Question 1

Lincoln Company engaged in this transaction: Issued stock for land.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.
A)Financing activities section.
B)Operating activities section.
C)Investing activities section.
D)Schedule of noncash investing and financing transactions.

Accepted Answer

The transaction involves issuing stock in exchange for land, which is a non-cash transaction. Such transactions are reported in the schedule of noncash investing and financing transactions, not in the main sections of the cash flow statement.

Question 2

Lincoln Company engaged in this transaction: Transferred cash to money market account.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.
A)Does not represent a cash flow.
B)Operating activities section.
C)Investing activities section.
D)Financing activities section.

Accepted Answer

Transferring cash to a money market account is essentially moving cash from one form to another within the company and does not represent a cash inflow or outflow for the purposes of the statement of cash flows.

Question 3

Lincoln Company engaged in this transaction: Abandoned fully depreciated equipment.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.
A)Investing activities section.
B)Operating activities section.
C)Does not represent a cash flow.
D)Financing activities section.

Accepted Answer

Abandoning fully depreciated equipment does not involve a cash flow, as it is simply removing an asset from the books that has already been fully depreciated and does not involve the receipt or payment of cash.

Question 4

Assume the indirect method is used to compute net cash flows from operating activities.For this item extracted from the financial statements-Decrease in Accounts Receivable-indicate the effect on net income in arriving at net cash flows from operating activities by choosing one of the following:
A)Add to net income to arrive at net cash flows from operating activities.
B)Subtract from net income to arrive at net cash flows from operating activities.
C)Not used to adjust net income to calculate net cash flows from operating activities.

Accepted Answer

A decrease in accounts receivable means that the company has received payment for some of its sales made on credit, which should be added back to the net income to arrive at the net cash flows from operating activities under the indirect method. This is because the decrease in accounts receivable did not reflect a cash expense, but rather a decrease in the amount of cash tied up in accounts receivable.

Question 5

Lincoln Company engaged in this transaction: Paid income taxes.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.
A)Schedule of noncash investing and financing transactions.
B)Investing activities section.
C)Operating activities section.
D)Financing activities section.

Accepted Answer

The payment of income taxes is a cash outflow related to the company's operating activities, so it would appear in the operating activities section of the statement of cash flows.

Question 6

Lincoln Company engaged in this transaction: Acquired long-term investment by issuance of long-term debt.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.
A)Investing activities section.
B)Operating activities section.
C)Schedule of noncash investing and financing transactions.
D)Financing activities section.

Accepted Answer

This transaction involves acquiring a long-term investment through the issuance of long-term debt, which does not involve cash flow. Therefore, it is reported in the schedule of noncash investing and financing transactions, not in the cash flows from operating, investing, or financing sections.

Question 7

Lincoln Company engaged in this transaction: Issued common stock for cash.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.
A)Operating activities section.
B)Does not represent a cash flow.
C)Investing activities section.
D)Financing activities section.

Accepted Answer

Issuing common stock for cash represents a financing activity, as it involves raising funds through the issuance of equity securities. Therefore, this transaction would be reported in the financing activities section of the statement of cash flows.

Question 8

If the indirect method is used to prepare a statement of cash flows,which of the following would be added to net income to arrive at net cash flows from operating activities?
A)Amortization expense.
B)Depreciatione expense.
C)Loss on sale of land.
D)All of these choices.

Accepted Answer

Both amortization expense and depreciation expense are added back to net income in the indirect method to arrive at net cash flows from operating activities. Additionally, any loss on the sale of assets is also added back to net income. Therefore, the correct choice is D, which includes all of these options.

Question 9

Lincoln Company engaged in this transaction: Converted loans payable to stock.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.
A)Financing activities section.
B)Schedule of noncash investing and financing transactions.
C)Investing activities section.
D)Does not represent a cash flow.

Accepted Answer

The transaction of converting loans payable to stock is a noncash financing transaction and would appear on the Schedule of noncash investing and financing transactions. It does not affect the actual cash flows of the company, therefore, it would not appear in the cash flow statement's operating, investing, or financing sections.

Question 10

Lincoln Company engaged in this transaction: Received dividends on marketable securities held as a long-term investment.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.
A)Schedule of noncash investing and financing transactions.
B)Operating activities section.
C)Financing activities section.
D)Investing activities section.

Accepted Answer

Receiving dividends on marketable securities held as a long-term investment is considered an operating activity because it relates to the income received from investments, which is part of the company's ongoing primary operations' cash flows.

Question 11

Lincoln Company engaged in this transaction: Purchased treasury stock with cash.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.
A)Financing activities section.
B)Investing activities section.
C)Does not represent a cash flow.
D)Operating activities section.

Accepted Answer

Purchasing treasury stock is a financing activity, as it involves using cash to buy back the company's own shares. Therefore, this transaction would appear in the financing activities section of the statement of cash flows.

Question 12

Which of the following statements is incorrect regarding the statement of cash flows?
A)The direct and indirect methods always produce the same amount of cash flows from operating activities.
B)The direct method presentation of operating cash flows is more straightforward than that of the indirect method.
C)The indirect method is more difficult to implement in practice.
D)When the direct method is presented,preparation and disclosure of the indirect method of presenting cash flows from operating activities is also required.

Accepted Answer

The indirect method is generally easier to implement because it starts with net income and adjusts for changes in balance sheet accounts, whereas the direct method requires detailed tracking of cash receipts and payments.

