Question 1

Under the indirect method to prepare the statement of cash flows, a decrease in a current asset other than cash indicates a deduction from net income when calculating Net cash provided by operating activities.

Accepted Answer

A decrease in a current asset other than cash indicates an addition to net income when calculating net cash provided by operating activities, as it suggests that cash has increased due to the reduction of that current asset.

Question 2

Only the balance sheet is used to prepare the statement of cash flows.

Accepted Answer

The statement of cash flows is prepared using information from both the balance sheet and the income statement to show cash inflows and outflows.

Question 3

An increase in common stock would be listed as an investing activity when preparing the statement of cash flows under the indirect method.

Accepted Answer

An increase in common stock is listed as a financing activity, not an investing activity, on the statement of cash flows.

Question 4

Under the indirect method to prepare the statement of cash flows, depletion expense must be subtracted from net income when calculating Net cash provided by operating activities.

Accepted Answer

Under the indirect method, non-cash expenses such as depreciation and depletion are added back to net income when calculating net cash provided by operating activities, not subtracted.

Question 5

Under the indirect method to prepare the statement of cash flows, a loss on the sale of long-term assets is added to net income when calculating Net cash provided by operating activities.

Accepted Answer

Under the indirect method, a loss on the sale of long-term assets is added back to net income to calculate net cash provided by operating activities. This is because the loss is a non-cash expense and does not affect the cash flows from operating activities.

Question 6

The most important type of cash flows on the statement of cash flows is ________. The least important type of cash flows on the statement of cash flows is ________.
A)operating activities; investing activities.
B)investing activities; financing activities.
C)financing activities; investing activities.
D)operating activities; financing activities.

Accepted Answer

Operating activities are the most important type of cash flows on the statement of cash flows because they represent the cash generated or used in the company's core business operations. Financing activities, such as issuing or repaying debt, are important but less significant than operating activities. Investing activities, such as buying or selling assets, can also be important but are generally less significant than operating activities and financing activities. Therefore, the least important type of cash flows on the statement of cash flows is investing activities.

Question 7

In 2017, Gary Kraen Company purchases $100,000 of equipment with cash. This purchase would be reported on Gary Kraen Company's 2017 statement of cash flows as:
A)a financing activity.
B)an operating activity.
C)an investing activity.
D)none of the above.

Accepted Answer

Purchasing equipment is considered an investing activity, as it involves acquiring long-term assets.

Question 8

Financing activities on a statement of cash flows relate to:
A)current liabilities and long-term liabilities.
B)current assets and long-term assets.
C)long-term assets.
D)long-term liabilities and stockholders' equity.

Accepted Answer

Financing activities on a statement of cash flows relate to long-term liabilities and stockholders' equity, such as issuing or repurchasing common stock, paying dividends, and borrowing or repaying long-term debt. This section does not include current assets or liabilities, which are included in the operating activities section, or long-term assets, which are included in the investing activities section.

Question 9

A gain on sale of equipment is subtracted from net income when determining Net cash provided by operating activities under the indirect method of preparing the statement of cash flows.

Accepted Answer

A gain on sale of equipment is considered a non-cash transaction and therefore needs to be subtracted from net income when using the indirect method to prepare the statement of cash flows.

Question 10

Using the indirect method to prepare the statement of cash flows, an increase in accounts receivable is subtracted from net income in calculating Net cash provided by operating activities.

Accepted Answer

An increase in accounts receivable means that more money is tied up in unpaid customer invoices, which affects cash flow. Therefore, it is subtracted from net income when calculating net cash provided by operating activities. This is part of the indirect method of preparing the statement of cash flows.

Question 11

Under the indirect method of preparing the operating section of the statement of cash flows, net cash provided by operating activities is $277,000. If the direct method of preparing the operating section of the statement of cash flows was used:
A)net cash provided by operating activities would be the same, $277,000.
B)net cash provided by operating activities would be more than $277,000.
C)net cash provided by operating activities would be less than $277,000.
D)net cash provided by financing and investing activities would equal $277,000.

Accepted Answer

The net cash provided by operating activities remains the same under both the indirect and direct methods; only the presentation differs.

Question 12

A successful business must generate most of its cash from:
A)investing activities.
B)financing activities.
C)operating activities.
D)noncash investing and financing activities.

Accepted Answer

A successful business must generate cash from its operations, which are its core activities. Investing and financing activities can also generate cash, but they are not the primary sources of cash for a business. Noncash investing and financing activities do not directly generate cash. Therefore, option C, operating activities, is the best choice.

Question 13

Google Inc. paid $10.6 billion to acquire other companies. Google also paid $33 billion to purchase long-term securities. How are these cash outflows classified on the statement of cash flows?
A)financing activities
B)operating activities
C)investing activities
D)noncash investing and financing activities

Accepted Answer

Cash outflows for the acquisition of other companies and long-term securities are classified as investing activities on the statement of cash flows.

