Question 1

Issuing preferred stock to stockholders in exchange for cash would be shown under the financing activities section of the statement of cash flows.

Accepted Answer

Issuing preferred stock is a financing activity as it involves raising funds from external sources. Therefore, it would be shown under the financing activities section of the statement of cash flows.

Question 2

Buying property, plant and equipment for cash would be considered a cash outflow for the financing activities section of the statement of cash flows.

Accepted Answer

Buying property, plant and equipment for cash would be considered a cash outflow for the investing activities section of the statement of cash flows, not the financing activities section. Financing activities refer to activities related to raising capital, such as issuing and repaying debt or issuing and buying back stock.

Question 3

Financing activities on the statement of cash flows affect the long-term liability and equity accounts, such as Long-Term Notes Payable, Bonds Payable, Common Stock, and Retained Earnings.

Accepted Answer

Financing activities typically involve obtaining funds from external sources or repaying debt, which can impact long-term liability and equity accounts. Examples include issuing bonds, borrowing money through long-term notes payable, and raising capital by issuing common stock. These activities can increase or decrease long-term liabilities or equity, depending on the nature of the transaction. Therefore, financing activities have a direct impact on the balance sheet and the overall financial health of a company.

Question 4

The purchase of equipment financed by a Long-Term Notes Payable is an example of:

Accepted Answer

The answer of The purchase of equipment financed by a...

Question 5

Allen Company uses the indirect method to prepare its statement of cash flows. Refer to the following portion of the comparative balance sheet:
  $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $Allen Company
 $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $Comparative Balance Sheet
 $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $December 31, 2015 and 2014
$\begin{array}{lrrr} 
& 2015 & 2014 & \text { Increase/decrease } \
\text { Common Stock } & \$ 28,000 & \$ 5,000 & \$ 23,000 \
\text { Retained Earnings } & 108,000 & 82,000 & 26,000 \
\text { Treasury Stock } & (9,000) & (6,000) & (3,000) \
 \text { Total equity } 
 & 127,000 & 81,000 & 46,000 \
\hline
\end{array}$ If the net income for the year was $58,000, the company must have declared $32,000 as dividends during the year.

Accepted Answer

The change in retained earnings is $26,000, which is the net income of $58,000 minus the dividends declared. Therefore, $58,000 - $26,000 = $32,000 in dividends must have been declared.

Question 6

While preparing a statement of cash flows using the indirect method, an increase in current assets are added to net income to arrive at net cash flow from operating activities.

Accepted Answer

The answer of While preparing a statement of cash flows...

Question 7

Allen Company uses the indirect method to prepare its statement of cash flows. The Treasury Stock account had a debit balance of $9,000 at the beginning of the year, and a debit balance of $13,000 at the end of the year. No Treasury Stock was sold during the year.
The financing section of the statement of cash flows will show a positive cash flow of $4,000 for the buyback of Treasury Stock.

Accepted Answer

The Treasury Stock account has a debit balance, which means that shares were bought back by the company. Therefore, the financing section of the statement of cash flows will show a negative cash flow for the buyback of Treasury Stock, not a positive cash flow. The correct answer would be: Financing: Purchase of Treasury Stock ($4,000)

Question 8

Companies sometimes obtain financing and do not receive cash. Although such transactions do not directly involve cash, they still must be reported in the financing section of the cash flow statement.

Accepted Answer

The answer of Companies sometimes obtain financing and do not...

Question 9

The non-cash investing and financing activities section of the statement of cash flows appears as a separate schedule of the cash flow statement or in the notes to the financial statements.

Accepted Answer

The non-cash investing and financing activities section is typically presented as a separate schedule or as a disclosure in the notes to the financial statements.

Question 10

The third section presented on the statement of cash flows is the non-cash operating activities section.

Accepted Answer

The third section typically presented on the statement of cash flows is the financing activities section, not the non-cash operating activities section. Non-cash operating activities are usually disclosed in a separate note or in a supplementary schedule to the cash flow statement.

Question 11

A debtor of Adams Company owes $500,000 but does not have enough cash to repay the debt. Following lengthy negotiations, the parties agreed that the debtor will issue 200,000 shares of Common Stock to settle the debt. This transaction will be reported in the investing activities section of the statement of cash flows for Adams Company.

Accepted Answer

This transaction will actually be reported in the financing activities section of the statement of cash flows, since it involves the issuance of shares of stock to settle a debt.

Question 12

While preparing the statement of cash flows using the indirect method, a loss on the sale of plant assets must be shown as a subtraction from the investing activities section.

