Deck 15: The Statement of Cash Flows

Question 1

The statement of cash flows explains the difference between net income as shown on the income statement and the net cash flows generated from operations.

Answer 1

True

Question 2

Investors could use the statement of cash flows to determine whether the company will be able to pay dividends and interest.

Answer 2

True

Question 3

The payment of taxes would be included in the operating activities section of the statement of cash flows.

Answer 3

True

Question 4

The primary purpose of the statement of cash flows is to provide information about a company's investing and financing activities during an accounting period.

Question 5

Interest paid on bonds payable would be included in the financing activities category on the statement of cash flows.

Question 6

The statement of cash flows discloses the effect on cash of the purchase and sale of both short- and long-term investments.

Question 7

Cash equivalents include money market accounts,commercial paper,and U.S.Treasury bills.

Question 8

The acquisition of treasury stock with cash is shown as a financing activity on the statement of cash flows.

Question 9

Cash payments made on accounts payable or accrued liabilities are considered repayments of loans and are classified as financing activities on the statement of cash flows.

Question 10

Under the indirect method,gains or losses from the sale of equipment used in operations would appear as adjustments in the cash flows from operating activities section of the statement of cash flows.

Question 11

The statement of cash flows shows the effects on net income of a company's operating,investing,and financing activities for an accounting period.

Question 12

A U.S.Treasury bill with an original maturity of 90 days or less is considered a cash equivalent.

Question 13

Because noncash investing and financing transactions do not affect cash,they should not be reflected in the body of the statement of cash flows.

Question 14

The purchase of trading securities with cash is considered an investing activity.

Question 15

Cash inflows and outflows are easier to manipulate than earnings.

Question 16

The primary purpose of the statement of cash flows is to provide information about a company's cash receipts and cash payments during an accounting period.

Question 17

Interest received on investments would be included in the operating activities category on the statement of cash flows.

Question 18

The income statement indicates a business's success or failure in earning an income from its operating activities,but it does not reflect the inflow and outflow of cash from operating activities.

Question 19

For purposes of preparing the statement of cash flows,cash is defined as including both cash and cash equivalents.

Question 20

Noncash investing and financing transactions,such as the exchange of a long-term asset for a long-term liability,represent significant investing and financing activities and are reflected in a separate schedule as part of the statement of cash flows.

Question 21

Cash inflows and outflows are not netted in the investing activities section of the statement of cash flows but are separately disclosed to give the reader full information.

Question 22

When preparing a statement of cash flows using the indirect method,a gain on sale of land is deducted from net income to arrive at net cash flows from operating activities.

Question 23

When preparing a statement of cash flows using the indirect method,an increase in accounts receivable is added to net income.

Question 24

The activity on the balance sheet to be presented in the financing activities section of the statement of cash flows is based on an analysis of stockholders' equity only.

Question 25

Since investing activities center on the long-term assets shown on the balance sheet,they do not include any short-term investments shown under current assets on the balance sheet

Question 26

When preparing a statement of cash flows using the indirect method,depreciation expense is added to net income to arrive at net cash flows from operating activities.

Question 27

When presenting decreases in long-term investments in the investing activities section of the statement of cash flows,the amount reflected equals the amount of the gain(s)or loss(es)from the transaction(s).

Question 28

When preparing a statement of cash flows using the indirect method,an increase in accounts payable is added to net income.

Question 29

When preparing a statement of cash flows using the indirect method,amortization expense is added to net income in the cash flows from operating activities section of the statement of cash flows.

Question 30

The financing activities section of the statement of cash flows includes certain transactions and activities from the income statement and also takes into account stockholders' equity.

Question 31

A decrease in the balance of merchandise inventory is subtracted from net income when calculating net cash flows from operating activities using the indirect method.

Question 32

Issuance of notes,either long- or short-term,would be reflected in the financing activities section of the statement of cash flows.

Question 33

Purchases and sales of long-term investments for the period should be netted for disclosure in the investing activities section of the statement of cash flows.

Question 34

A decrease in plant assets shown in the investing activities section of the statement of cash flows would be presented based on the amount of the resulting gain or loss incurred.

Question 35

Payment of dividends would be reflected as a cash outflow in the investing activities section of the statement of cash flows.

Question 36

Determining net cash flows from operating activities using the indirect method reveals cash collected from customers.

Question 37

Dividends declared but unpaid are reflected in the financing activities section of the statement of cash flows.

