Question 1

The cash flow statement aids investors and creditors in assessing a business's ability to meet its debt obligations and its ability to pay cash dividends.

Accepted Answer

The cash flow statement provides information about the cash inflows and outflows of a business, which is useful in determining its liquidity and ability to meet financial obligations such as debt and dividends. Therefore, option A is correct.

Question 2

All of the following are cash equivalents except:
A) money market investments
B) investments in Government of Canada Treasury Bills
C) accounts receivable
D) cash

Accepted Answer

Cash equivalents are highly liquid investments that can be easily converted to cash without any significant loss of value. Accounts receivable cannot be considered as cash equivalents as they are not easily convertible to cash and involve the risk of non-payment by the debtor. Money market investments and investments in Treasury Bills are highly liquid and are considered cash equivalents. Cash is obviously a cash equivalent.

Question 3

The cash flow statement:
A) is required by generally accepted accounting principles
B) is prepared at the option of management
C) may be combined with the shareholders' equity section of the balance sheet
D) does not have to be completed if a balance sheet is prepared

Accepted Answer

The cash flow statement is required by generally accepted accounting principles (GAAP) and must be prepared by companies.

Question 4

Which of the following statements accurately describes the cash flow statement?
A) It shows the relative proportion of debt and assets.
B) It shows the link between accrual based income and the cash reported on the balance sheet.
C) It indicates when long-term debt will mature.
D) It shows the link between book income and earnings per share.

Accepted Answer

The cash flow statement shows how cash is generated and used in a company, providing a link between accrual based income (as reported on the income statement) and the cash reported on the balance sheet. It does not show the proportion of debt and assets (that would be shown on the balance sheet), indicate when long-term debt will mature (that would be shown in the notes to the financial statements), or show the link between book income and earnings per share (those are shown on the income statement).

Question 5

Highly liquid short-term investments that can be converted into cash with little delay are called:
A) notes receivable
B) trading securities
C) cash equivalents
D) prepaids

Accepted Answer

Cash equivalents are highly liquid short-term investments that can be easily converted into cash with little delay, such as money market accounts, Treasury bills, and commercial paper. Notes receivable, trading securities, and prepaids are not all necessarily highly liquid or easily convertible into cash.

Question 6

One purpose of the cash flow statement is to show the relationship of net income to changes in the business's cash flow.

Accepted Answer

The cash flow statement provides information on how changes in balance sheet accounts affect cash and cash equivalents, and it reconciles the net income reported on the income statement to the actual cash received and disbursed during the period. Therefore, the statement shows the relationship between net income and changes in cash flow.

Question 7

The cash flow statement helps inform the reader about all of the following activities except:
A) the business's ability to generate cash to meet its past obligations
B) the business's ability to generate positive cash flows
C) stock splits and stock dividends
D) differences between net income and cash flows from operations

Accepted Answer

The cash flow statement provides information about the cash inflows and outflows of a business, including its ability to generate cash to meet its past obligations and generate positive cash flows. It also highlights the differences between net income and cash flows from operations. However, it does not provide information about stock splits and stock dividends, which are typically disclosed in the notes to the financial statements.

Question 8

Investors analyze the cash flow statement to determine:
A) total interest earned during the period
B) which companies are reporting unearned revenue
C) the debt-to-equity ratio
D) which businesses are expanding and which are cutting back on investments

Accepted Answer

Investors analyze the cash flow statement to determine which businesses are expanding and which are cutting back on investments because changes in cash flow from investing activities can indicate whether a company is investing in growth or divesting assets to repay debt or distribute to shareholders. The cash flow statement does not provide information on total interest earned during the period, unearned revenue, or the debt-to-equity ratio.

Question 9

The financial statement that reports an entity's cash receipts and cash payments during the period is the:
A) cash flow statement
B) statement of financial position
C) statement of retained earnings
D) statement of income

Accepted Answer

The cash flow statement is specifically designed to report an entity's cash inflows and outflows during a given period. It provides information on the sources and uses of cash, and breaks down cash flows into operating, investing, and financing activities. The other options (B, C, and D) report on different aspects of an entity's financial performance, but do not focus exclusively on cash flows.

Question 10

Increases and decreases in long-term liabilities and owners' equity are reported in the investing activities section of the cash flow statement.

Accepted Answer

Increases and decreases in long-term liabilities and owners' equity are reported in the financing activities section of the cash flow statement, not in the investing activities section.

Question 11

An example of the proper dating for the cash flow statement is:
A) December 31, 2015
B) For the Year Ended December 31, 2015
C) As at December 31, 2015
D) No dating is required.

Accepted Answer

The proper dating for the cash flow statement is "For the Year Ended December 31, 2015." This indicates that the statement covers the entire year from January 1 to December 31, 2015. This dating is important because it provides context for the cash flows presented in the statement and allows for comparison with other financial statements for the same period.

