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.We would subtract an increase in prepaid rent from net income to arrive at net cash flows from operating activities under the indirect method.

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

Transactions that do not 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 5

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

Question 6

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

Question 7

The purchase of long-term assets by issuing debt is recorded as both an investing activity and a financing activity.Purchase of long-term assets by issuing debt is reported as a noncash activity either directly after the cash flow statement or in a separate note to the financial statements.

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

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 13

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.We represent this as a noncash activity either directly after the cash flow statement or in a note to the financial statements.

Question 14

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 15

We record dividends received as a financing activity.We record dividends received as an operating activity.

Question 16

Because 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 17

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

Question 18

We record dividends paid as a financing activity.

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

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

Question 24

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.We would subtract an increase in inventory and add a decrease in inventory to net income to arrive at net cash flows from operating activities under the indirect method.

Question 25

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

Question 26

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

Question 27

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 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

Income statement items that have no cash effect are still reported under the direct method.Income statement items that have no cash effect are simply not reported under the direct method.

Question 33

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

Question 34

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

Question 35

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

Question 36

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

Question 37

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

Question 38

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

Question 39

We calculate cash return on assets as the change in cash divided by average total assets.We calculate cash return on assets as net cash flows from operating activities divided by average total assets.

Question 40

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

Question 41

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.

Question 42

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

Question 43

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.

Question 44

The sale of a good or service is classified in the statement of cash flows as a(n):

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

Question 45

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

Question 46

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 47

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

A)A company with a net loss will always have a cash outflow from operating activities.
B)Collecting interest earned from a note receivable creates a cash inflow from investing activities.
C)Paying dividends to investors creates a cash outflow from financing activities.

Question 48

The Statement of Cash Flows:

A)Lists all cash flows over the life of a company.
B)Breaks down all cash transactions into investing and financing cash flows.
C)Shows that the change in total cash from one year to the next is equal to the net operating,investing,and financing cash flows.

Question 49

Which of the following is not correct about the statement of cash flows?

A)Paying dividends to investors creates a cash outflow from financing activities.
B)A purchase of equipment is classified as a cash outflow from investing activities.
C)Cash dividends paid are classified as cash flows from operating activities.

Question 50

Operating cash flows exclude:

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

Question 51

Which financial statement separates business activities into operating,investing and financing activities?

A)Statement of Stockholders' Equity
B)Income Statement
C)Statement of Cash Flows

Question 52

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

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

Question 53

The balance of cash reported in the balance sheet this year minus the balance of cash reported in the balance sheet last year equals:

A)Net cash flows from operating activities only
B)Net income
C)Net cash flows from operating,investing,and financing activities

Question 54

The payment of salaries is classified in the statement of cash flows as a(n):

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

Question 55

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

A)A company with a net loss on the income statement will always have a net cash outflow from operating activities.
B)A purchase of equipment is classified as a cash inflow from investing activities.
C)Cash dividends received on stock investments are classified as cash flows from operating activities.

Question 56

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

Question 57

Which of the following is not correct about the statement of cash flows?

A)Paying dividends to investors creates a cash outflow from financing activities.
B)A purchase of equipment is classified as a cash outflow from investing activities.
C)A company with a net loss on the income statement will always have a net cash outflow from operating activities.

Question 58

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.

Question 59

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

Question 60

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

Question 61

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

A)The company purchased some of its own stock from a stockholder.
B)Payment of a dividend.
C)The company purchased land by issuing common stock.

Question 62

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. $$\begin{array} { | c | c | c | } \hline \# & \begin{array} { c } \text { Classification on the } \\\text { Balance Sheet }\end{array} & \begin{array} { c } \text { Section on Statement of } \\\text { Cash Flows }\end{array} \\\hline \text { I } & \text { Bonds Payable } & \text { Financing } \\\hline \text { II } & \text { Equipment } & \text { Operating } \\\hline \text { III } & \text { Common Stock } & \text { Financing } \\\hline \text { N } & \text { Accounts Payable } & \text { Operating } \\\hline \text { V } & \text { Accounts Receivable } & \text { Operating } \\\hline\end{array}$$

A)IV,V.
B)I,II,III.
C)I,III,IV,V.

Question 63

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

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

Question 64

Which of the following is not true regarding cash flows?

A)Operating activities include the payment of dividends.
B)Investing activities involve long-term investments.
C)Financing activities involve long-term liabilities and equities.

Question 65

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.

A)Operating;Operating
B)Operating;Financing
C)Financing;Operating

Question 66

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:
$$\begin{array} { | l | r | } \hline \mathbf { CASHFECENED ~FROM: } & \\\hline \text { Customers } & \$ 1,800 \\\hline \text { Interest on irwestments } & 200 \\\hline \text { Sale of land } & 100 \\\hline \text { Sale of common stock } & 600 \\\hline \text { Issuance of debt securities } & 2,000 \\\hline \mathbf {CASHPAID ~FOR } & \\\hline \text { Interest on debt } & \$ 300 \\\hline \text { Income tax } & 80 \\\hline \text { Debt principal reduction } & 1,500 \\\hline \text { Purchase of equipment } & 4,000 \\\hline \text { Purchase of inventory } & 1,000 \\\hline \text { Diwidends on common stock } & 200 \\\hline \text { Operating expenses } & 500 \\\hline\end{array}$$

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

Question 67

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

A)Addition to net income in the operating activities section.
B)Deduction from net income in the operating activities section.
C)Financing activity.

Question 68

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.

Question 69

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

A)Subtract depreciation expense.
B)Add losses on sales of assets.
C)Subtract increase in Accounts Receivable.

Question 70

Consider the following items: How many of these items would be added to net income when using the indirect method to prepare the operating activities section of the statement of cash flows?
$\begin{array}{|l|l|}\hline \text { (a) Decrease in accounts receivable } & \text { (f) Gain on the sale of equipment } \\\hline \text { (b) Issuance of common stock } & \text { (g) Depreciation expense } \\\hline \text { (c) Increase in interest receivable } & \text { (h) Payment of dividends } \\\hline \text { (d) Purchase of land } & \text { (i) Decrease in utilities payable } \\\hline \text { (e) Decrease in accounts payable } & \text { (j) Increase in inventory }\\\hline \end{array}$

A)2
B)4
C)1

Question 71

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.

Question 72

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

A)Operating.
B)Investing.
C)Financing.

Question 73

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

A)Financing.
B)Investing.
C)Operating.

Question 74

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.

Question 75

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.

Question 76

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

A)Addition to net income in the operating activities section.
B)Deduction from net income in the operating activities section.
C)Financing activity.

Question 77

Consider the following items: How many of these items would be subtracted from net income when using the indirect method to prepare the operating activities section of the statement of cash flows?
$$\begin{array} { | l | l | } \hline \text { (a) Decrease in accounts receivable } & \text { (f) Gain on the sale of equipment } \\\hline \text { (b) Issuance of common stock } & \text { (g) Depreciation expense } \\\hline \text { (c) Increase in interest recewable } & \text { (h) Payment of dividends } \\\hline \text { (d) Purchase of land } & \text { (i) Decrease in utilities payable } \\\hline \text { (e) Decrease in accounts payable } & \text { (j) Increase in inventory } \\\hline\end{array}$$

A)5
B)4
C)1

Question 78

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 79

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

A)Gain on the sale of land.
B)Accounts receivable decrease.
C)Inventory decrease.

Question 80

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.