Deck 15: Statement of Cash Flows

Question 1

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

Answer 1

False

Question 2

On the statement of cash flows, the indirect method adjusts net income to determine the net cash flows from operating activities.

Answer 2

True

Question 3

Companies can use two different methods to report the amount of cash flow from their operating activities on the statement of cash flows.

Answer 3

True

Question 4

Cash inflows that enter into the determination of net income are classified as financing activities on a statement of cash flows.

Question 5

All SEC-registered firms must issue a statement of cash flows, in addition to the income statement and balance sheet.

Question 6

The indirect method of reporting the cash flows from operating activities on the statement of cash flows is the method most widely used in practice.

Question 7

Cash received on the sale of equipment would be considered a financing activity on a statement of cash flows.

Question 8

Transactions that involve the acquisition or sale of long-term assets are generally classified as investing activities on the statement of cash flows.

Question 9

A decrease in accounts payable is added to net income in the operating activities section of the statement of cash flows prepared under the indirect method.

Question 10

A statement of cash flows indicates the sources and uses of a firm's cash during a period.

Question 11

For a statement of cash flows, firms are required to classify their cash activities into three categories: operating, investing, and borrowing.

Question 12

The sale of land for cash would be classified as a cash inflow from a financing activity.

Question 13

Noncash investing and financing transactions, such as the exchange of common stock to purchase assets, represent significant investing and financing activities and are disclosed in a supplementary schedule that is attached to the statement of cash flows.

Question 14

Determining the cash flows from operating activities generally requires analyzing each item on the income statement as well as the current asset and current liability accounts.

Question 15

Under the indirect method of determining the net cash from operating activities on the statement of cash flows, depreciation is subtracted from the net income for the period.

Question 16

The amount for "net cash from operating activities" will be different depending on if the direct method or the indirect method is used to construct the statement of cash flows.

Question 17

Under the indirect method of determining the net cash from operating activities on the statement of cash flows, increases in current assets such as accounts receivable are added to net income.

Question 18

The issuance of common stock in exchange for a building would appear both as a cash inflow in the financing activities section of the cash flow statement and also as a cash outflow in the investing activities section.

Question 19

Cash flow activities that include the cash effect of transactions that create revenues and expenses and thus enter into the determination of net income are classified as operating activities on the statement of cash flows.

Question 20

Investments in stock are reported as an investing activity on the statement of cash flows.

Question 21

For each of the following items, indicate by using the appropriate code letter, how the item should be reported in the statement of cash flows, using the indirect method.
a. Added to net income
b. Deducted from net income
c. Cash outflow--investing activity
d. Cash inflow--investing activity
e. Cash outflow--financing activity
f. Cash inflow--financing activity
Declaration and payment of a cash dividend.

Question 22

MATCHING
Use the following major cash flow activities to classify the activities listed below:
a.
Operating Activity, Source of Cash
b.
Operating Activity, Use of Cash
c.
Investing Activity, Source of Cash
d.
Investing Activity, Use of Cash
e.
Financing Activity, Source of Cash
f.
Financing Activity, Use of Cash
g.
Non-cash Investing & Financing Activity
Land is exchanged for common stock

Question 23

MATCHING
Use the following major cash flow activities to classify the activities listed below:
a.
Operating Activity, Source of Cash
b.
Operating Activity, Use of Cash
c.
Investing Activity, Source of Cash
d.
Investing Activity, Use of Cash
e.
Financing Activity, Source of Cash
f.
Financing Activity, Use of Cash
g.
Non-cash Investing & Financing Activity
Collection of Sales Revenue

Question 24

MATCHING
Use the following major cash flow activities to classify the activities listed below:
a.
Operating Activity, Source of Cash
b.
Operating Activity, Use of Cash
c.
Investing Activity, Source of Cash
d.
Investing Activity, Use of Cash
e.
Financing Activity, Source of Cash
f.
Financing Activity, Use of Cash
g.
Non-cash Investing & Financing Activity
Sold equipment used in the business for cash

