Deck 13: Statement of Cash Flows

Question 1

Cash provided by operating activities is generally the same as the net income reported on the statement of income.

Answer 1

False

Question 2

The sale of land for cash would be classified as a cash receipt from an investing activity.

Answer 2

True

Question 3

Operating activities include the cash effects of transactions that create revenues and expenses.

Answer 3

True

Question 4

Cash equivalents can include both short-term and long-term investments.

Question 5

Investing activities affect non-current asset accounts.

Question 6

The acquisition of a building by issuing a mortgage payable would be considered an investing and financing activity that did not affect cash and would be reported in the notes to the financial statements.

Question 7

Noncash investing and financing transactions, such as the exchange of common shares to purchase assets, represent significant investing and financing activities and are reported in a note to the financial statements.

Question 8

The activity from the statement of financial position to be presented in the financing activities section of the statement of cash flows is based on an analysis of shareholders' equity only.

Question 9

Cash flow provided (used) by investing activities is considered the most important category on the statement of cash flows because it is considered the best measure of expected net income.

Question 10

Under IFRS, the receipt of dividends from equity investments may be classified as a cash receipt provided (used) by investing activities.

Question 11

Like the other financial statements, the statement of cash flows is prepared from an adjusted trial balance.

Question 12

For external reporting, a company must prepare either an statement of income or a statement of cash flows, but not both.

Question 13

If a company has combined cash equivalents with cash, it must disclose the components of the cash equivalents, with a reconciliation of the amounts reported on the statement of cash flows with those reported on the statement of financial position.

Question 14

Cash flow information is useful in assessing a company's ability to generate future cash flows.

Question 15

Under the indirect method, an increase in accounts payable during a period is deducted from net income in calculating cash provided by operating activities.

Question 16

The statement of cash flows classifies cash receipts and payments as operating, non-operating, and financial activities.

Question 17

Noncash investing and financing activities must be reported in the body of a statement of cash flows.

Question 18

For a company using the direct method, both the operating activities and investing activities will report the same net amounts provided or used as the indirect method, but the amount reported under financing activities will be different.

Question 19

The statement of cash flows is a required statement for both public and private corporations.

Question 20

Under ASPE, the payment of interest on a mortgage payable may be classified as a cash payment from financing activities.

Question 21

On the statement of cash flows of a growing company, the reader should expect to see cash provided by its financing activities, not cash used.

Question 22

In the investing activities section of the statement of cash flows, all the cash payments for purchase of non-current assets should be totalled and reported as one number.

Question 23

The direct method is considered to be more informative and easier to compare with the other financial statements.

Question 24

Cost of goods sold + an increase in inventory + an increase in accounts payable = cash paid to suppliers during a period.

Question 25

If accumulated other comprehensive income increases or decreases during the year, the change must be reported in the financing activities section.

Question 26

The order of presentation of activities on the statement of cash flows is
(a)operating, investing, and financing.
(b)operating, financing, and investing.
(c)financing, operating, and investing.
(d)financing, investing, and operating.

Question 27

Which one of the following is false?
(a)The statement of cash flows can be prepared using cash and cash equivalents rather than just cash, as its base.
(b)The statement of cash flows reports the sources and uses of cash during a specific period.
(c)The statement of cash flows shows the effects on net income of a company's operating, investing, and financing activities for an accounting period.
(d)The statement of cash flows explains the difference between net income, as shown on the statement of income, and the net cash flows generated from operating activities.

Question 28

The statement of cash flows will not report the
(a)amount of cheques outstanding at the end of the period.
(b)sources of cash in the current period.
(c)uses of cash in the current period.
(d)change in the cash balance for the current period.

Question 29

Under the direct method, as an adjustment to operating expenses per the statement of income, a decrease in prepaid expenses would be added to operating expenses to determine cash payments for operating expenses.

Question 30

The statement of cash flows
(a)must be prepared on a daily basis.
(b)summarizes the operating, financing, and investing activities of a company.
(c)is another name for the statement of income.
(d)is a special section of the statement of income.

Question 31

Preparing the financing activities section of the statement of cash flows requires the analysis of non-current liability and equity accounts, as well as any short-term loans incurred for lending purposes rather than trade.