Question 13

Lincoln Company engaged in this transaction: As required by the landlord,prepaid one year's rent on its leased warehouse.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.
A)Financing activities section.
B)Does not represent a cash flow.
C)Investing activities section.
D)Operating activities section.

Accepted Answer

This transaction relates to operating activities section because it represents a cash outflow for Lincoln Company. Prepaying rent for the warehouse is considered an operating expense, and therefore the transaction is included in the operating activities section of the statement of cash flows.

Question 14

Lincoln Company engaged in this transaction: Accrued employee wages earned but not yet paid at year-end.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.
A)Financing activities section.
B)Investing activities section.
C)Does not represent a cash flow.
D)Operating activities section.

Accepted Answer

Accruing employee wages that have been earned but not yet paid does not represent a cash flow because no cash has actually been exchanged. This transaction is an adjustment to expenses on the income statement and liabilities on the balance sheet, but it does not affect the cash balance until the wages are paid.

Question 15

Lincoln Company engaged in this transaction: Purchased 30-day U.S.Treasury bill.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.
A)Does not represent a cash flow.
B)Operating activities section.
C)Investing activities section.
D)Financing activities section.

Accepted Answer

Purchasing a 30-day U.S. Treasury bill is considered a cash equivalent, not a cash flow, as it is a short-term, highly liquid investment.

Question 16

The indirect method of preparing a statement of cash flows
A)is the overwhelming choice of most companies.
B)begins with net income in the operating activities section.
C)will produce the same net figure as the direct method.
D)All of these choices.

Accepted Answer

The indirect method is preferred by most companies, starts with net income for operating activities, and yields the same net cash flow from operating activities as the direct method, making all the provided options correct.

Question 17

Lincoln Company engaged in this transaction: Purchased 60-day commercial paper.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.
A)Does not represent a cash flow.
B)Operating activities section.
C)Financing activities section.
D)Investing activities section.

Accepted Answer

Purchasing commercial paper is considered a cash equivalent and does not represent a cash flow transaction on the statement of cash flows.

Question 18

Lincoln Company engaged in this transaction: Received 6-month's rent in advance from a tenant in its office building.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.
A)Financing activities section.
B)Schedule of noncash investing and financing transactions.
C)Operating activities section.
D)Investing activities section.

Accepted Answer

The transaction of receiving 6-month's rent in advance from a tenant in its office building is related to operating activities as it is a part of the company's normal business operations. Therefore, it would appear in the operating activities section of the statement of cash flows.

Question 19

If the indirect method is used to prepare a statement of cash flows,which of the following would be added to net income to arrive at net cash flows from operating activities?
A)Decrease in accrued liabilities.
B)Decrease in income taxes payable.
C)Decrease in accounts receivable.
D)Increase in prepaid expenses.

Accepted Answer

In the indirect method of preparing a statement of cash flows, non-cash expenses are added back to net income and non-cash revenues are deducted to arrive at the amount of cash generated or used by operations during the period. Changes in current assets and liabilities, such as accounts receivable, are also taken into account. Therefore, a decrease in accounts receivable would be added to net income to arrive at net cash flows from operating activities. Choices A, B, and D do not directly affect net income and would not be added back to arrive at net cash flows from operating activities.

Question 20

Which of the following statements is correctregarding the statement of cash flows?
A)Analysts prefer the direct method to the indirect method.
B)Companies prefer the direct method because it is easier and less expensive to prepare.
C)A survey of large companies showed 98% of them use the indirect method.
D)All of these choices.

Accepted Answer

A survey of large companies showed that 98% of them use the indirect method, which means that statement C is the correct answer. Statements A and B are not correct because analysts generally prefer the direct method, and there is no evidence that companies prefer it due to its ease and cost-effectiveness. Statement D is not correct because only statement C is correct.

Quiz 15: The Statement of Cash Flows

Lincoln Company engaged in this transaction: Issued stock for land. 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: Transferred cash to money market account. 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: Abandoned fully depreciated equipment. Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

Assume the indirect method is used to compute net cash flows from operating activities.For this item extracted from the financial statements-Decrease in Accounts Receivable-indicate the effect on net income in arriving at net cash flows from operating activities by choosing one of the following:

Lincoln Company engaged in this transaction: Paid income taxes. 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: Acquired long-term investment by issuance of long-term debt. 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: Issued common stock for cash. Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

If the indirect method is used to prepare a statement of cash flows,which of the following would be added to net income to arrive at net cash flows from operating activities?

Lincoln Company engaged in this transaction: Converted loans payable to stock. 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: Received dividends on marketable securities held as a long-term investment. 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: Purchased treasury stock with cash. Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

Which of the following statements is incorrect regarding the statement of cash flows?

Lincoln Company engaged in this transaction: As required by the landlord,prepaid one year's rent on its leased warehouse. 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: Accrued employee wages earned but not yet paid at year-end. 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: Purchased 30-day U.S.Treasury bill. Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

The indirect method of preparing a statement of cash flows

Lincoln Company engaged in this transaction: Purchased 60-day commercial paper. 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: Received 6-month's rent in advance from a tenant in its office building. Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

If the indirect method is used to prepare a statement of cash flows,which of the following would be added to net income to arrive at net cash flows from operating activities?

Which of the following statements is correctregarding the statement of cash flows?