.

Question 36

Free cash flow is computed as net cash flow from operating activities plus cash used to acquire plant assets minus cash paid for dividends.

Question 37

If a company uses the indirect method to prepare its statement of cash flows,it must provide a supplementary schedule showing the computation of net cash flow from operating activities using the direct method.

Question 38

Large cash flows from operations are more important to financial statement analysts over the long term than cash flows from financing or investing.

Question 39

Under the indirect method,when machinery is sold at a gain,the gain is added in the operating section of the statement of cash flows and the cost is added in the investing section.

Question 40

The FASB permits a company to use the direct method or the indirect method for the statement of cash flows.

Question 41

Early in 2015,Larsen Corporation purchased marketable securities at a cost of $90,000.In September,dividends of $6,600 were received; Larsen sold the securities in December at a gain of $5,600.How would these transactions be reported on Larsen's statement of cash flows for 2015?

A)$95,600 net cash provided by investing activities; $6,600 included in cash provided by operating activities.
B)$12,200 net cash provided by investing activities.
C)$95,600 cash provided by investing activities; $90,000 cash used in financing activities.
D)$84,400 net cash used in investing activities; $95,600 cash provided by investing activities.

Question 42

Which of the following does not decrease the cash flow from operating activities?

A)The prepayment of an expense.
B)The purchase of operating equipment.
C)The payment of interest.
D)The prepayment of an expense,the purchase of operating equipment,and the payment of interest all decrease cash from operating activities.

Question 43

The FASB classifies interest received on investments and interest paid on debt financing as part of operating cash flows,while the IASB:

A)Allows interest received to be classified as either operating or investing and interest paid as either operating or financing.
B)Allows interest received to be classified as either operating or financing and interest paid as either operating or investing.
C)Allows interest received to be classified only as investing and interest paid only as financing.
D)Allows interest received to be classified only as financing and interest paid only as investing.

Question 44

Which of the following is not classified among the investing activities in a statement of cash flows?

A)Purchase of marketable securities for cash.
B)Collection of the principal amount of cash loans made to others.
C)Investment of cash made in the business by the owners.
D)Purchase of plant assets for cash.

Question 45

Net income differs from net cash flows from operations because of all the following except:

A)Non-cash expenses such as depreciation.
B)Timing differences between recognizing revenue and expenses and their cash flows.
C)Gains and losses included in net income but classified as investing or financings activities.
D)Non-cash expenses such as depreciation,timing differences between recognizing revenue and expenses and their cash flows,and gains and losses included in net income but classified as investing or financings activities will all cause a difference between net income and cash flows.

Question 46

In a statement of cash flows,the term cash includes:

A)Only money on deposit in bank accounts.
B)Only bank accounts and cash on hand.
C)Bank accounts,cash on hand,and cash equivalents.
D)Bank accounts,cash on hand,cash equivalents,and marketable securities classified as current assets.

Question 47

In a statement of cash flows,collections of accounts receivable are classified as:

A)Operating activities.
B)Financing activities.
C)Investing activities.
D)Revenues and Gains.

Question 48

All of the following are considered cash equivalents except:

A)Marketable securities.
B)Money market funds.
C)Commercial paper.
D)Treasury bills.

Question 49

Which of the following indicates a cash receipt?

A)A decrease in accrued expenses,such as wages payable.
B)A decrease in accounts receivable.
C)An increase in inventory.
D)A decrease in accounts payable.

Question 50

In the statement of cash flows,the purchase of supplies is classified as:

A)Operating activities.
B)Financing activities.
C)Investing activities.
D)This would not appear on a statement of cash flows.

Question 51

Which of the following would indicate a cash disbursement?

A)Selling equipment at a loss.
B)A decrease in accounts receivable.
C)An increase in prepaid expenses.
D)A decrease in inventory.

Question 52

Which of the following is not classified among the financing activities in a statement of cash flows?

A)Long-term borrowing.
B)Payment of dividends to stockholders.
C)Payment of interest to creditors.
D)Short-term borrowing.

Question 53

Cash flows from investing activities include all of the following except:

A)Cash proceeds from selling investments.
B)Cash proceeds from collections on loans.
C)Cash advanced to borrowers.
D)Cash proceeds from borrowing.