Question 12

The term cash as used on the cash flow statement includes all of the following except:
A) account receivables
B) petty cash
C) Government of Canada treasury bills
D) money market funds

Accepted Answer

The term cash on the cash flow statement refers to actual cash on hand or easily convertible to cash. Accounts receivable are not considered cash as they represent owed payments that have not yet been received. Petty cash, government treasury bills, and money market funds are all considered cash equivalents and are included in the cash balance on the cash flow statement.

Question 13

Which of the following statements is TRUE?
A) The Cash Flow Statement is for a point in time.
B) The Cash Flow Statement is not required by generally accepted accounting principles.
C) The Cash Flow Statement reports why cash increased or decreased during the accounting period.
D) The Cash Flow Statement is a summary of all the transactions that affected Net Income.

Accepted Answer

The Cash Flow Statement reports why cash increased or decreased during the accounting period.

Question 14

All of the following are true of negative cash flow from operations except:
A) Negative cash flow from operations, if sustained, will spell bankruptcy.
B) Negative cash flow from operations virtually always warrants investigation.
C) Negative cash flow from operations in a single year is not necessarily a danger signal.
D) Negative cash flow from operations: is normal for a profitable company.

Accepted Answer

Negative cash flow from operations is not necessarily a danger signal if the company is profitable. This is because a profitable company may be investing heavily in growth opportunities, resulting in temporary negative cash flow from operations. However, sustained negative cash flow from operations can eventually lead to bankruptcy if the company is unable to generate sufficient cash inflows to cover its cash outflows.

Question 15

The cash flow statement is divided into operating,investing,and financing activities.

Accepted Answer

The cash flow statement is indeed divided into operating, investing, and financing activities. This helps to categorize the sources and uses of cash in a business and provides valuable information to stakeholders about its financial health.

Question 16

Financing activities are generally more important than investing activities because how the company finances acquisitions is more important than what a company invests in.

Accepted Answer

Both financing and investing activities are important for a company's growth and success. Financing activities involve how a company raises capital through debt or equity. On the other hand, investing activities involve the purchase or sale of long-term assets such as property, plant, equipment, or investments. While financing activities are important for a company's financial stability, investing activities are important for the company's growth and expansion. The choice of what to invest in can have a significant impact on a company's long-term success. Therefore, it is not appropriate to say that financing activities are more important than investing activities.

Question 17

All of the following are purposes of the cash flow statement except to:
A) help predict future cash flows
B) evaluate management decisions concerning cash management
C) report the earnings per share
D) determine the ability to pay dividends to shareholders, and interest and principal to creditors

Accepted Answer

The cash flow statement is not used to report earnings per share, which is reported on the income statement. The purposes of the cash flow statement include helping predict future cash flows, evaluating management decisions concerning cash management, and determining the ability to pay dividends to shareholders and interest and principal to creditors.

Question 18

What is the most important source of cash for most successful companies? Explain why.

Accepted Answer

The answer of What is the most important source of...

Question 19

Your best friend just lost his job because the company he was working for went bankrupt.He was complaining to you that even though the company had been profitable for three years in a row,it still went out of business.He asks you how this can happen.
a_Explain the most likely reason for the company's declaring bankruptcy.Could your best friend have seen it coming? How?
b_Discuss the four purposes of the cash flow statement.

Accepted Answer

The answer of Your best friend just lost his job...

Question 20

A company reporting net income will always show an increase in cash for the same period.

Accepted Answer

Net income is calculated by subtracting expenses from revenue, but it does not necessarily reflect the actual cash received or spent during the period. Other factors such as non-cash expenses, changes in working capital, and capital expenditures can impact the cash flow statement. Therefore, a company reporting net income may or may not show an increase in cash for the same period.

Quiz 6: The Cash Flow Statement

The cash flow statement aids investors and creditors in assessing a business's ability to meet its debt obligations and its ability to pay cash dividends.

All of the following are cash equivalents except:

The cash flow statement:

Which of the following statements accurately describes the cash flow statement?

Highly liquid short-term investments that can be converted into cash with little delay are called:

One purpose of the cash flow statement is to show the relationship of net income to changes in the business's cash flow.

The cash flow statement helps inform the reader about all of the following activities except:

Investors analyze the cash flow statement to determine:

The financial statement that reports an entity's cash receipts and cash payments during the period is the:

Increases and decreases in long-term liabilities and owners' equity are reported in the investing activities section of the cash flow statement.

An example of the proper dating for the cash flow statement is:

The term cash as used on the cash flow statement includes all of the following except:

Which of the following statements is TRUE?

All of the following are true of negative cash flow from operations except:

The cash flow statement is divided into operating,investing,and financing activities.

Financing activities are generally more important than investing activities because how the company finances acquisitions is more important than what a company invests in.

All of the following are purposes of the cash flow statement except to:

What is the most important source of cash for most successful companies? Explain why.

A company reporting net income will always show an increase in cash for the same period.