Question 1

Treasury stock purchases made with cash are classified as cash outflows from financing activities on the statement of cash flows

Accepted Answer

Treasury stock purchases are a financing activity because they involve using cash to acquire the company's own shares, which reduces the amount of outstanding shares and increases the ownership percentage of existing shareholders. As a result, treasury stock purchases made with cash are classified as cash outflows from financing activities on the statement of cash flows.

Question 2

Major investing and financing activities that do not involve cash do not have to be reported as part of the statement of cash flows

Accepted Answer

True

Question 3

The receipts of dividends and interest are both reported as cash inflows from investing activities on the statement of cash flows

Accepted Answer

False

Question 4

The statement of cash flows explains the difference between the beginning and ending balances of cash and cash equivalents

Accepted Answer

The statement of cash flows provides information about the sources and uses of cash and cash equivalents during a particular period, and reconciles the beginning and ending balances to explain any changes. Therefore, the statement of cash flows does explain the difference between the beginning and ending balances of cash and cash equivalents.

Question 5

Depreciation Expense is not reported on the statement of cash flows when prepared using the direct method

Accepted Answer

Depreciation expense is a non-cash item and is therefore excluded from the cash flow statement prepared using the direct method. Instead, it is included in the operating section of the cash flow statement using the indirect method by adjusting for the non-cash expenses and income.

Question 6

In the decline phase, the company continues to enjoy positive operating cash flows but stops spending cash on investing activities and instead uses its cash for financing activities such as repaying lenders and returning excess cash to shareholders

Accepted Answer

The answer of In the decline phase, the company continues...

Question 7

In general, the cash flow from operating activities is considered by many to be the most important component of the statement of cash flows

Accepted Answer

The cash flow from operating activities represents the cash generated or used in the company's primary business operations, and is considered the most crucial component of the statement of cash flows. It gives insight into the cash-generating ability of the company's core operations and is used by investors and analysts to evaluate the company's financial health and sustainability.

Question 8

When the net cash flows from operating, investing, and financing activities are combined to arrive at the overall net change in cash, a net decrease in cash is subtracted from the beginning cash balance to calculate the ending cash balance

Accepted Answer

This statement is true. When there is a net decrease in cash, it is subtracted from the beginning cash balance to arrive at the ending cash balance.

Question 9

The reporting of financing activities is identical under the indirect and direct methods for the statement of cash flows on the statement of cash flows

Accepted Answer

The reporting of financing activities is the same under both the indirect and direct methods on the statement of cash flows. However, the format of the statement may differ between the two methods.

Question 10

When preparing the operating activities section of the statement of cash flows using the direct method, a gain or loss from selling equipment is reported in the operating activities section of the statement of cash flows

Accepted Answer

The answer of When preparing the operating activities section of...

Question 11

A healthy company typically shows positive cash flows in the financing activities section of the statement of cash flows

Accepted Answer

A healthy company typically shows positive cash flows in the operating activities section of the statement of cash flows, not necessarily in the financing activities section. Financing activities involve transactions related to raising or repaying capital, such as issuing stock, borrowing money, or paying dividends, which may not always result in positive cash flows.

Question 12

When preparing the operating activities section of the statement of cash flows using the indirect method, accumulated depreciation is added to net income in the operating section

Accepted Answer

The answer of When preparing the operating activities section of...

Question 13

Under the indirect method, changes in current assets are used in determining cash flows from operating activities and changes in current liabilities are used in determining cash flows from financing activities

Accepted Answer

The answer of Under the indirect method, changes in current...

Question 14

The approach to preparing the cash flow statement relies on the following rearrangement of the balance sheet equation: Change in cash = Change in (Liabilities + Stockholders' Equity + Noncash Assets)

Accepted Answer

The answer of The approach to preparing the cash flow...

Question 15

When preparing the operating activities section of the statement of cash flows using the indirect method, a decrease in accounts receivable is subtracted from net income

Accepted Answer

The answer of When preparing the operating activities section of...

Question 16

When preparing the operating activities section of the statement of cash flows using the direct method, net income must be adjusted for gains or losses realized when property, plant, and equipment is sold

Accepted Answer

The answer of When preparing the operating activities section of...

Question 17

When preparing the operating activities section of the statement of cash flows using the indirect method, an increase in Income Taxes Payable is added to net income

Accepted Answer

An increase in Income Taxes Payable represents a decrease in cash outflow for income taxes. Since income taxes are included in the determination of net income, an increase in Income Taxes Payable needs to be added to net income to arrive at the cash provided by operating activities.

Question 18

The payment of salaries and wages would be reported as an operating activity on the statement of cash flows

Accepted Answer

Payment of salaries and wages is a regular operating expense for a company and therefore falls under operating activities on the statement of cash flows.

Question 19

Maya Company's purchase of 100 shares of Labrador Inc. common stock would be reported as a financing activity on its statement of cash flows

Accepted Answer

Purchases of common stock are classified as investing activities on the statement of cash flows, not financing activities.

Question 20

The payment of interest on bonds is classified as a cash outflow from operating activities on the statement of cash flows

Accepted Answer

The answer of The payment of interest on bonds is...

Quiz 12: Statement of Cash Flows

Treasury stock purchases made with cash are classified as cash outflows from financing activities on the statement of cash flows

Major investing and financing activities that do not involve cash do not have to be reported as part of the statement of cash flows

The receipts of dividends and interest are both reported as cash inflows from investing activities on the statement of cash flows

The statement of cash flows explains the difference between the beginning and ending balances of cash and cash equivalents

Depreciation Expense is not reported on the statement of cash flows when prepared using the direct method

In the decline phase, the company continues to enjoy positive operating cash flows but stops spending cash on investing activities and instead uses its cash for financing activities such as repaying lenders and returning excess cash to shareholders

In general, the cash flow from operating activities is considered by many to be the most important component of the statement of cash flows

When the net cash flows from operating, investing, and financing activities are combined to arrive at the overall net change in cash, a net decrease in cash is subtracted from the beginning cash balance to calculate the ending cash balance

The reporting of financing activities is identical under the indirect and direct methods for the statement of cash flows on the statement of cash flows

When preparing the operating activities section of the statement of cash flows using the direct method, a gain or loss from selling equipment is reported in the operating activities section of the statement of cash flows

A healthy company typically shows positive cash flows in the financing activities section of the statement of cash flows

When preparing the operating activities section of the statement of cash flows using the indirect method, accumulated depreciation is added to net income in the operating section

Under the indirect method, changes in current assets are used in determining cash flows from operating activities and changes in current liabilities are used in determining cash flows from financing activities

The approach to preparing the cash flow statement relies on the following rearrangement of the balance sheet equation: Change in cash = Change in (Liabilities + Stockholders' Equity + Noncash Assets)

When preparing the operating activities section of the statement of cash flows using the indirect method, a decrease in accounts receivable is subtracted from net income

When preparing the operating activities section of the statement of cash flows using the direct method, net income must be adjusted for gains or losses realized when property, plant, and equipment is sold

When preparing the operating activities section of the statement of cash flows using the indirect method, an increase in Income Taxes Payable is added to net income

The payment of salaries and wages would be reported as an operating activity on the statement of cash flows

Maya Company's purchase of 100 shares of Labrador Inc. common stock would be reported as a financing activity on its statement of cash flows

The payment of interest on bonds is classified as a cash outflow from operating activities on the statement of cash flows