Question 1

On the statement of cash flows of a growing company, the reader should expect to see cash provided by its financing activities, not cash used.

Accepted Answer

A growing company often finances its expansion through borrowing or issuing equity, which results in cash inflows in the financing activities section of the statement of cash flows.

Question 2

In the investing activities section of the statement of cash flows, all the cash payments for purchase of non-current assets should be totalled and reported as one number.

Accepted Answer

The answer of In the investing activities section of the...

Question 3

The direct method is considered to be more informative and easier to compare with the other financial statements.

Accepted Answer

The direct method of presenting the cash flow statement provides a detailed breakdown of cash inflows and outflows, making it easier to understand and compare with other financial statements like the income statement and balance sheet.

Question 4

Cost of goods sold + an increase in inventory + an increase in accounts payable = cash paid to suppliers during a period.

Accepted Answer

Cost of goods sold + an increase in inventory - an increase in accounts payable = cash paid to suppliers during a period. The original formula incorrectly adds the increase in accounts payable, which should be subtracted to reflect the cash not yet paid out for the increased payables.

Question 5

If accumulated other comprehensive income increases or decreases during the year, the change must be reported in the financing activities section.

Accepted Answer

Accumulated other comprehensive income changes are reported in the equity section of the balance sheet, not in the financing activities section of the cash flow statement.

Question 6

The order of presentation of activities on the statement of cash flows is
A)operating, investing, and financing.
B)operating, financing, and investing.
C)financing, operating, and investing.
D)financing, investing, and operating.

Accepted Answer

The correct order of presentation of activities on the statement of cash flows is operating, investing, and financing. This order is standardized in financial reporting to provide a clear view of a company's cash flow activities in a logical sequence, starting with its core business operations.

Question 7

Which one of the following is false?
A)The statement of cash flows can be prepared using cash and cash equivalents rather than just cash, as its base.
B)The statement of cash flows reports the sources and uses of cash during a specific period.
C)The statement of cash flows shows the effects on net income of a company's operating, investing, and financing activities for an accounting period.
D)The statement of cash flows explains the difference between net income, as shown on the statement of income, and the net cash flows generated from operating activities.

Accepted Answer

The statement of cash flows does not show the effects on net income of a company's operating, investing, and financing activities. Instead, it reports the cash inflows and outflows from these activities, which may not directly affect net income within the same accounting period.

Question 8

The statement of cash flows will not report the
A)amount of cheques outstanding at the end of the period.
B)sources of cash in the current period.
C)uses of cash in the current period.
D)change in the cash balance for the current period.

Accepted Answer

The statement of cash flows reports the sources and uses of cash during a period and the overall change in a company's cash balance. It does not report the amount of cheques outstanding at the end of the period, as this detail pertains more to the reconciliation of the cash balance in the balance sheet rather than the cash flows statement.

Question 9

Under the direct method, as an adjustment to operating expenses per the statement of income, a decrease in prepaid expenses would be added to operating expenses to determine cash payments for operating expenses.

Accepted Answer

Under the direct method, a decrease in prepaid expenses represents an expense that has been recognized but not yet paid in cash, so it would not be added to operating expenses. Instead, it reflects a future cash outflow and adjustments for changes in prepaid expenses are typically not made in the calculation of cash payments for operating expenses under the direct method.

Question 10

The statement of cash flows
A)must be prepared on a daily basis.
B)summarizes the operating, financing, and investing activities of a company.
C)is another name for the statement of income.
D)is a special section of the statement of income.

Accepted Answer

The statement of cash flows is a financial statement that summarizes the cash inflows and outflows from a company's operating, investing, and financing activities over a specific period, providing insight into its cash position and liquidity.

Question 11

Preparing the financing activities section of the statement of cash flows requires the analysis of non-current liability and equity accounts, as well as any short-term loans incurred for lending purposes rather than trade.

Accepted Answer

The financing activities section of the statement of cash flows includes transactions involving non-current liabilities and equity accounts, such as issuing or repaying debt and equity, as well as short-term loans if they are for financing rather than operational purposes.

Question 12

Generally, the first category shown on the statement of cash flows is cash flows provided (used) by
A)operating activities.
B)investing activities.
C)financing activities.
D)significant noncash activities.

Accepted Answer

Operating activities are typically the first category shown on the statement of cash flows because they relate to the primary revenue-producing activities of the entity, such as receipts from sales of goods and services and payments to suppliers and employees.

Question 13

A loss on sale of equipment is included in the investing activities on the statement of cash flows.