Question 32

Generally, the first category shown on the statement of cash flows is cash flows provided (used) by
(a)operating activities.
(b)investing activities.
(c)financing activities.
(d)significant noncash activities.

Question 33

A loss on sale of equipment is included in the investing activities on the statement of cash flows.

Question 34

In calculating cash flow provided (used) by operating activities using the direct method, each item in the statement of income is adjusted from the accrual basis to the cash basis.

Question 35

Under the direct method, as an adjustment to operating expenses per the statement of income, an increase in liabilities related to other operating expenses would be added to operating expenses to determine cash payments for operating expenses.

Question 36

The primary purpose of the statement of cash flows is to
(a)provide information about the investing and financing activities during a period.
(b)prove that revenues exceed expenses if there is a net income.
(c)provide information about cash receipts and cash payments during a period.
(d)report to Canada Revenue Agency.

Question 37

Under the direct method, an increase in inventory would be added to cost of goods sold to determine net purchases for the period.

Question 38

During the year, Income Tax Expense was $22,000 and Income Tax Payable increased by $3,000; therefore, the cash paid for income tax was $19,000.

Question 39

The acquisition of land by issuing common shares is
(a)a cash transaction and would be reported in the body of a statement of cash flows.
(b)a noncash transaction that is not reported in the body of a statement of cash flows.
(c)a noncash transaction but would be reported in the body of a statement of cash flows.
(d)only reported if the statement of cash flows is prepared using the direct method.

Question 40

If a company reports a loss, it
(a)may still have a net increase in cash.
(b)will not be able to pay cash dividends.
(c)will not be able to get a loan.
(d)will not be able to make capital expenditures.

Question 41

Of the items below, the one that appears before the others on the statement of cash flows is
(a)noncash investing and financing activities.
(b)net increase (decrease)in cash.
(c)cash at the end of the period.
(d)cash at the beginning of the period.

Question 42

Use the following information for questions
Ingles Corp., a private company reporting under ASPE, engaged in the following transactions.For each transaction, indicate where, if at all, it would be classified on the statement of cash flows.
Retirement of non-current debt (incurred for lending purposes) with cash:
(a)operating activities section
(b)investing activities section
(c)financing activities section
(d)does not represent a cash flow

Question 43

Under IFRS, cash receipts from interest and dividends are classified as
(a)operating activities.
(b)investing activities.
(c)either operating or investing activities.
(d)either financing or investing activities.

Question 44

Use the following information for questions
Ingles Corp., a private company reporting under ASPE, engaged in the following transactions.For each transaction, indicate where, if at all, it would be classified on the statement of cash flows.
Purchase of another company's common shares on the open market:
(a)operating activities section
(b)investing activities section
(c)financing activities section
(d)does not represent a cash flow

Question 45

In preparing a statement of cash flows,
(a)an increase in the Common Shares account during a period would be classified as an investing activity.
(b)the issue of debt should be reported separately from the retirement of debt.
(c)the net movement of loans and repayments are reported as a financing activity.
(d)the issue of shares to acquire land are reported as financing and investing, respectively.

Question 46

In preparing the operating activities section of the statement of cash flows, most companies in Canada prefer to
(a)use the direct method.
(b)use the indirect method.
(c)present both the indirect and direct methods in their financial reports.
(d)prepare the operating activities section on the accrual basis.

Question 47

Use the following information for questions
Ingles Corp., a private company reporting under ASPE, engaged in the following transactions.For each transaction, indicate where, if at all, it would be classified on the statement of cash flows.
Issue of common shares in exchange for equipment:
(a)operating activities section
(b)investing activities section
(c)financing activities section
(d)does not represent a cash flow

Question 48

The indirect and direct methods of preparing the statement of cash flows are identical except for the
(a)significant noncash activity section.
(b)operating activities section.
(c)investing activities section.
(d)financing activities section.

Question 49

In preparing a statement of cash flows, preferred shares issued in exchange for land would be reported in the
(a)financing activities section.
(b)investing activities section.
(c)operating activities section.
(d)notes to the financial statements.

