Question 1

Which of the following events would be classified as an operating activity in a statement of cash flows?

Accepted Answer

Operating activities include transactions related to the primary operations of the business, such as receiving cash dividends on investments.

Question 2

Which of the following would be added to net income in computing cash flows from operating activities?

Accepted Answer

A decrease in prepaid expenses represents a source of cash, as the company paid for expenses in advance and is now recognizing the benefit of those payments. The other options represent uses of cash and would be deducted from net income to calculate cash flows from operating activities.

Question 3

In a statement of cash flows, which of the following events would be classified as a financing activity?

Accepted Answer

Payment of cash dividends to stockholders is an example of a financing activity, as it involves distributing profits to the owners of the company. Purchasing a trading security would be classified as an investing activity, while paying interest on a loan would be classified as an operating activity.

Question 4

A company sold equipment for $5, 000.The equipment originally cost $15, 000 and had accumulated depreciation of $11, 000.Which of the following statements is correct regarding the statement of cash flows prepared using the indirect method to report operating activities?

Accepted Answer

The answer of A company sold equipment for $5, 000.The...

Question 5

In a statement of cash flows, the payment of a cash dividend on common stock outstanding should be classified as cash outflows for

Accepted Answer

Payment of cash dividends is an activity related to financing because it involves distribution of profits to the stockholders. Therefore, it should be classified as a cash outflow for financing activities in the statement of cash flows.

Question 6

Which of the following events would be classified as an investing activity on a statement of cash flows?

Accepted Answer

Investing activities include transactions involving the acquisition or disposal of long-term assets. The sale of an office building is an example of such a transaction.

Question 7

Information regarding the Martin Company in 2010 appears below: $\begin{array}{ll}
\text { Net income } & \$ 140,000 \
\text { Dividends paid } & 20,000 \
\text { Decrease in inventory } & 15,000\
\text { Increase in accounts payable } & 30,000 \
\text { Proceeds from issue of common stock } & 70,000 \
\text { Depreciation expense } & 10,000
\end{array}$ What was Martin's net increase in cash?

Accepted Answer

The net increase in cash is calculated by adding net income, depreciation, decrease in inventory, increase in accounts payable, and proceeds from the issue of common stock, then subtracting dividends paid: $140,000 + $10,000 + $15,000 + $30,000 + $70,000 - $20,000 = $245,000.

Question 8

The following information relates to the Jordan, Inc: $\begin{array}{ll}
\text { Depreciation expense } & \$ 500 \
\text { Increase in salaries payable } & 50 \
\text { Purchased operating equipment } & 700\
\text { Net income } & 3,000 \
 \text { Paidlong term note payable } & 600 \
\text { Paid dividends } & 900 \
\text { Increase in accmuntereceivahle } & 400
\end{array}$
 What is the net cash provided by operating activities?

Accepted Answer

The answer of The following information relates to the Jordan,...

Question 9

Which of the following statements is true regarding the Financial Accounting Standards Board (FASB)and reporting operating activities on the statement of cash flows?

Accepted Answer

The Financial Accounting Standards Board (FASB) prefers the direct method for reporting operating activities on the statement of cash flows because it provides a clearer picture of cash flows from operating activities. However, most companies use the indirect method due to its simplicity and the fact that it is less costly to implement.

Question 10

Selected accounting information regarding the Jabbar Corporation in 2010 follows: $\begin{array}{ll}
\text {Net cash provided by operating activities }&\$900,000\
\text {Common stock issued as a result of a stock dividend.}\
\text { (fair value) } & 100,000 \
\text { Common stock issued for cash } & 400,000 \
\text { Proceeds from sale of building } & 300,000
\end{array}$ In 2010, Jabbar should report a net increase in cash of

Accepted Answer

The answer of Selected accounting information regarding the Jabbar Corporation...

Question 11

Which statement best defines a company's operating cash inflows?

Accepted Answer

Collections from customers and earnings from investments are the operating cash inflows of a company.

Question 12

In a statement of cash flows, which of the following events would not be classified as an operating activity?