Question 25

MATCHING
Use the following major cash flow activities to classify the activities listed below:
a.
Operating Activity, Source of Cash
b.
Operating Activity, Use of Cash
c.
Investing Activity, Source of Cash
d.
Investing Activity, Use of Cash
e.
Financing Activity, Source of Cash
f.
Financing Activity, Use of Cash
g.
Non-cash Investing & Financing Activity
Issued long-term debt

Question 26

For each of the following items, indicate by using the appropriate code letter, how the item should be reported in the statement of cash flows, using the indirect method.
a. Added to net income
b. Deducted from net income
c. Cash outflow--investing activity
d. Cash inflow--investing activity
e. Cash outflow--financing activity
f. Cash inflow--financing activity
Decrease in accounts receivable during a period.

Question 27

MATCHING
Use the following major cash flow activities to classify the activities listed below:
a.
Operating Activity, Source of Cash
b.
Operating Activity, Use of Cash
c.
Investing Activity, Source of Cash
d.
Investing Activity, Use of Cash
e.
Financing Activity, Source of Cash
f.
Financing Activity, Use of Cash
g.
Non-cash Investing & Financing Activity
Purchased land for cash

Question 28

Under the indirect method, the net cash flow from operating activities is computed by adjusting net income to remove the effect of all deferrals of past operating cash receipts and payments, and all accruals of future operating cash receipts or payments.

Question 29

For each of the following items, indicate by using the appropriate code letter, how the item should be reported in the statement of cash flows, using the indirect method.
a. Added to net income
b. Deducted from net income
c. Cash outflow--investing activity
d. Cash inflow--investing activity
e. Cash outflow--financing activity
f. Cash inflow--financing activity
Redemption of bonds for cash.

Question 30

MATCHING
Use the following major cash flow activities to classify the activities listed below:
a.
Operating Activity, Source of Cash
b.
Operating Activity, Use of Cash
c.
Investing Activity, Source of Cash
d.
Investing Activity, Use of Cash
e.
Financing Activity, Source of Cash
f.
Financing Activity, Use of Cash
g.
Non-cash Investing & Financing Activity
Reported profitable operations (Net Income)

Question 31

If a firm uses the direct method for reporting operating activities on the statement of cash flows, it must present a separate schedule which reconciles net income to net cash from operating activities.

Question 32

For each of the following items, indicate by using the appropriate code letter, how the item should be reported in the statement of cash flows, using the indirect method.
a. Added to net income
b. Deducted from net income
c. Cash outflow--investing activity
d. Cash inflow--investing activity
e. Cash outflow--financing activity
f. Cash inflow--financing activity
Loss on sale of land.

Question 33

MATCHING
Use the following major cash flow activities to classify the activities listed below:
a.
Operating Activity, Source of Cash
b.
Operating Activity, Use of Cash
c.
Investing Activity, Source of Cash
d.
Investing Activity, Use of Cash
e.
Financing Activity, Source of Cash
f.
Financing Activity, Use of Cash
g.
Non-cash Investing & Financing Activity
Paid off long-term debt

Question 34

A loss on the sale of equipment is subtracted from net income in determining net cash from operating activities under the indirect method.

Question 35

For each of the following items, indicate by using the appropriate code letter, how the item should be reported in the statement of cash flows, using the indirect method.
a. Added to net income
b. Deducted from net income
c. Cash outflow--investing activity
d. Cash inflow--investing activity
e. Cash outflow--financing activity
f. Cash inflow--financing activity
Decrease in accounts payable during a period.

Question 36

The direct method of reporting cash flows from operating activities involves reporting major classes of cash receipts and cash payments.

