Deck 5: Statement of Cash Flows

Question 1

The general requirements for presenting the Statement of Cash Flows is to improve the usefulness of information reported in an entity's financial statements with regard to:

A) The entity's ability to generate cash and cash equivalents
B) The timing and certainty of cash and cash flow generation
C) The needs of the entity to utilize cash flows
D) All of the above.

Answer 1

All of the above.

Question 2

Entity A has an asset that is highly liquid, readily convertible to cash, and matures in less than three months. The asset also has a volatile value that regularly fluctuates. This asset is considered

A) Cash
B) A cash equivalent
C) An investment

Answer 2

An investment

Question 3

A company has excess cash and decides to convert some of the cash to cash equivalents. This activity should show up in the statement of cash flows as:

A) Operating activity
B) Investing activity
C) Financing activity
D) This activity should not be included in the statement of cash flows

Answer 3

This activity should not be included in the statement of cash flows

Question 4

Which method of presentation for operating activities shows the entity's major operating gross cash receipts and gross cash payments?

A) Direct method
B) Indirect method

Question 5

Under IFRS, an entity may account for interest paid as

A) Operating activities
B) Investing activities
C) Financing activities
D) Operating or investing
E) Investing or financing
F) Operating or financing

Question 6

The statement of cash flows:

A) Provides information about historical changes in cash and cash equivalents as a result of operating, investing, and spending activities.
B) Provides information to assess whether the entity is able to generate cash and cash equivalents.
C) Provides information about the needs of equity holders to utilize cash and cash equivalents.
D) More than one of the above.

Question 7

Which of the following describes a cash equivalent?

A) A somewhat liquid investment held to meet short or medium-term cash commitments that act as a hedge against market volatility.
B) A highly liquid investment held to meet long-term cash commitments rather than for investment or other purposes
C) A short-term investment that is highly liquid and subject to an insignificant risk in changes in value.
D) A highly liquid, readily-convertible, investment with an available market price used for long-term investments.

Question 8

Operating activities are

A) Activities related to the acquisition and disposal of long-term assets and other investments not included in cash equivalents.
B) Activities that result in changes in the size and composition of the contributed capital and borrowings of the entity.
C) Activities of the entity that serve as the principal producers of revenue used in the determination of profit or loss.
D) All of the above.

Question 9

Which of the following is an example of a gain?

A) Sales
B) Interest
C) Dividends
D) Royalties
E) All of the above
F) None of the above

Question 10

Which of the following is never an operating activity?

A) Cash payments for interest to another entity
B) Cash receipts interest from another entity
C) Dividends in the form cash payments to equity-holders of an entity
D) Dividends in the form of cash payments received as returns on equity instruments held by an entity
E) All of the above are operating activities

Question 11

Which of the following is true about indirect method?

A) An entity's election to use the indirect method does not affect the amount presented as a net cash flow.
B) The indirect method is used for cash flows from operating, financing, and investing activities.
C) Compared to the direct method, the indirect method provides more useful information for projecting an entity's future cash flows.
D) The indirect method shows an entity's major operating gross cash receipts and gross cash payments during the period.
E) More than one of the above.

Question 12

The indirect method adjusts profit or loss for the effects of:

A) changes in inventories,
B) changes in operating receivables and payables
C) noncash items such as depreciation
D) deferred taxes
E) all of the above

Question 13

Which of the following is true about the indirect method?

A) The indirect method is less popular in practice.
B) The indirect method is encouraged under IAS 7.
C) Users may have difficulty determining cash receipts and payments from operations.
D) Two of the above.

Question 14

To convert a foreign currency into a functional currency:

A) The functional currency amount is multiplied by the exchange rate between the foreign currency and the functional currency as of the last day of the fiscal year.
B) The exchange rate between the functional and foreign currencies as of the date of the cash flow is multiplied with the foreign currency amount.
C) The foreign currency amount is multiplied by the exchange rate between the functional and foreign currencies at the date of sale.
D) The foreign currency cash flow is multiplied by the exchange rate between the foreign and functional currencies at fiscal year-end.
E) None of the above.

Question 15

When recording foreign currency transactions or translating cash flows of a foreign subsidiary, a weighted-average exchange rate may be used if:

A) It approximates the actual rate at the date of cash flow.
B) It reduces the volatility in exchange rate fluctuations.
C) It leads to favorable results in the PL statement.
D) All of the above.

Question 16

Which of the following describes permissible treatment for interest and dividend cash flows?