Question 54

In a statement of cash flows,cash transactions are classified into three major categories.Which of the following is not one of these three categories?

A)Managing activities.
B)Operating activities.
C)Financing activities.
D)Investing activities.

Question 55

All of the following are financing activities except:

A)Borrowing money.
B)Lending money.
C)Selling capital stock.
D)Paying dividends.

Question 56

Which of the following is not classified among the operating activities in a statement of cash flows?

A)Payment of interest on a bank loan.
B)Payment of the principal amount owed on a bank loan.
C)Payment of an account payable to a merchandise supplier.
D)Payment of income taxes.

Question 57

A cash dividend paid to shareholders is reported on the:

A)Financing activities section of the statement of cash flows.
B)Balance sheet.
C)Income statement.
D)Operating activities section of the statement of cash flows.

Question 58

Cash flows from operating activities include all of the following except:

A)Collections from customers for sales of goods.
B)Interest and dividends received.
C)Payments of interest.
D)Payments of dividends.

Question 59

Which of the following sets of data is sufficient to compute the amount of cash paid for merchandise?

A)Cost of goods sold,increase or decrease in inventory,increase or decrease in accounts payable.
B)Increase or decrease in cash,increase or decrease in inventory,increase or decrease in accounts payable.
C)Cost of goods sold,increase or decrease in accounts payable.
D)Cost of goods sold.

Question 60

In a statement of cash flows,payments of dividends are classified as:

A)Operating activities.
B)Financing activities.
C)Investing activities.
D)Costs and Expenses.

Question 61

When using the indirect method,depreciation expense:

A)Increases net cash flow from operations.
B)Decreases net cash flow from operations.
C)Does not affect net income.
D)Does not affect net cash flow from operations.

Question 62

The accountant for Foster Institute,Inc.,determined the cash flow for several transactions to be as follows: On the basis of the above transactions alone,determine the net cash flow from financing activities.

A)$275,000 net cash used for financing activities.
B)$440,000 net cash provided by financing activities.
C)Zero: cash inflows equal cash outflows from financing activities.
D)$285,000 net cash provided by financing activities.

Question 63

Which statement is true as to the FASB's position on the presentation of the statement of cash flows?

A)The FASB recommends the use of the indirect method,but most companies use the direct method.
B)The FASB recommends the use of the direct method,but most companies use the indirect method.
C)The FASB recommends the use of the direct method,and most companies use the direct method.
D)The FASB recommends the use of the indirect method,and most companies use the indirect method.

Question 64

Which of the following is a financing activity?

A)Payment of interest.
B)Payment of dividends.
C)Making sales on account.
D)Paying off accounts payable.

Question 65

When equipment is purchased entirely through a loan:

A)The equipment is shown as an increase in the investing activities section.
B)The equipment is shown as a decrease in the investing activities section.
C)The loan is shown as an increase in the financing section.
D)Neither the loan nor the purchase of equipment is shown in the investing or the financing sections.

Question 66

Which of the following does not create a difference between net income and the net cash flow from operations?

A)Non-operating gains and losses.
B)Depreciation expense.
C)Timing differences between credit sales and collections from customers.
D)Payment of a cash dividend.

Question 67

Which of the following statements regarding the direct and indirect methods of reporting cash flow from operating activities is false?

A)Although both methods result in the same net increase or decrease in cash for the year,net cash flow from operating activities will be different under the two methods.
B)The direct method shows the specific cash inflows and outflows constituting the operating activities of the business.
C)Under the indirect method,the computation of net cash flow from operating activities begins with net income as shown in the income statement.
D)The FASB permits both the direct and the indirect methods,but has expressed a preference for the direct method.

Question 68

The 2015 statement of cash flows of Dickens Corporation shows $500,000 cash paid for dividends.If dividends in Dickens' statement of retained earnings are reported at $550,000 then:

A)Dickens' dividends payable account must amount to $50,000 at the end of 2015.
B)Dickens' Cash account must have increased by $50,000 in 2015.
C)Dickens' dividends payable account must have increased by $50,000 in 2015.
D)Dickens' dividends payable account must have decreased by $50,000 in 2015.