Accepted Answer

Operating activities in a statement of cash flows typically include transactions that affect net income. Purchases of trading securities, receipt of cash dividends, and payment of interest on bonds are all considered part of the day-to-day operations that affect a company's net income. However, proceeds from the sale of an available-for-sale security, especially at a gain, are considered investing activities, not operating activities, because they relate to the sale of investment assets rather than the primary operations of the business.

Question 13

The following information relates to the Stockton Company: $\begin{array}{lc}
\text { Paid note payable } & \$ 150 \
\text { Bought equipment } & 260 \
\text { Depreciation expense } & 500\
\text { Net income } & 6,000 \
\text { Paid dividends } & 500 \
\text { Issued bonds payable } & 1,100 \
\text { Issued common stock } & 900 \
\text { Sold.1and } & 2,400
\end{array}$ What is the net cash provided by financing activities?

Accepted Answer

Net cash provided by financing activities = Issuance of bonds payable + Issuance of common stock - Payment of note payable - Payment of dividends = 1,100 + 900 - 150 - 500 = $1,350

Question 14

Which of the following events would not result in a cash inflow?

Accepted Answer

Issuing common stock as a stock dividend does not result in a cash inflow. Instead, it simply redistributes a portion of the company's retained earnings to its shareholders in the form of additional shares of stock.

Question 15

The content of the statement of cash flows would not include which one of the following items?

Accepted Answer

The statement of cash flows reports the cash inflows and outflows during a period, categorized into operating activities, investing activities, and financing activities. Stock dividends do not involve the receipt or payment of cash, hence they are not included in the statement of cash flows. Purchase of capital stock, redemption of long-term debt, and issuance of long-term debt all involve cash inflows or outflows and are included in the statement of cash flows.

Question 16

Which statement is not true? Current GAAP

Accepted Answer

Current GAAP does not require that a company report its operating cash inflows separately from its operating cash outflows when using the indirect method for the statement of cash flows. Instead, the indirect method starts with net income and adjusts for changes in balance sheet accounts to arrive at cash provided by operating activities.

Question 17

In a statement of cash flows, increases or decreases in noncurrent assets are most closely associated with

Accepted Answer

Increases or decreases in noncurrent assets, such as property, plant, and equipment, are typically associated with investing activities, as they represent the acquisition or disposal of long-term assets used in the business. Operating activities relate to the company's primary business operations and financing activities involve the raising or repayment of funds from investors or creditors. However, it is possible for changes in noncurrent assets to also involve financing activities if they are related to borrowing or repayment of long-term debt.

Question 18

According to current GAAP, cash flow per share statistics

Accepted Answer

According to current Generally Accepted Accounting Principles (GAAP), cash flow per share statistics should not be disclosed. This is because such measures can be misleading and are not standardized under GAAP, making comparisons across companies difficult.

Question 19

The Robinson Company reported net income of $90, 000 in 2010.Additional information follows: $\begin{array}{ll}
\text { Depreciation expense } & \$ 18,000 \
\text { Loss on sale of equipment } & 10,000 \
\text { Gain on sale of land } & 17,000
\end{array}$
 Given just this information, what was the Robinson Company's net cash provided by operating activities in 2010?

Accepted Answer

To calculate net cash provided by operating activities, start with net income and adjust for non-cash expenses and gains/losses. Start with $90,000 net income, add back $18,000 depreciation (a non-cash expense), add $10,000 loss on sale of equipment (a non-cash loss), and subtract $17,000 gain on sale of land (a non-cash gain). This results in $90,000 + $18,000 + $10,000 - $17,000 = $101,000.

Question 20

What is the primary purpose of a company's statement of cash flows?

Accepted Answer

The primary purpose of a company's statement of cash flows is to provide information about the company's cash receipts and cash payments during the period. It shows how much money was generated by operations, how much was spent on investments, and how much was used to pay off debts or distribute to shareholders. It helps investors and analysts to understand the company's liquidity, solvency, and ability to generate cash. Therefore, option A, B, and C are incorrect.

Quiz 22: The Statement of Cash Flows