Question 1

The receipt of dividends from long-term investments in stock is classified as a cash inflow from investing activities.

Accepted Answer

The receipt of dividends from long-term investments in stock is typically classified as a cash inflow from operating activities, not investing activities. Investing activities generally involve the purchase or sale of long-term assets and investments.

Question 2

All major financing and investing activities affect cash.

Accepted Answer

Not all major financing and investing activities affect cash directly. For example, issuing stock in exchange for assets or converting debt to equity are significant activities that do not impact cash flow.

Question 3

Cash flow from investing activities is considered the most important category on the statement of cash flows because it is considered the best measure of expected income.

Accepted Answer

Cash flow from investing activities is important as it reflects the company's investments and divestments in assets such as property, equipment, and securities. However, it is not considered the best measure of expected income as it does not directly reflect the company's operating performance or profitability. The best measure of expected income is the net income or earnings reported on the income statement.

Question 4

Financial statement readers can determine future investing and financing transactions by examining a company's statement of cash flows.

Accepted Answer

The statement of cash flows provides information about a company's cash receipts and cash payments during a period, but it does not directly inform about future investing and financing transactions. It reflects past transactions.

Question 5

The information in a statement of cash flows helps investors and creditors assess the company's ability to pay dividends and meet obligations.

Accepted Answer

A statement of cash flows shows the sources and uses of cash during a specific period, which helps investors and creditors determine the company's ability to generate cash, pay dividends, and meet financial obligations. Therefore, the statement of cash flows is a crucial financial statement that provides valuable information for decision-making.

Question 6

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

Accepted Answer

The sale of land is considered an investing activity because it involves the disposal of a long-term asset. The cash received from the sale is considered a cash inflow from investing activities on the statement of cash flows.

Question 7

Using the indirect method an increase in accounts receivable during a period is deducted from net income in calculating cash provided by operations.

Accepted Answer

This is true because an increase in accounts receivable means that the company has made sales on credit and has not yet received the cash, so it should not be considered in the calculation of cash provided by operations.

Question 8

A primary objective of the statement of cash flows is to show the income or loss on investing and financing transactions.

Accepted Answer

The primary objective of the statement of cash flows is to show the cash inflows and outflows from operating, investing, and financing activities, not necessarily the income or loss on those transactions.

Question 9

The acquisition of a building by issuing bonds would be considered an investing and financing activity that did not affect cash.

Accepted Answer

The acquisition of a building by issuing bonds is considered a non-cash investing and financing activity because it involves exchanging one long-term asset (the building) for another long-term liability (the bonds) without the immediate use of cash.

Question 10

The payment of interest on bonds payable is classified as a cash outflow from operating activities.

Accepted Answer

Interest payments on bonds payable are considered part of the company's operating activities because they relate to the core operations and expenses of running the business.

Question 11

In preparing a statement of cash flows the issuance of debt should be reported separately from the retirement of debt.

Accepted Answer

The issuance of debt and the retirement of debt are two separate transactions that should be reported separately in the statement of cash flows. The issuance of debt represents a cash inflow, while the retirement of debt represents a cash outflow, and both should be disclosed separately for transparency and clarity in the statement of cash flows.

Question 12

Cash provided by operations is generally equal to operating income.

Accepted Answer

Cash provided by operations takes into account non-cash items such as depreciation and changes in working capital, which may cause it to differ from operating income.

Question 13

The statement of cash flows is a required statement that must be prepared along with an income statement balance sheet and retained earnings statement.

Accepted Answer

The statement of cash flows is a required financial statement that must be prepared along with an income statement, balance sheet, and retained earnings statement as part of the financial reporting package.

Question 14

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

Accepted Answer

A company must prepare both an income statement and a statement of cash flows for external reporting purposes. The income statement shows the company's revenues, expenses, and net income for a specific period of time, while the statement of cash flows shows the company's inflows and outflows of cash during the same period.

Question 15

Any item that appears on the income statement would be considered as either a cash inflow or cash outflow from operating activities.

Accepted Answer

Not all items on the income statement affect cash flows from operating activities directly. Some items, such as depreciation and amortization, are non-cash expenses and do not represent actual cash outflows.

Question 16

Using the indirect method an increase in accounts payable during a period is deducted from net income in calculating cash provided by operations.

Accepted Answer

Using the indirect method, an increase in accounts payable during a period is added to net income in calculating cash provided by operations because it represents cash that has not yet been paid out.

Question 17

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

Accepted Answer

Noncash investing and financing activities are not reported in the body of the statement of cash flows; instead, they are disclosed in the notes to the financial statements or in a separate schedule.

Question 18

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

Accepted Answer

A statement of cash flows provides information on where a company's cash came from (sources) and how it was used (uses) during a specific period of time.

Question 19

A statement of cash flows should help investors and creditors assess the entity's ability to generate future income.

Accepted Answer

The answer of A statement of cash flows should help...

Question 20

The statement of cash flows classifies cash receipts and payments as operating nonoperating financial and extraordinary activities.

Accepted Answer

The statement of cash flows classifies cash receipts and payments as operating, investing, and financing activities. Extraordinary activities are not a separate classification in the statement of cash flows.

Quiz 17: Statement of Cash Flows