Question 38

The purchase of treasury stock qualifies as a financing activity,but it is not a cash flow.

Question 39

Since it impacts Retained Earnings,the net income for the period would appear in the cash flows from financing activities section of a statement of cash flows prepared using the indirect method.

Question 40

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

Question 41

Lincoln Company engaged in this transaction: Collected accounts receivable.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

A)Does not represent a cash flow.
B)Operating activities section.
C)Financing activities section.
D)Investing activities section.

Question 42

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

A)about a company's cash receipts and cash payments during an accounting period.
B)about a company's investing and financing activities during an accounting period.
C)regarding a company's financial position at the end of an accounting period.
D)regarding the results of operations for a period of time.

Question 43

Free cash flow is measured in terms of dollars.

Question 44

Noncash investing and financing transactions

A)appear as a separate schedule on the statement of cash flows.
B)appear in either the investing or financing activities section,but not both.
C)are excluded from the statement of cash flows.
D)appear in both the investing and financing activities sections.

Question 45

A positive free cash flow indicates that the company has met all its planned cash commitments and has cash available to reduce debt or to expand.

Question 46

How are transfers between cash and cash equivalents treated on a statement of cash flows?

A)They are disclosed as an investing activity.
B)They are not shown as any type of cash flow.
C)They are disclosed as a financing activity.
D)They are disclosed as an operating activity.

Question 47

Net cash flows from operating activities would be needed to calculate cash flow yield,cash flows to assets,and cash flows to sales.

Question 48

A cash flow yield of 2.5 times is considered better than one of 3.0 times.

Question 49

Which of the following is reported as a noncash investing and financing transaction on the statement of cash flows?

A)Purchase of a building by taking out a long-term mortgage.
B)Purchase of treasury stock.
C)Payment of long-term debt.
D)Sale of preferred stock.

Question 50

Cash equivalents do not include

A)U.S.Treasury bills.
B)money market accounts.
C)marketable securities.
D)commercial paper.

Question 51

Lincoln Company engaged in this transaction: Sold land it was holding for speculation.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

A)Financing activities section.
B)Schedule of noncash investing and financing transactions.
C)Operating activities section.
D)Investing activities section.

Question 52

Investors and creditors would find the statement of cash flows least useful in assessing

A)financial position at a point in time.
B)need for additional financing.
C)ability to pay dividends and liabilities.
D)ability to generate positive future cash flows.

Question 53

Lincoln Company engaged in this transaction: Retired long-term debt with cash.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

A)Operating activities section.
B)Does not represent a cash flow.
C)Investing activities section.
D)Financing activities section.

Question 54

Management would not use the statement of cash flows to

A)assess the liquidity of the business.
B)determine dividend policy.
C)evaluate the effects of major policy decisions involving investments and financing.
D)determine the financial position of the company.

Question 55

Cash flows to assets is measured in "times."

Question 56

How are cash equivalents treated on a statement of cash flows?

A)They are disclosed in the operating activities section.
B)They are combined with the Cash account.
C)They are disclosed in the investing activities section.
D)They are disclosed in the financing activities section.

Question 57

Kingston Company settled a long-term note payable it owed to Creative Company by issuing capital stock.Kingston would report this

A)only as a cash outflow from financing activity for the payment of the debt.
B)only as a cash inflow from financing activity for the issuance of the capital stock.
C)in the schedule of noncash investing and financing transactions.
D)as both a cash flow from investing activity and a cash flow from financing activity.

Question 58

Lincoln Company engaged in this transaction: Declared and issued the required dividend on preferred stock.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

A)Financing activities section.
B)Operating activities section.
C)Does not represent a cash flow.
D)Investing activities section.

Question 59

Cash flows to sales is a measure of how much operating cash flows did each dollar of sales generate.

Question 60

Lincoln Company engaged in this transaction: Accrued interest expense on long-term bonds payable.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

A)Does not represent a cash flow.
B)Investing activities section.
C)Operating activities section.
D)Financing activities section.

Question 61

Lincoln Company engaged in this transaction: Transferred cash to money market account.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

A)Does not represent a cash flow.
B)Operating activities section.
C)Investing activities section.
D)Financing activities section.

Question 62

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

A)The direct and indirect methods always produce the same amount of cash flows from operating activities.
B)The direct method presentation of operating cash flows is more straightforward than that of the indirect method.
C)The indirect method is more difficult to implement in practice.
D)When the direct method is presented,preparation and disclosure of the indirect method of presenting cash flows from operating activities is also required.

