Question 1

Lincoln Company engaged in this transaction: Sold land it was holding for speculation.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

Accepted Answer

The transaction of selling land, which was held for speculation, is an investing activity, and therefore, it would be reported in the investing activities section of the statement of cash flows.

Question 2

Lincoln Company engaged in this transaction: Collected accounts receivable.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

Accepted Answer

Collecting accounts receivable is considered a cash inflow from operating activities on the statement of cash flows. This is because it represents cash received from the company's primary operations.

Question 3

Lincoln Company engaged in this transaction: Retired long-term debt with cash.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

Accepted Answer

The transaction indicates the retirement of long-term debt, which is a financing activity. As such, it would appear in the financing activities section of the statement of cash flows.

Question 4

How are transfers between cash and cash equivalents treated on a statement of cash flows?

Accepted Answer

Transfers between cash and cash equivalents do not represent actual cash inflows or outflows, and therefore are not shown as any type of cash flow on the statement of cash flows.

Question 5

Which of the following is reported as a noncash investing and financing transaction on the statement of cash flows?

Accepted Answer

Noncash investing and financing transactions are not reported in the body of the statement of cash flows but are disclosed in the notes. The purchase of a building by taking out a long-term mortgage is an example of such a transaction, as it involves acquiring an asset without the immediate outlay of cash, instead creating a financing liability.

Question 6

Investors and creditors would find the statement of cash flows least useful in assessing

Accepted Answer

The statement of cash flows provides information about cash inflows and outflows during a period, but it does not provide information on financial position at a point in time. This information is typically found in the balance sheet. However, the statement of cash flows is useful in assessing the need for additional financing, ability to pay dividends and liabilities, and ability to generate positive future cash flows.

Question 7

A cash flow yield of 2.5 times is considered better than one of 3.0 times.

Accepted Answer

This statement is false. A higher cash flow yield (such as 3.0 times) is generally considered better than a lower cash flow yield (such as 2.5 times) because it means that the company is generating more cash flow relative to its stock price.

Question 8

Cash equivalents do not include

Accepted Answer

Cash equivalents are highly liquid assets that can be easily converted into cash with very little risk of losing value. Marketable securities, such as stocks and bonds, are not considered cash equivalents because they carry a higher risk of loss and often take longer to convert to cash. Therefore, choice C is not a cash equivalent. Choices A, B, and D are all examples of cash equivalents.

Question 9

A positive free cash flow indicates that the company has met all its planned cash commitments and has cash available to reduce debt or to expand.

Accepted Answer

A positive free cash flow means that the company's cash inflows from operations exceed its cash outflows, including capital expenditures. This indicates that the company has enough cash to meet its planned cash commitments and may have additional cash available for debt reduction or expansion.

Question 10

Lincoln Company engaged in this transaction: Declared and issued the required dividend on preferred stock.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

Accepted Answer

The declaration and issuance of a dividend on preferred stock is a financing activity and would be included in the financing activities section of the statement of cash flows.

Question 11

Cash flows to assets is measured in "times."

Accepted Answer

Cash flows to assets is typically measured as a ratio or percentage, indicating how efficiently a company generates cash from its assets, not in "times."

Question 12

Net cash flows from operating activities would be needed to calculate cash flow yield,cash flows to assets,and cash flows to sales.

Accepted Answer

Net cash flows from operating activities are used in the calculation of cash flow yield, cash flows to assets, and cash flows to sales, among other financial ratios or indicators. These cash flows represent the cash generated or used in the normal course of a company's operations, and can provide insights into its financial performance, liquidity, and ability to create value for shareholders.

Question 13

How are cash equivalents treated on a statement of cash flows?

Accepted Answer

Cash equivalents are combined with the Cash account on the statement of cash flows because they are short-term, highly liquid investments that are readily convertible to known amounts of cash and so close to their maturity that they present insignificant risk of changes in value because of changes in interest rates.

Question 14

Noncash investing and financing transactions

Accepted Answer

Noncash investing and financing transactions are reported as a separate schedule on the statement of cash flows. This schedule shows the details of these transactions and their effects on the company's cash and cash equivalents. Examples of noncash transactions include the issuance of shares in exchange for assets or the acquisition of a company through the assumption of debt.

Question 15

Lincoln Company engaged in this transaction: Accrued interest expense on long-term bonds payable.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

Accepted Answer

Accruing interest expense on long-term bonds payable does not involve any immediate cash flow; it is an accounting entry that recognizes interest expense that has been incurred but not yet paid.

Question 16

Management would not use the statement of cash flows to

Accepted Answer

The statement of cash flows is primarily used to assess the liquidity and solvency of a business, evaluate its ability to change cash flows in future circumstances, and determine the ability to affect the amounts and timing of cash flows to adapt to changing circumstances and opportunities. It does not provide a comprehensive overview of the company's financial position, which is the purpose of the balance sheet.

Question 17

Free cash flow is measured in terms of dollars.

Accepted Answer

Free cash flow (FCF) is measured in terms of dollars as it represents the cash generated or available after all expenses (including capital expenditures) have been accounted for. FCF is often used as an indicator of a company's financial health and its ability to invest in growth opportunities, pay dividends, and reduce debt.

Question 18

Kingston Company settled a long-term note payable it owed to Creative Company by issuing capital stock.Kingston would report this

Accepted Answer

This transaction involves settling a debt by issuing stock, which does not involve cash movement. Therefore, it is reported in the schedule of noncash investing and financing transactions.

Question 19

Cash flows to sales is a measure of how much operating cash flows did each dollar of sales generate.

Accepted Answer

Cash flows to sales is a metric used to measure a company's ability to turn sales into cash flow. It is calculated by dividing operating cash flow by sales revenue, providing insight into a company's efficiency in generating cash from its operations.

Question 20

The primary purpose of the statement of cash flows is to provide information

Accepted Answer

The statement of cash flows provides information about a company's cash receipts and cash payments during an accounting period. It categorizes cash inflows and outflows into operating, investing, and financing activities, which helps users understand how a company generates and uses its cash. It also reconciles the beginning and ending cash balances to show changes in cash position during the period.

Quiz 15: The Statement of Cash Flows

Lincoln Company engaged in this transaction: Sold land it was holding for speculation. Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

Lincoln Company engaged in this transaction: Collected accounts receivable. Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

Lincoln Company engaged in this transaction: Retired long-term debt with cash. Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.