Question 50

Which one of the following items is not generally used in preparing a statement of cash flows?
(a)adjusted trial balance
(b)comparative statements of financial position
(c)current statement of income
(d)additional information

Question 51

In preparing a statement of cash flows, the conversion of bonds into common shares will be reported in the
(a)financing activities section.
(b)notes to the financial statements.
(c)investing activities section.
(d)shareholders' equity section.

Question 52

Which of the following statements are false when using the indirect method?
(a)A loss on the sale of equipment is added to net income in calculating cash provided by operating activities.
(b)An increase in accounts receivable during a period is deducted from net income in calculating cash provided by operating activities.
(c)An increase in accounts payable during a period is added to net income in calculating cash provided by operating activities.
(d)A decrease in accumulated depreciation during a period is added to net income in calculating cash provided by operating activities.

Question 53

Use the following information for questions
Ingles Corp., a private company reporting under ASPE, engaged in the following transactions.For each transaction, indicate where, if at all, it would be classified on the statement of cash flows.
Declaration and issue of a stock dividend:
(a)operating activities section
(b)investing activities section
(c)financing activities section
(d)does not represent a cash flow

Question 54

In preparing the statement of cash flows, determining the net increase or decrease in cash requires the use of
(a)the adjusted trial balance.
(b)the current period's statement of retained earnings.
(c)a comparative statement of financial position.
(d)a comparative statement of income.

Question 55

Which of the following is not an adjustment applied to net income to arrive at net cash provided or used by operating activities under the indirect method?
(a)add back losses.
(b)add back noncash expenses.
(c)add increases in current assets.
(d)deduct decreases in current liabilities.

Question 56

A statement of cashflow is
(a)not required for publicly traded companies.
(b)not required for privately held companies.
(c)is required for both publicly traded and privately held companies.
(d)not required for both publicly traded and privately held companies.

Question 57

Use the following information for questions
Ingles Corp., a private company reporting under ASPE, engaged in the following transactions.For each transaction, indicate where, if at all, it would be classified on the statement of cash flows.
Issue of preferred shares for cash:
(a)operating activities section
(b)investing activities section
(c)financing activities section
(d)does not represent a cash flow

Question 58

Use the following information for questions
Ingles Corp., a private company reporting under ASPE, engaged in the following transactions.For each transaction, indicate where, if at all, it would be classified on the statement of cash flows.
Purchase of land and building with a mortgage:
(a)operating activities section
(b)investing activities section
(c)financing activities section
(d)does not represent a cash flow

Question 59

Significant noncash transactions would not include
(a)conversion of preferred shares into common shares.
(b)asset acquisition through issue of a note payable.
(c)loans to other companies.
(d)exchange of equipment.

Question 60

Which one of the following transactions does not affect cash during a period?
(a)write-off of an uncollectible account receivable
(b)collection of an account receivable
(c)sale of common shares
(d)repayment of a bank loan

Question 61

If accounts payable have increased during a period,
(a)revenues on an accrual basis are less than revenues on a cash basis.
(b)expenses on an accrual basis are less than expenses on a cash basis.
(c)expenses on an accrual basis are greater than expenses on a cash basis.
(d)expenses on an accrual basis are the same as expenses on a cash basis.

Question 62

Accounts receivable arising from sales to customers amounted to $35,000 and $40,000 at the beginning and end of the year, respectively.Net income reported on the statement of income for the year was $120,000.Ignoring the effect of any other adjustments, the cash flow provided (used) by operating activities, prepared using the indirect method, is
(a)$120,000.
(b)$125,000.
(c)$155,000.
(d)$115,000.

Question 63

Using the indirect method, which of the following would be added to net income?
(a)increase in accounts receivable
(b)increase in prepaid expenses
(c)depreciation expense
(d)decrease in accounts payable

Question 64

Starting with net income and adjusting it for items that affected reported net income but not cash is called the
(a)direct method.
(b)indirect method.
(c)working capital method.
(d)cost-benefit method.

Question 65

Cash flows provided (used) by operating activities, prepared using the indirect method, would include
(a)receipts from the sale of investments.
(b)net income.
(c)payments for dividends.
(d)receipts from the issue of preferred shares.

