Question 1

Which of the following would be reported on a statement of cash flows as a financing activity?

Accepted Answer

Purchase of treasury stock is a financing activity because it involves the use of funds from financing sources, such as shareholders' equity or debt, to repurchase the company's own shares. The other choices are either operating activities (amortization expense) or investing activities (sale of equipment, collection of notes receivable).

Question 2

On the statement of cash flows,in which section would the purchase of land with cash appear?

Accepted Answer

The purchase of land with cash would appear in the investing activities section of the statement of cash flows, as it represents a cash outflow for the acquisition of a long-term asset that is expected to generate future benefits.

Question 3

Under the indirect method of preparing the operating section of the statement of cash flows,net cash provided by operating activities is $207,000.If the direct method of preparing the operating section of the statement of cash flows was used:

Accepted Answer

Under both the indirect and direct methods, the net cash provided by operating activities will be the same. The difference lies in the presentation, not the amount.

Question 4

The most important type of cash flows on the statement of cash flows is ________.The least important type of cash flows on the statement of cash flows is ________.

Accepted Answer

Operating activities are the most important because they represent the ongoing operations of the company and are closely tied to the company's profitability. Financing activities are the least important because they generally reflect the company's capital structure and do not directly impact its operations.

Question 5

The purchase of treasury stock would be reported on a statement of cash flows as a:

Accepted Answer

The purchase of treasury stock is considered a financing activity because it involves transactions related to the company's own equity. It results in a cash outflow as the company uses cash to buy back its own shares.

Question 6

In 2015,Forever Young,Inc.sold land for $100,000 cash,purchased equipment for $20,000 cash and issued bonds for $100,000 cash.The Net Cash Provided by Investing Activities is:

Accepted Answer

Net Cash Provided by Investing Activities can be calculated as:
Net Cash Provided by Investing Activities = Cash Outflows for Investing Activities - Cash Inflows from Investing Activities

Cash inflows:
- The cash received from the sale of land is $100,000.

Cash outflows:
- The purchase of equipment is a cash outflow of $20,000.
- The issuance of bonds is a financing activity and not an investing activity. Therefore, it is not included in the calculation of Net Cash Provided by Investing Activities.

Net Cash Provided by Investing Activities = -$20,000 (cash outflows) + $100,000 (cash inflows) = $80,000

Therefore, the correct choice is A) $80,000.

Question 7

Under the direct method of preparing the financing section of the statement of cash flows,net cash provided by financing activities is $388,000.If the indirect method of preparing the statement of cash flows was used:

Accepted Answer

The amount of net cash provided by financing activities would be the same under both the direct and indirect methods of preparing the statement of cash flows. The difference between the two methods is how the cash flows are presented, but the total amount should be the same. Therefore, the correct answer is C.

Question 8

The change in Cash on the comparative balance sheets is the "check figure" for the statement of cash flows.

Accepted Answer

This statement is true. The change in Cash on the comparative balance sheets is used to calculate the statement of cash flows.

Question 9

Independent Support,Inc.issued common stock for $500,000 cash in 2015.The company declared and paid cash dividends of $50,000 and purchased treasury stock at a cost of $20,000.The financing section of the statement of cash flows will report Net Cash Provided by Financing Activities of:

Accepted Answer

Net Cash Provided by Financing Activities is calculated as cash inflows from issuing stock ($500,000) minus cash outflows for dividends paid ($50,000) and treasury stock purchased ($20,000), resulting in $430,000.

Question 10

Positive signs of a successful company as seen on the statement of cash flows do NOT include:

Accepted Answer

The sale of a majority of a company's plant assets is not a positive sign of a successful company as it may indicate a need for liquidity or downsizing. A successful company should be able to invest in capital expenditures (such as property, plant, and equipment) to further grow the business. The fact that operating activities are the largest source of cash is a positive sign, as it indicates that the business is generating sufficient cash flow to support its operations. Additionally, if banks are willing to lend money to the company, it can be an indicator of the company's creditworthiness and strength.

Question 11

In 2015,Chen Corporation purchased treasury stock with a cost of $50,000.During the year,the company declared and paid dividends of $10,000 and issued bonds payable for $1,000,000.Net Cash Provided by Financing Activities for 2015 is:

Accepted Answer

Net Cash Provided by Financing Activities is calculated as: Cash inflows from issuing bonds ($1,000,000) minus cash outflows for purchasing treasury stock ($50,000) and paying dividends ($10,000), resulting in $940,000.

Question 12

Acquisitions of treasury stock would be reported on a statement of cash flows as:

Accepted Answer

Acquisitions of treasury stock are a form of financing activity since they involve a company's use of its financial resources to buy back its own shares. Consequently, the cash flows resulting from treasury stock purchases should be reported as a financing activity on the statement of cash flows.

Question 13

A gain on sale of equipment is subtracted from net income when determining Net Cash Provided by Operating Activities under the indirect method.

Accepted Answer

This is because a gain on sale of equipment is considered a non-cash activity and therefore needs to be adjusted for when calculating the net cash provided by operating activities using the indirect method. Specifically, the gain on sale of equipment is added back to net income to reverse the effect of the transaction on net income, and the proceeds from the sale of equipment are subtracted from this adjusted net income to arrive at the net cash provided by operating activities.

Question 14

Financing activities on a statement of cash flows relate to:

Accepted Answer

Financing activities on a statement of cash flows relate to long-term liabilities (issuing and repaying debt), and stockholders' equity (issuing and buying back stock). It does not relate to current assets or liabilities.

Question 15

Google Inc.paid $10.6 billion to acquire other companies.They also paid $33 billion to purchase marketable securities.How are these cash outflows classified on the statement of cash flows?

Accepted Answer

Cash outflows for acquiring other companies and purchasing marketable securities are classified as investing activities on the statement of cash flows.

Question 16

Which of the following would be reported on a statement of cash flows as an investing activity?

Accepted Answer

Sale of equipment for cash is a cash inflow related to investing activities. Depreciation expense is a noncash expense that is added back to net income in the operating activities section. Purchase of treasury stock and paying cash dividends are financing activities.

Question 17

A successful business must generate most of its cash from:

Accepted Answer

Operating activities refer to a company's main revenue-generating activities. Cash generated from operations reflects the company's ability to generate sales, collect payments from customers, manage inventory and pay suppliers. Therefore, a successful business must generate most of its cash from operating activities.

Question 18

Only the balance sheet is used to prepare the statement of cash flows.

Accepted Answer

Both the balance sheet and income statement are used to prepare the statement of cash flows.

Question 19

Net cash provided by operating activities under the indirect method must be ________ net cash provided by operating activities under the direct method.

Accepted Answer

Net cash provided by operating activities, whether calculated using the indirect or direct method, must ultimately be the same because both methods are just different ways of presenting the same information.

Question 20

Examples of financing activities on a statement of cash flows do NOT include:

Accepted Answer

Issuing stock and borrowing money are examples of financing activities, as they involve obtaining funds from external sources. Buying treasury stock, on the other hand, is an example of an investing activity, as it involves purchasing the company's own stock. Declaring stock dividends is an example of an operating activity, as it relates to the distribution of profits to shareholders.

Quiz 12: The Statement of Cash Flows