A) Interest paid and received are classified as an operating cash flow
B) Interest and dividends received are classified as investing cash flows
C) Interest and dividends paid are classified as financing cash flows
D) All of the above

Question 17

An entity is not required to disclose:

A) Components of cash and cash equivalents
B) A reconciliation between the net amounts presented using the indirect method and the gross amounts that would be presented using the direct method for operating cash flows
C) Changes in policy determining cash and cash equivalents
D) Reconciliation of amounts of cash and cash equivalents in the statement of cash flows with amounts reported in the statement of financial position
E) Amounts of any significant cash and cash equivalent balances not available for use

Question 18

Which of the following is decision that requires significant judgment?

A) Whether management will disclose significant accounting policies impacting the statement of cash flows
B) The amount of cash paid for income taxes
C) Whether the entity should deduct the amortization of a bond premium when using the indirect method
D) How certain cash flows (such as interest and dividends) should be classified on the statement of cash flows

Question 19

Using the indirect method for presenting operating activities may yield a higher or lower total amount for operating activities, depending on the nature and timing of expenditures.

Question 20

The statement of cash flows can be used in conjunction with other financial statements to help users evaluate the changes in the net assets of an entity.

Question 21

The statement of cash flows requires the use of estimates to a great extent.

Question 22

In very rare circumstances, IFRS allow entities in specified industries to make a disclosure in the notes about cash inflows and outflows instead of preparing a statement of cash flows.

Question 23

According to the Conceptual Framework, the definition of income includes both revenue and gains.

Question 24

Entities may choose to present dividends paid as cash outflows from financing activities or as cash flows from operating activities.

Question 25

The presentation of cash flows from investing and financing activities is unaffected by the method of reporting cash flows from operations.

Question 26

The direct method is preferable because income and expenses are measured using the cash method of accounting.

Question 27

According to IFRS, an entity can avoid the need for a statement of cash flows by using the cash method of accounting.

Question 28

Major classes of gross cash receipts and payments arising from investing and financing activities are presented separately in the statement of cash flows.

Question 29

An entity using the indirect method sells a building for $200,000. The building was purchased for $400,000 and has accumulated depreciation of $300,000 at the date of sale. The entity will classify the $100,000 gain as an operating cash receipt, and the remainder as an investing activity.

Question 30

IAS 7 generally allows major classes of operating, investing, and financing cash flows to be reported on a net basis.

Question 31

Cash flows arising from transactions in a foreign currency are recorded in the entity's functional currency.

Question 32

When using the direct method of presenting operating cash flows, adjustments are not made for unrealized foreign exchange gains and losses.

Question 33

Treatment for cash flows from dividends and interest under IFRS is consistent with guidance under US GAAP.

Question 34

Explain the difference between the direct and indirect methods. Which method is preferable and why? What impact does the choice in policy have on the amounts presented for each type of cash flow activity?

Question 35

You are given the following information about CHR Technologies, a global computer hardware manufacturer. Prepare a statement of cash flows for operating activities using the direct method for the year ending December 31, 20X5.

-CHR reports profit of $195,317 for the 20X5 and reported $126,360 for 20X4.

Question 36

You are given the following information about CHR Technologies, a global computer hardware manufacturer. Prepare a statement of cash flows for operating activities using the direct method for the year ending December 31, 20X5.

-Additionally, CHR reports the following changes on its statement of financial position from 20X4 to 20X5
$$\begin{array} { | l | l | l | } \hline \text { Item } & \text { 20X4 Balance } & \text { 20X5 Balance } \\\hline \text { Trade Receivables } & 268,473 & 304,073 \\\hline \begin{array} { l } \text { PFE Capitalized Acquisition } \\\text { Costs }\end{array} & 56,789 & 120,000 \\\hline \text { Trade Payables } & 268,445 & 223,876 \\\hline \text { Inventary } & 200,246 & 164,956 \\\hline \text { Accumulated Depreciation } & 805,200 & 812,300 \\\hline \text { Income Taxes Payable } & 25,500 & 12,500 \\\hline \begin{array} { l } \text { Payable on 1oan to TEX } \\\text { Industries (not a financial } \\\text { institution) }\end{array} & 46,500 & 24,000 \\\hline \text { Interest payable } & 56,000 & 46,000 \\\hline \text { Interest receivable } & 8,400 & 16,800 \\\hline\end{array}$$

Question 37

You are given the following information about CHR Technologies, a global computer hardware manufacturer. Prepare a statement of cash flows for operating activities using the direct method for the year ending December 31, 20X5.

-Assume the same facts as above. Prepare a statement of Cash Flows using the indirect method of the year ending December 31, 20X5.