Accepted Answer

A loss on sale of equipment is included in the operating activities section of the statement of cash flows, as it is added back to net income when calculating cash flow from operating activities. The actual cash received from the sale is reported in the investing activities section.

Question 14

In calculating cash flow provided (used) by operating activities using the direct method, each item in the statement of income is adjusted from the accrual basis to the cash basis.

Accepted Answer

The direct method of calculating cash flow from operating activities involves adjusting each income statement item from the accrual basis to the cash basis to reflect actual cash received or paid.

Question 15

Under the direct method, as an adjustment to operating expenses per the statement of income, an increase in liabilities related to other operating expenses would be added to operating expenses to determine cash payments for operating expenses.

Accepted Answer

Under the direct method, an increase in liabilities related to other operating expenses would actually be subtracted from operating expenses when determining cash payments for operating expenses, as the increase in liabilities indicates that these expenses have been incurred but not yet paid in cash.

Question 16

The primary purpose of the statement of cash flows is to
A)provide information about the investing and financing activities during a period.
B)prove that revenues exceed expenses if there is a net income.
C)provide information about cash receipts and cash payments during a period.
D)report to Canada Revenue Agency.

Accepted Answer

The statement of cash flows is designed to provide information about a company's cash receipts and cash payments during a specific period, detailing how cash is generated and used in operating, investing, and financing activities.

Question 17

Under the direct method, an increase in inventory would be added to cost of goods sold to determine net purchases for the period.

Accepted Answer

The answer of Under the direct method, an increase in...

Question 18

During the year, Income Tax Expense was $22,000 and Income Tax Payable increased by $3,000; therefore, the cash paid for income tax was $19,000.

Accepted Answer

The cash paid for income tax is calculated by subtracting the increase in Income Tax Payable from the Income Tax Expense: $22,000 - $3,000 = $19,000.

Question 19

The acquisition of land by issuing common shares is
A)a cash transaction and would be reported in the body of a statement of cash flows.
B)a noncash transaction that is not reported in the body of a statement of cash flows.
C)a noncash transaction but would be reported in the body of a statement of cash flows.
D)only reported if the statement of cash flows is prepared using the direct method.

Accepted Answer

The acquisition of land by issuing common shares is a noncash investing and financing activity. These types of transactions are not reported in the body of the statement of cash flows but are instead disclosed in the notes to the financial statements or in a supplementary schedule.

Question 20

If a company reports a loss, it
A)may still have a net increase in cash.
B)will not be able to pay cash dividends.
C)will not be able to get a loan.
D)will not be able to make capital expenditures.

Accepted Answer

A company can report a loss for the period but still experience a net increase in cash. This can occur through activities such as issuing new shares, taking on new debt, or selling assets, which can provide cash inflow despite the loss from operations.

Quiz 13: Statement of Cash Flows

On the statement of cash flows of a growing company, the reader should expect to see cash provided by its financing activities, not cash used.

In the investing activities section of the statement of cash flows, all the cash payments for purchase of non-current assets should be totalled and reported as one number.

The direct method is considered to be more informative and easier to compare with the other financial statements.

Cost of goods sold + an increase in inventory + an increase in accounts payable = cash paid to suppliers during a period.

If accumulated other comprehensive income increases or decreases during the year, the change must be reported in the financing activities section.

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

Which one of the following is false?

The statement of cash flows will not report the

Under the direct method, as an adjustment to operating expenses per the statement of income, a decrease in prepaid expenses would be added to operating expenses to determine cash payments for operating expenses.

The statement of cash flows

Preparing the financing activities section of the statement of cash flows requires the analysis of non-current liability and equity accounts, as well as any short-term loans incurred for lending purposes rather than trade.

Generally, the first category shown on the statement of cash flows is cash flows provided (used) by

A loss on sale of equipment is included in the investing activities on the statement of cash flows.

In calculating cash flow provided (used) by operating activities using the direct method, each item in the statement of income is adjusted from the accrual basis to the cash basis.

Under the direct method, as an adjustment to operating expenses per the statement of income, an increase in liabilities related to other operating expenses would be added to operating expenses to determine cash payments for operating expenses.

The primary purpose of the statement of cash flows is to

Under the direct method, an increase in inventory would be added to cost of goods sold to determine net purchases for the period.

During the year, Income Tax Expense was $22,000 and Income Tax Payable increased by $3,000; therefore, the cash paid for income tax was $19,000.

The acquisition of land by issuing common shares is

If a company reports a loss, it