Question 14

Positive signs of a successful company as seen on the statement of cash flows do NOT include:
A)investments in property, plant and equipment.
B)operating activities are the largest source of cash.
C)banks are willing to lend money to the company.
D)the sale of a majority of a company's plant assets.

Accepted Answer

The sale of a majority of a company's plant assets indicates that the company may be struggling and needing to sell off assets to generate cash. The other choices are positive signs of a successful company, as investments in property, plant and equipment show growth and expansion, operating activities being the largest source of cash indicates profitability, and banks willing to lend money is a sign of financial stability.

Question 15

Under the direct method of preparing the operating section of the statement of cash flows, net cash provided by financing activities is $498,000. If the indirect method of preparing the statement of cash flows was used:
A)net cash provided by financing activities would be less than $498,000.
B)net cash provided by financing activities would be more than $498,000.
C)net cash provided by financing activities would be the same, $498,000.
D)net cash provided by operating activities would equal $498,000.

Accepted Answer

The method used (direct or indirect) affects only the operating activities section, not the financing activities section. Therefore, net cash provided by financing activities remains the same.

Question 16

Examples of financing activities on a statement of cash flows do NOT include:
A)issuing stock.
B)borrowing money.
C)buying treasury stock.
D)declaring stock dividends.

Accepted Answer

Financing activities include raising capital from investors (issuing stock), borrowing money from creditors (borrowing money), and returning capital to investors (buying treasury stock). Declaring stock dividends is considered a distribution of profits and is classified as a cash outflow from operating activities.

Question 17

Under the indirect method to prepare the statement of cash flows, a decrease in accounts payable is deducted from net income when calculating Net cash provided by operating activities.

Accepted Answer

According to the indirect method, a decrease in accounts payable represents a use of cash since it indicates that fewer payments were made to suppliers, resulting in an increase in the amount owed. Therefore, it is deducted from net income when preparing the operating activities section of the statement of cash flows.

Question 18

Operating income is typically equal to Net cash provided by operating activities on the statement of cash flows.

Accepted Answer

Operating income is not directly equal to net cash provided by operating activities as it includes non-cash expenses such as depreciation and amortization, while net cash provided by operating activities only includes cash inflows and outflows from operating activities.

Question 19

Net cash provided by operating activities under the indirect method must be ________ net cash provided by operating activities under the direct method.
A)equal to
B)larger than
C)smaller than
D)none of the above

Accepted Answer

Net cash provided by operating activities, whether calculated using the indirect or direct method, must ultimately be the same because both methods are just different ways of presenting the same information.

Question 20

The change in cash on the comparative balance sheets is the "check figure" for the statement of cash flows.

Accepted Answer

This statement is true. The change in cash between the two comparative balance sheets is the starting point for preparing the statement of cash flows.

Quiz 12: The Statement of Cash Flows

Under the indirect method to prepare the statement of cash flows, a decrease in a current asset other than cash indicates a deduction from net income when calculating Net cash provided by operating activities.

Only the balance sheet is used to prepare the statement of cash flows.

An increase in common stock would be listed as an investing activity when preparing the statement of cash flows under the indirect method.

Under the indirect method to prepare the statement of cash flows, depletion expense must be subtracted from net income when calculating Net cash provided by operating activities.

Under the indirect method to prepare the statement of cash flows, a loss on the sale of long-term assets is added to net income when calculating Net cash provided by operating activities.

The most important type of cash flows on the statement of cash flows is . The least important type of cash flows on the statement of cash flows is .

In 2017, Gary Kraen Company purchases $100,000 of equipment with cash. This purchase would be reported on Gary Kraen Company's 2017 statement of cash flows as:

Financing activities on a statement of cash flows relate to:

A gain on sale of equipment is subtracted from net income when determining Net cash provided by operating activities under the indirect method of preparing the statement of cash flows.

Using the indirect method to prepare the statement of cash flows, an increase in accounts receivable is subtracted from net income in calculating Net cash provided by operating activities.

Under the indirect method of preparing the operating section of the statement of cash flows, net cash provided by operating activities is $277,000. If the direct method of preparing the operating section of the statement of cash flows was used:

A successful business must generate most of its cash from:

Google Inc. paid $10.6 billion to acquire other companies. Google also paid $33 billion to purchase long-term securities. How are these cash outflows classified on the statement of cash flows?

Positive signs of a successful company as seen on the statement of cash flows do NOT include:

Under the direct method of preparing the operating section of the statement of cash flows, net cash provided by financing activities is $498,000. If the indirect method of preparing the statement of cash flows was used:

Examples of financing activities on a statement of cash flows do NOT include:

Under the indirect method to prepare the statement of cash flows, a decrease in accounts payable is deducted from net income when calculating Net cash provided by operating activities.

Operating income is typically equal to Net cash provided by operating activities on the statement of cash flows.

Net cash provided by operating activities under the indirect method must be ________ net cash provided by operating activities under the direct method.

The change in cash on the comparative balance sheets is the "check figure" for the statement of cash flows.