Question 1

Morgan Corporation acquired land by issuing its common stock. How should this transaction be disclosed when a statement of cash flows is prepared?

Accepted Answer

This transaction is a non-cash investing and financing activity and should be disclosed either on the face of the statement of cash flows or in the notes to the financial statements.

Question 2

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

Accepted Answer

The primary purpose of the statement of cash flows is to provide information about the cash inflows and outflows of the company during a specific period of time. This helps stakeholders understand how the company is generating and using cash, which is a critical component of its financial health and sustainability. The statement of cash flows breaks down cash flows into three categories: operating activities, investing activities, and financing activities.

Question 3

Which of the following is not an operating activity?

Accepted Answer

Cash payments for dividends to stockholders is a financing activity, not an operating activity. Operating activities involve transactions related to a company's main business operations, such as revenue generation and expenses incurred in order to generate that revenue.

Question 4

Which of the following operating activities results in a cash outflow?

Accepted Answer

Paying creditors for inventory means that cash is leaving the company to pay for inventory purchased.

Question 5

Which of the following statements is false?

Accepted Answer

Most companies actually use the indirect method of preparing the operating activities section of the statement of cash flows, not the direct method. This makes statement (D) false.

Question 6

Scotty Company reported the following information at the end of 2011 and 2012:  An analysis of Scotty's records indicated that there were no cash flow effects resulting from the changes in the two accounts presented above. How should Scotty report the changes in these accounts on a statement of cash flows?

Accepted Answer

The answer of Scotty Company reported the following information at...

Question 7

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

Accepted Answer

The statement of cash flows is used to analyze the change in cash during a period of time. It presents total cash inflows and outflows, and classifies them as operating, investing, and financing activities. It also considers changes in non-cash assets and liabilities that affect the cash balance. The statement of cash flows is required by generally accepted accounting principles (GAAP) and is a mandatory financial statement for companies.

Question 8

Presented below is the operating activities section of the statement of cash flows for Kerry Corporation for 2012:  Which method of preparing the operating activities section has Kerry used?

Accepted Answer

The answer of Presented below is the operating activities section...

Question 9

Which of the following statements is not true?

Accepted Answer

The statement of cash flows shows the inflows and outflows of cash, not net income on the accrual basis.

Question 10

Which of the following transactions is a significant noncash investing and financing activity?

Accepted Answer

Acquiring buildings by issuing common stock involves a significant noncash investing and financing activity because it means that the company is providing ownership shares in exchange for the buildings, rather than paying cash. This transaction affects both the investing and financing sections of the statement of cash flows.

Question 11

Special Inc. reported net income of $150,000 for 2012, but its cash balance decreased $40,000. Which financial statement should Special's management refer to for an explanation of this situation?

Accepted Answer

The statement of cash flows explains the changes in cash balance during a period by identifying the sources and uses of cash. Therefore, by referring to the statement of cash flows, Special's management can identify the reasons behind the decrease in cash balance despite reporting net income.

Question 12

Each of the following transactions would be classified as an investing activity except:

Accepted Answer

Issuing stock to acquire land is a financing activity, not an investing activity. Investing activities typically involve the purchase and sale of long-term assets and investments.

Question 13

The order of presentation of activities on the statement of cash flows is:

Accepted Answer

The order of presentation of activities on the statement of cash flows is operating, investing, and financing. This order follows the natural progression of cash flows, starting with the cash generated or used in operating activities, followed by cash flows related to investing activities such as buying or selling assets or investments, and ending with cash flows related to financing activities such as issuing or repaying debt or issuing or repurchasing stock. This order provides a clear picture of how cash is generated or used by the company and the sources of financing for capital expenditures or other business activities.

Question 14

Which of the following statements is most likely to be right?

Accepted Answer

The indirect method is the most commonly used method to prepare the operating activities section of the statement of cash flows. While the direct method adjusts net income for deferrals and accruals, it is less commonly used due to the increased complexity and difficulty of obtaining the necessary information. The FASB does not express a preference for either method.

Question 15

Cash flows from acquiring and selling products are classified as:

Accepted Answer

Cash flows from acquiring and selling products are classified as operating activities because they are part of the company's primary operations and day-to-day activities.

Question 16

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

Accepted Answer

Working capital may be used to analyze a company's liquidity, but it cannot be used as a substitute for cash in preparing a statement of cash flows.

Question 17

Occasionally, companies engage in important investing and financing activities which do not affect cash. If the amount of the transaction is significant, how should it be disclosed when financial statements are prepared?

Accepted Answer

Transactions that do not affect cash should be disclosed on the face of the statement of cash flows or in the notes to the financial statements. This ensures that investors and analysts are aware of any significant investing and financing activities that have occurred, even if they did not result in a change in cash. Choosing option A or B would be incorrect because these options suggest that the transaction should be included in the statement of cash flows with a zero balance, which would be misleading. Option D would also be incorrect because it suggests the transaction should be included in both the investing and financing activities section, which is not necessary if the transaction is not related to cash.

Question 18

The current period statement of cash flows includes the following:  The cash balance at the end of the period is:

Accepted Answer

The ending cash balance is found by looking at the bottom line of the cash flow statement, which is the net increase or decrease in cash for the period. In this case, the net increase is $355,000, which means the ending cash balance is $355,000. Therefore, the answer is choice C.

Question 19

Which method of preparing the operating activities section of a statement of cash flows reports its cash inflows from operations followed by its cash outflows for operation?

Accepted Answer

The direct method of preparing the operating activities section of a statement of cash flows directly reports the cash inflow and outflow items related to operating activities, such as cash collected from customers, cash paid to suppliers, cash paid for salaries, and interest paid. It provides a more detailed and transparent view of a company's operating cash flows compared to the indirect method.

Question 20

National Co. reported a net loss of $30,000 for 2012, yet its cash balance increased during the year. Which financial statement should National's management refer to for an explanation of this situation?

Accepted Answer

The statement of cash flows shows the sources and uses of cash during a period, which will help explain why the cash balance increased despite a net loss being reported on the income statement.

Quiz 11: Statement of Cash Flows