Question 37

MATCHING
Use the following major cash flow activities to classify the activities listed below:
a.
Operating Activity, Source of Cash
b.
Operating Activity, Use of Cash
c.
Investing Activity, Source of Cash
d.
Investing Activity, Use of Cash
e.
Financing Activity, Source of Cash
f.
Financing Activity, Use of Cash
g.
Non-cash Investing & Financing Activity
Payment of cash dividends

Question 38

MATCHING
Use the following major cash flow activities to classify the activities listed below:
a.
Operating Activity, Source of Cash
b.
Operating Activity, Use of Cash
c.
Investing Activity, Source of Cash
d.
Investing Activity, Use of Cash
e.
Financing Activity, Source of Cash
f.
Financing Activity, Use of Cash
g.
Non-cash Investing & Financing Activity
Payment of Operating Expenses

Question 39

MATCHING
Use the following major cash flow activities to classify the activities listed below:
a.
Operating Activity, Source of Cash
b.
Operating Activity, Use of Cash
c.
Investing Activity, Source of Cash
d.
Investing Activity, Use of Cash
e.
Financing Activity, Source of Cash
f.
Financing Activity, Use of Cash
g.
Non-cash Investing & Financing Activity
Issued Common Stock for cash

Question 40

An advantage to using a worksheet to organize the information of preparation of the statement of cash flows is that it uses a spreadsheet format allowing the preparer to use a PC and spreadsheet software.

Question 41

The ______________ computes operating cash flow by adjusting net income for items that do not affect cash flows.

Question 42

Highly liquid investments such as Treasury bills, money market funds, and commercial paper are examples of ___________________.

Question 43

Income statements are prepared on a (n) ______________.

Question 44

The two approaches to calculating operating cash flows are the _______________ and the _____________.

Question 45

Issuing shares of common stock, paying dividends and paying off debt are all examples of _______________.

Question 46

Activities that decrease cash are uses of cash and are referred to as ___________.

Question 47

All firms that are registered with the ______________________ must issue a statement of cash flows.

Question 48

Activities that increase cash are sources of cash and are referred to as ___________.

Question 49

For each of the following items, indicate by using the appropriate code letter, how the item should be reported in the statement of cash flows, using the indirect method.
a. Added to net income
b. Deducted from net income
c. Cash outflow--investing activity
d. Cash inflow--investing activity
e. Cash outflow--financing activity
f. Cash inflow--financing activity
Acquisition of land in exchange for common stock.

Question 50

The _____________________ provides information regarding the sources and uses of a firm's cash.

Question 51

For each of the following items, indicate by using the appropriate code letter, how the item should be reported in the statement of cash flows, using the indirect method.
a. Added to net income
b. Deducted from net income
c. Cash outflow--investing activity
d. Cash inflow--investing activity
e. Cash outflow--financing activity
f. Cash inflow--financing activity
Issuance of common stock for cash.

Question 52

________________ are the ongoing, day-to-day, revenue-generating activities of an organization.

Question 53

The indirect method and the direct method differ only on how the cash flows from ________________ are calculated.

Question 54

For each of the following items, indicate by using the appropriate code letter, how the item should be reported in the statement of cash flows, using the indirect method.
a. Added to net income
b. Deducted from net income
c. Cash outflow--investing activity
d. Cash inflow--investing activity
e. Cash outflow--financing activity
f. Cash inflow--financing activity
Purchase of a building for cash.

Question 55

For each of the following items, indicate by using the appropriate code letter, how the item should be reported in the statement of cash flows, using the indirect method.
a. Added to net income
b. Deducted from net income
c. Cash outflow--investing activity
d. Cash inflow--investing activity
e. Cash outflow--financing activity
f. Cash inflow--financing activity
Increase in merchandise inventory during a period.

Question 56

For each of the following items, indicate by using the appropriate code letter, how the item should be reported in the statement of cash flows, using the indirect method.
a. Added to net income
b. Deducted from net income
c. Cash outflow--investing activity
d. Cash inflow--investing activity
e. Cash outflow--financing activity
f. Cash inflow--financing activity
Proceeds from sale of equipment at book value.