Question 66

In calculating cash flows provided (used) by operating activities using the indirect method, a loss on the sale of equipment will appear as a(n)
(a)subtraction from net income.
(b)addition to net income.
(c)addition to cash flow from investing activities.
(d)subtraction from cash flow from investing activities.

Question 67

Use the following information for questions
Boreal Corporation is a private corporation reporting under ASPE and uses the indirect method when preparing its statement of cash flows.The company has engaged in the following transactions.For each transaction, indicate where it would be reflected on the statement of cash flows.
A decrease in accounts receivable from year one to year two:
(a)operating activities section
(b)investing activities section
(c)financing activities section
(d)does not represent a cash flow

Question 68

Use the following information for questions
Boreal Corporation is a private corporation reporting under ASPE and uses the indirect method when preparing its statement of cash flows.The company has engaged in the following transactions.For each transaction, indicate where it would be reflected on the statement of cash flows.
A payment of interest on a long-term bank loan:
(a)operating activities section
(b)investing activities section
(c)financing activities section
(d)does not represent a cash flow

Question 69

In calculating net cash provided by operating activities using the indirect method, an increase in prepaid expenses during a period is
(a)deducted from net income.
(b)added to net income.
(c)ignored because it does not affect net income.
(d)ignored because it does not affect expenses.

Question 70

In calculating cash flows provided (used) by operating activities using the indirect method, a loss on the sale of equipment is
(a)added to net income.
(b)deducted from net income.
(c)ignored because it does not affect cash.
(d)not reported on a statement of cash flows.

Question 71

Applegate Ltd.reported a loss of $10,000 for the year.During the year, accounts receivable decreased by $3,000, inventory increased by $5,000, accounts payable increased by $11,000, and depreciation expense of $6,000 was recorded.Using the indirect method, operating activities
(a)used net cash of $23,000.
(b)used net cash of $17,000.
(c)provided net cash of $5,000.
(d)provided net cash of $15,000.

Question 72

In calculating cash flows provided (used) by operating activities using the indirect method, a gain on the sale of equipment is
(a)added to net income.
(b)deducted from net income.
(c)ignored because it does not affect cash.
(d)not reported on a statement of cash flows.

Question 73

Using the indirect method, which of the following adjustments to convert net income to net cash provided by operating activities is correct?

Question 74

Using the indirect method, which of the following would not be an adjustment to net income?
(a)depreciation expense
(b)an increase in prepaid insurance
(c)an increase in inventories
(d)an increase in Land

Question 75

Using the indirect method, which of the following would be subtracted from net income?
(a)depreciation expense
(b)increase in accounts receivable
(c)increase in accounts payable
(d)decrease in prepaid expenses

Question 76

If accounts receivable have increased during a period,
(a)revenues on an accrual basis are less than revenues on a cash basis.
(b)revenues on an accrual basis are greater than revenues on a cash basis.
(c)revenues on an accrual basis are the same as revenues on a cash basis.
(d)expenses on an accrual basis are greater than expenses on a cash basis.

Question 77

Galaxy Corporation reported net income of $75,000 for the year.During the year, accounts receivable increased by $6,000, accounts payable decreased by $3,000 and depreciation expense of $5,000 was recorded.Using the indirect method, cash provided by operating activities for the year is
(a)$80,000.
(b)$78,000.
(c)$70,000.
(d)$71,000.

Question 78

Use the following information for questions
Boreal Corporation is a private corporation reporting under ASPE and uses the indirect method when preparing its statement of cash flows.The company has engaged in the following transactions.For each transaction, indicate where it would be reflected on the statement of cash flows.
An increase in inventory from year one to year two:
(a)operating activities section
(b)investing activities section
(c)financing activities section
(d)does not represent a cash flow

Question 79

Use the following information for questions
Boreal Corporation is a private corporation reporting under ASPE and uses the indirect method when preparing its statement of cash flows.The company has engaged in the following transactions.For each transaction, indicate where it would be reflected on the statement of cash flows.
A receipt of dividends on trading investments:
(a)operating activities section
(b)investing activities section
(c)financing activities section
(d)does not represent a cash flow

Question 80

Using the indirect method, depreciation expense for the period
(a)is deducted from net income.
(b)is ignored.
(c)causes cash to decrease.
(d)is added to net income.