Question 63

Lincoln Company engaged in this transaction: Abandoned fully depreciated equipment.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

A)Investing activities section.
B)Operating activities section.
C)Does not represent a cash flow.
D)Financing activities section.

Question 64

Lincoln Company engaged in this transaction: Paid income taxes.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

A)Schedule of noncash investing and financing transactions.
B)Investing activities section.
C)Operating activities section.
D)Financing activities section.

Question 65

Lincoln Company engaged in this transaction: Purchased 60-day commercial paper.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

A)Does not represent a cash flow.
B)Operating activities section.
C)Financing activities section.
D)Investing activities section.

Question 66

Lincoln Company engaged in this transaction: Accrued employee wages earned but not yet paid at year-end.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

A)Financing activities section.
B)Investing activities section.
C)Does not represent a cash flow.
D)Operating activities section.

Question 67

Lincoln Company engaged in this transaction: Received dividends on marketable securities held as a long-term investment.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

A)Schedule of noncash investing and financing transactions.
B)Operating activities section.
C)Financing activities section.
D)Investing activities section.

Question 68

Lincoln Company engaged in this transaction: Purchased 30-day U.S.Treasury bill.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

A)Does not represent a cash flow.
B)Operating activities section.
C)Investing activities section.
D)Financing activities section.

Question 69

Lincoln Company engaged in this transaction: Issued common stock for cash.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

A)Operating activities section.
B)Does not represent a cash flow.
C)Investing activities section.
D)Financing activities section.

Question 70

If the indirect method is used to prepare a statement of cash flows,which of the following would be added to net income to arrive at net cash flows from operating activities?

A)Decrease in accrued liabilities.
B)Decrease in income taxes payable.
C)Decrease in accounts receivable.
D)Increase in prepaid expenses.

Question 71

Lincoln Company engaged in this transaction: Received 6-month's rent in advance from a tenant in its office building.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

A)Financing activities section.
B)Schedule of noncash investing and financing transactions.
C)Operating activities section.
D)Investing activities section.

Question 72

Which of the following statements is correctregarding the statement of cash flows?

A)Analysts prefer the direct method to the indirect method.
B)Companies prefer the direct method because it is easier and less expensive to prepare.
C)A survey of large companies showed 98% of them use the indirect method.
D)All of these choices.

Question 73

The indirect method of preparing a statement of cash flows

A)is the overwhelming choice of most companies.
B)begins with net income in the operating activities section.
C)will produce the same net figure as the direct method.
D)All of these choices.

Question 74

Lincoln Company engaged in this transaction: Converted loans payable to stock.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

A)Financing activities section.
B)Schedule of noncash investing and financing transactions.
C)Investing activities section.
D)Does not represent a cash flow.

Question 75

If the indirect method is used to prepare a statement of cash flows,which of the following would be added to net income to arrive at net cash flows from operating activities?

A)Amortization expense.
B)Depreciatione expense.
C)Loss on sale of land.
D)All of these choices.

Question 76

Lincoln Company engaged in this transaction: As required by the landlord,prepaid one year's rent on its leased warehouse.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

A)Financing activities section.
B)Does not represent a cash flow.
C)Investing activities section.
D)Operating activities section.

Question 77

Lincoln Company engaged in this transaction: Acquired long-term investment by issuance of long-term debt.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

A)Investing activities section.
B)Operating activities section.
C)Schedule of noncash investing and financing transactions.
D)Financing activities section.

Question 78

Lincoln Company engaged in this transaction: Issued stock for land.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

A)Financing activities section.
B)Operating activities section.
C)Investing activities section.
D)Schedule of noncash investing and financing transactions.

Question 79

Lincoln Company engaged in this transaction: Purchased treasury stock with cash.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

A)Financing activities section.
B)Investing activities section.
C)Does not represent a cash flow.
D)Operating activities section.

Question 80

Assume the indirect method is used to compute net cash flows from operating activities.For this item extracted from the financial statements-Decrease in Accounts Receivable-indicate the effect on net income in arriving at net cash flows from operating activities by choosing one of the following:

A)Add to net income to arrive at net cash flows from operating activities.
B)Subtract from net income to arrive at net cash flows from operating activities.
C)Not used to adjust net income to calculate net cash flows from operating activities.