Accepted Answer

The answer of While preparing the statement of cash flows...

Question 13

Transnational Company is looking for additional capital in order to purchase a property to build their headquarters. They found an investor who was willing to sell them land worth $500,000 in exchange for stock in the company. This transaction would be shown in the financing activities section of the statement of cash flows.

Accepted Answer

The answer of Transnational Company is looking for additional capital...

Question 14

While preparing the statement of cash flows using the indirect method, a decrease in current liabilities is added to the net income to arrive at net cash flow from operating activities.

Accepted Answer

The answer of While preparing the statement of cash flows...

Question 15

Arturo Sales purchased some equipment for $12,000 by issuing a 6-month Note Payable. This would appear as a separate schedule of the cash flow statement under a section called non-cash investing and financing activities.

Accepted Answer

Non-cash investing and financing activities include transactions such as issuing stock, issuing bonds, or acquiring assets through notes payable. The purchase of equipment through a note payable would fall under this category and appear as a separate schedule on the cash flow statement.

Question 16

The financing section of the statement of cash flows involves transactions relating to the Equity accounts and the Long-Term Liability accounts.

Accepted Answer

The financing section of the statement of cash flows typically involves transactions related to the issuance or repurchase of stocks or other equity instruments, as well as the issuance or repayment of long-term debts.

Question 17

While preparing the statement of cash flows using the indirect method, Depreciation Expense is subtracted from Net Income under operating activities.

Accepted Answer

The answer of While preparing the statement of cash flows...

Question 18

The contribution of equipment by a stockholder in exchange for common stock is an example of:

Accepted Answer

The contribution of equipment by a stockholder in exchange for common stock is an example of a non-cash investing and financing activity, as it involves the exchange of non-cash assets for equity without directly affecting cash flow.

Question 19

Partisan Services purchased 10 delivery vehicles by issuing a 10-year installment Note Payable for $320,000. This transaction would be shown in the investing activities section of the statement of cash flows.

Accepted Answer

This transaction would be recorded in the financing activities section of the statement of cash flows because it involves borrowing money through the issuance of a note payable. Investing activities involve the purchase and sale of long-term assets like property, plant, and equipment or investments.

Question 20

Which of the following sections of the statement of cash flows are presented differently between the direct method and indirect method?

Accepted Answer

The operating activity section is presented differently between the direct method and indirect method. The direct method reports actual cash inflows and outflows from operating activities, while the indirect method adjusts net income for non-cash items and changes in balance sheet accounts to arrive at the net cash provided or used by operating activities. The investing activity, financing activity, and non-cash activity sections are presented in the same manner regardless of which method is used.

Quiz 16: The Statement of Cash Flows

Issuing preferred stock to stockholders in exchange for cash would be shown under the financing activities section of the statement of cash flows.

Buying property, plant and equipment for cash would be considered a cash outflow for the financing activities section of the statement of cash flows.

Financing activities on the statement of cash flows affect the long-term liability and equity accounts, such as Long-Term Notes Payable, Bonds Payable, Common Stock, and Retained Earnings.

The purchase of equipment financed by a Long-Term Notes Payable is an example of:

While preparing a statement of cash flows using the indirect method, an increase in current assets are added to net income to arrive at net cash flow from operating activities.

Companies sometimes obtain financing and do not receive cash. Although such transactions do not directly involve cash, they still must be reported in the financing section of the cash flow statement.

The non-cash investing and financing activities section of the statement of cash flows appears as a separate schedule of the cash flow statement or in the notes to the financial statements.

The third section presented on the statement of cash flows is the non-cash operating activities section.

While preparing the statement of cash flows using the indirect method, a loss on the sale of plant assets must be shown as a subtraction from the investing activities section.

While preparing the statement of cash flows using the indirect method, a decrease in current liabilities is added to the net income to arrive at net cash flow from operating activities.

Arturo Sales purchased some equipment for $12,000 by issuing a 6-month Note Payable. This would appear as a separate schedule of the cash flow statement under a section called non-cash investing and financing activities.

The financing section of the statement of cash flows involves transactions relating to the Equity accounts and the Long-Term Liability accounts.

While preparing the statement of cash flows using the indirect method, Depreciation Expense is subtracted from Net Income under operating activities.

The contribution of equipment by a stockholder in exchange for common stock is an example of:

Partisan Services purchased 10 delivery vehicles by issuing a 10-year installment Note Payable for $320,000. This transaction would be shown in the investing activities section of the statement of cash flows.

Which of the following sections of the statement of cash flows are presented differently between the direct method and indirect method?