Question 69

Which method will yield higher cash flows from operating activities?

A)The indirect method.
B)The direct method.
C)Both direct and indirect methods will yield the same amount.
D)Depends upon the situation.

Question 70

Which of the following is an investing activity?

A)Purchase of equipment.
B)Payment of interest.
C)Issuing common stock.
D)Issuing long-term debt.

Question 71

During 2015,Gillespie Corporation made a loan of $155,000 to a major customer.By the end of 2015 the customer had paid back $60,000 of the loan plus interest of $12,000.In the statement of cash flows for 2015,Gillespie Corporation would report:

A)A net decrease in cash and cash equivalents of $72,000 for 2015.
B)$72,000 net cash used for investing activities.
C)$95,000 net cash used for investing activities,and $12,000 cash provided from operating activities.
D)$155,000 net cash used for investing activities,$60,000 net cash provided by financing activities,and $12,000 cash provided by operating activities.

Question 72

Which of the following indicates cash receipts?

A)Debit entries in the Notes Receivable account.
B)Credit entries in the Marketable Securities account.
C)Debit entries in the Notes Payable account.
D)Credit entries in the Accumulated Depreciation account.

Question 73

Haven Corporation issued $700,000 of 10-year bonds payable at par in 2011.During 2015 Haven paid $50,000 interest and an additional $233,333 to retire one-third of the bonds at par.These activities would be reported in Haven's statement of cash flows for 2015 as:

A)$283,333 net cash provided by financing activities.
B)$283,333 net cash used in financing activities.
C)$233,333 net cash used in financing activities,and $50,000 cash disbursed for operating activities.
D)$466,667 net cash provided by financing activities,and $50,000 cash disbursed for operating activities.

Question 74

Cigna Corporation's 2015 net income is smaller than net cash flow from operating activities.Which of the following would not be an explanation of why net income is smaller than net cash flow from operating activities?

A)Cigna paid dividends to shareholders during 2015.
B)Cigna's accounts payable increased during 2015.
C)Cigna recognized depreciation expense in 2015.
D)Cigna sold equipment at a loss in 2015.

Question 75

In 2015,Anderson Company purchased equipment for $363,000 and also sold some special purpose machinery with a book value of $155,000 for $182,000.In its statement of cash flows for 2015,Anderson should report the following with respect to the above transactions:

A)$363,000 net cash used by investing activities.
B)$181,000 net cash used by investing activities; $27,000 net cash provided by operating activities.
C)$181,000 net cash used by investing activities.
D)$363,000 cash used by investing activities; $182,000 cash provided by financing activities.

Question 76

Which method will yield the higher cash flows from financing activities?

A)The indirect method.
B)The direct method.
C)Both direct and indirect methods will yield the same amount.
D)Depends upon the situation.

Question 77

When equipment is sold at a loss:

A)The net proceeds are shown in the investing section.
B)The book value of the asset is shown in the investing section.
C)The book value of the asset is shown in the investing section,and the loss is shown in the operating section.
D)The net proceeds are shown in the financing section.

Question 78

An example of a non-cash investing or financing activity that is disclosed in a supplementary schedule accompanying the statement of cash flows is:

A)Recording depreciation expense for the current year.
B)Declaring,but not paying,dividends on common stock.
C)Selling land in exchange for a note receivable.
D)Transferring cash from a checking account into a money market fund.

Question 79

Hines Cannery issued capital stock in 2015 for $700,000.During 2015 the company paid dividends of $250,000.What is the effect of these events in Hines' statement of cash flows for 2015?

A)$700,000 cash provided by investing activities,and $250,000 cash disbursed for financing activities.
B)$700,000 cash provided by financing activities,and $250,000 cash disbursed for investing activities.
C)$700,000 cash provided by financing activities,and $250,000 cash disbursed for operating activities.
D)$450,000 net cash provided by financing activities.

Question 80

Which of the following would not be presented in the cash flows from operating activities section of the statement of cash flows when the direct method is used?

A)Dividends paid.
B)Dividends received.
C)Neither dividends paid nor dividends received would be shown.
D)Both dividends paid and dividends received would be shown.