Question 57

When an investing or financing activity takes place without affecting cash it is referred to as _________________________.

Question 58

The __________________ computes operating cash flows by adjusting each line on the income statement to reflect cash flows.

Question 59

Acquiring new equipment, selling long-term investments, and purchasing land are all examples of _______________.

Question 60

The format that should be followed in preparing the statement of cash flows is known as the ______________.

Question 61

The acquisition of land by issuing common stock is

A) only reported if the statement of cash flows is prepared using the direct method.
B) a cash transaction that is reported in the investing section in the body of the statement of cash flows.
C) a noncash transaction that is reported in the operating section in the body of the statement of cash flows.
D) a noncash transaction that is disclosed in a supplementary schedule attached to the statement of cash flows.

Question 62

Which one of the following affects cash during a period?

A) payment of an account payable
B) declaration of a cash dividend
C) write-off of an uncollectible account receivable
D) recording depreciation expense

Question 63

As transactions increase in number and complexity, a ____________ becomes a useful aid in preparing the statement of cash flows.

Question 64

Cash flows from operating activities, as reported on the statement of cash flows, would include

A) depreciation.
B) gain on sale of equipment
C) increase in accounts receivable.
D) All of these.

Question 65

Financing activities involve

A) purchasing patent.
B) receipt of dividends.
C) selling of investments.
D) issuance of stock.

Question 66

Which balance sheet accounts are affected by financing activities?

A) current assets and current liabilities.
B) long-term assets.
C) long-term liabilities.
D) intangible assets.

Question 67

Some individuals prefer to show operating cash flows as the difference between ___________ and ____________.

Question 68

The indirect and direct methods of preparing the statement of cash flows are identical except for the

A) financing activities section.
B) investing activities section.
C) operating activities section.
D) significant noncash activities section.

Question 69

Preparation of the statement of cash flows relies on the beginning and ending ____________.

Question 70

In the ________________, each line on the income statement is adjusted to produce a cash flow income statement.

Question 71

The statement of cash flows does not report the

A) sources of cash in the current period.
B) uses of cash in the current period.
C) amount of checks outstanding at the end of the period.
D) change in the cash balance for the current period.

Question 72

Worksheets offer increased ____________ in form and the added convenience of spreadsheet software packages.

Question 73

The primary purpose of the statement of cash flows is to

A) provide information about the investing and financing activities during the period.
B) prove that revenues exceed expenses if there is a net income.
C) provide information about the sources and uses of cash during a period.
D) facilitate banking relationships.

Question 74

Which balance sheet accounts are affected by operating activities?

A) current assets and current liabilities.
B) current assets and long-term assets.
C) long-term assets and current liabilities.
D) long-term liabilities and stockholders' equity.

Question 75

In developing the cash flows from operating activities, most companies in the United States

A) use the indirect method.
B) use the direct method.
C) present both the indirect and direct methods in their financial reports.
D) prepare the operating activities section on the accrual basis.

Question 76

Cash flows from acquiring and selling equipment are classified as

A) operating activities.
B) investing activities.
C) financing activities.
D) distribution activities.

Question 77

Cash flows from acquiring and retiring long-term debt are classified as

A) operating activities.
B) investing activities.
C) financing activities.
D) purchasing activities.

Question 78

The order of presentation of activities on the statement of cash flows is

A) operating, investing, financing.
B) operating, financing, investing.
C) financing, operating, investing.
D) financing, investing, operating.

Question 79

Which of the following investing activities results in a cash inflow?

A) selling treasury stock.
B) retirement of bonds.
C) disposal of a building.
D) paying cash dividends.

Question 80

Which of the following transactions does not affect cash during a period?

A) increase in amortization expense
B) payment of an accounts payable
C) issuance of bonds
D) purchase of a long-term investment