Question 1

Money received from issuing bonds payable would be included as part of a company's financing activities on the statement of cash flows.

Accepted Answer

Money received from issuing bonds payable represents a financing activity, as it is a form of borrowing money. Therefore, it would be included in the financing activities section of the statement of cash flows.

Question 2

When a company pays a supplier for inventory it has purchased,the cash outflow is recorded in the investing activities section of the statement of cash flows.

Accepted Answer

The payment to a supplier for inventory would be recorded as a cash outflow in the operating activities section, as it relates to the day-to-day operations of the business. The investing activities section would only include cash flows related to the purchase or sale of long-term assets, such as property or equipment.

Question 3

Collecting the principal on a loan to another company would be reported on the investing activities section of the statement of cash flows.

Accepted Answer

Collecting the principal on a loan to another company involves receiving cash from an investment made by the reporting company, therefore it is considered a cash inflow from investing activities and would be reported on the investing activities section of the statement of cash flows.

Question 4

The collection of a loan made to a supplier would be treated as an investing activity on a statement of cash flows.

Accepted Answer

The collection of a loan made to a supplier would be considered a cash inflow from a financing activity rather than an investing activity. Investing activities involve transactions related to the acquisition or disposal of long-term assets, such as property, plant, and equipment, as well as investments in securities or other companies.

Question 5

Paying wages and salaries to employees is classified as a cash outflow in the operating activities section of the statement of cash flows.

Accepted Answer

Paying wages and salaries to employees is considered an expense and a cash outflow in the operating activities section of the statement of cash flows.

Question 6

When a company pays cash to repurchase its own common stock,this is reported as a cash outflow in the financing activities section of the statement of cash flows.

Accepted Answer

When a company repurchases its own common stock for cash, it is considered a financing activity because it involves a change in the company's capital structure. The cash outflow from the repurchase is reported in the financing activities section of the statement of cash flows.

Question 7

In the statement of cash flows,collecting cash from customers is treated as a cash inflow in the financing activities section.

Accepted Answer

Collecting cash from customers is treated as a cash inflow in the operating activities section, not the financing activities section. Financing activities typically involve transactions related to raising or paying back funds, such as issuing stock or borrowing money.

Question 8

Paying interest to lenders is classified as an operating activity on the statement of cash flows.

Accepted Answer

Paying interest to lenders is a cash outflow related to the company's ongoing operations, therefore it is classified as an operating activity on the statement of cash flows.

Question 9

When computing the net cash provided by operating activities under the indirect method on the statement of cash flows,an increase in prepaid expenses would be added to net income.

Accepted Answer

An increase in prepaid expenses is a decrease in cash, so it would be subtracted from net income under the indirect method.

Question 10

Cash payments to repay the principal amount of debt are reported as a cash outflow in the investing activities section of the statement of cash flows.

Accepted Answer

Cash payments to repay the principal amount of debt are reported as a cash outflow in the financing activities section of the statement of cash flows.

Question 11

Insurance and utility expenses are considered operating activities on the statement of cash flows.

Accepted Answer

Insurance and utility expenses are expenses related to the ongoing operations of a business, therefore they are classified as operating activities on the statement of cash flows.

Question 12

The statement of cash flows relies on a fundamental principle of double-entry bookkeeping;namely,the change in the cash balance must equal the change in total liabilities and stockholders' equity.

Accepted Answer

The statement of cash flows is based on the principle that the change in the cash balance over a period is due to the cash inflows and outflows from operating, investing, and financing activities, not directly equal to the change in total liabilities and stockholders' equity.

Question 13

Cash equivalents on the statement of cash flows consist of any investment that can be converted into cash within one year.

Accepted Answer

Cash equivalents consist of short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value, typically within three months or less.

Question 14

Buying property,plant,or equipment would be reported as a cash outflow on the investing activities section of the statement of cash flows.

Accepted Answer

Buying property, plant, or equipment (commonly known as capital expenditures) is considered a capital investment and is reported as a cash outflow on the investing activities section of the statement of cash flows.

Question 15

Cash received from the sale of equipment the company had used in its own operations would be considered an operating activity on a statement of cash flows.

Accepted Answer

Cash received from the sale of equipment the company had used in its own operations is considered an investing activity on a statement of cash flows, not an operating activity.

Question 16

Paying taxes to governmental bodies is considered a cash outflow in the operating activities section on the statement of cash flows.

Accepted Answer

Paying taxes is a cash outflow related to the operating activities of a business, as it is an expense incurred in the regular operations of the company. Therefore, it is reported in the operating activities section on the statement of cash flows.

Question 17

Dukas Corporation's net cash provided by operating activities was $218,000;its net income was $203,000;its capital expenditures were $146,000;and its cash dividends were $49,000.
Required:
Determine the company's free cash flow.

Accepted Answer

The answer of Dukas Corporation's net cash provided by operating...

Question 18

The net cash provided by operating activities on the statement of cash flows does not include any dividends paid to the company's own shareholders.

Accepted Answer

The net cash provided by operating activities only includes cash flows related to the company's operations, such as customer payments, supplier payments, and employee compensation. Dividend payments are considered a financing activity and are reported separately on the statement of cash flows.

Question 19

Investing activities on the statement of cash flows generate cash inflows and outflows related to borrowing from and repaying principal to creditors and completing transactions with the company's owners such as selling or repurchasing shares of common stocks and paying dividends.

Accepted Answer

Investing activities on the statement of cash flows are related to the purchase and sale of long-term assets, such as property, plant, and equipment, and investments. The activities related to borrowing, repaying principal, selling or repurchasing shares, and paying dividends fall under financing activities on the statement of cash flows.

Question 20

Under the indirect method of determining the net cash provided by operating activities on the statement of cash flows,a decrease in inventory would be added to net income.

Accepted Answer

Under the indirect method, a decrease in inventory would be added to net income because it represents a source of cash (i.e. cash was freed up by selling off inventory).

Quiz 13: Differential Analysis: The Key to Decision Making