Question 1

Losses on the sale of long-term assets are:

Accepted Answer

Losses on the sale of long-term assets are added to operating activities in the cash flow statement to adjust the net income for non-cash items.

Question 2

The purchase of treasury stock is shown as a cash outflow in the investing section of the cash flow statement.

Accepted Answer

The purchase of treasury stock is actually shown as a cash outflow in the financing section of the cash flow statement.

Question 3

Robbins Company distributed a 5% common stock dividend,this will be reported in the financing activity section of the cash flow statement.

Accepted Answer

Stock dividends do not involve the movement of cash; therefore, they are not reported in the cash flow statement at all. The cash flow statement only includes transactions that affect the company's cash position, categorized into operating, investing, and financing activities.

Question 4

The cost of purchasing long-term assets,such as buildings and land,are:

Accepted Answer

The answer of The cost of purchasing long-term assets,such as...

Question 5

A decrease in a current liability causes an increase in cash.

Accepted Answer

A decrease in a current liability typically means that a company has paid off some of its debts or obligations, which would result in a decrease in cash, as cash is used to pay off the liability.

Question 6

A transaction acquiring land by issuing a note for the full purchase price would not appear on the cash flow statement because no cash was involved,but it may be disclosed in a separate section.

Accepted Answer

Transactions that do not involve cash, such as acquiring land by issuing a note, do not appear in the cash flow statement but are often disclosed in a separate section or in the notes to the financial statements to provide a complete picture of financial activities.

Question 7

Changes in the long-term assets and long-term liabilities accounts must be analyzed to determine how they are presented in the operating section of a cash flow statement.

Accepted Answer

The answer of Changes in the long-term assets and long-term...

Question 8

Changes in long-term liabilities belong in the financing section of a cash flow statement using the indirect method.

Accepted Answer

Long-term liabilities, such as bonds and loans, are used to finance a company's operations and investments. Therefore, changes in these liabilities should be reported in the financing section of the cash flow statement, which shows how the company has raised and spent funds during the period. The indirect method is commonly used to prepare the cash flow statement, where net income is adjusted for non-cash items and changes in working capital, and then adjusted further for cash flows from investing and financing activities.

Question 9

Acquisitions and sales of long-term assets belong in the financing section of a cash flow statement using the indirect method.

Accepted Answer

Acquisitions and sales of long-term assets belong in the investing section of a cash flow statement using the indirect method, not the financing section.

Question 10

Which would be added back to net income in the operating section of an indirect cash flow statement?

Accepted Answer

Depreciation is a non-cash expense that reduces net income in the income statement but does not involve any actual cash outflows. Therefore, it is added back to net income in the operating section of the indirect cash flow statement in order to arrive at the cash flows from operating activities. Choices A, C, and D are changes in working capital accounts that would be included in the operating section but would be subtracted (for A and C) or added (for D) to net income.

Question 11

Even though depreciation,depletion and amortization are expenses,they are considered non-cash transactions and must be subtracted from net income in the operating activities section of an indirect method cash flow statement.

Accepted Answer

Depreciation, depletion, and amortization are non-cash expenses that are added back to net income in the operating activities section of an indirect method cash flow statement, not subtracted, because they reduce net income but do not involve an actual cash outflow.

Question 12

A transaction that exchanged a building for shares of stock would be an investing activity and would appear on the cash flow statement.

Accepted Answer

Exchanging a building for shares of stock does not involve cash flow, so it would not appear on the cash flow statement. Investing activities typically involve cash inflows and outflows related to investments in assets.

Question 13

The sum of the net increases/decreases in the operating,investing and financing sections of the cash flow statement is equal to the change in cash over the period.

Accepted Answer

This statement is true as per the basic cash flow equation: Change in cash = Net cash inflow from operating activities + Net cash inflow from investing activities + Net cash inflow from financing activities.

Question 14

Business transactions that do NOT involve the payment or receipt of cash are considered to be non-cash transactions.

Accepted Answer

Non-cash transactions include exchanges of goods or services, issuance of stocks or bonds, and accruals of income or expenses.

Question 15

Cash receipts from the sale of long-term assets,such as equipment and vehicles,are:

Accepted Answer

Cash receipts from the sale of long-term assets, such as equipment and vehicles, are considered investing activities because they involve the sale of assets that are not part of the company's normal operations. Investing activities relate to the buying and selling of long-term assets, investments, and other securities, so these cash inflows should be added to investing activities in the cash flow statement.

Question 16

Changes in all current assets EXCEPT ________ are adjustments to net income in the operating section of an indirect cash flow statement.

Accepted Answer

Changes in cash are not adjusted for in the operating section of an indirect cash flow statement because the statement itself is a reconciliation of net income to net cash provided by operating activities. Changes in other current assets (like prepaid expenses, inventory, and notes receivable) are adjusted because they affect net income but do not involve cash movement during the period.

Question 17

Which would be subtracted from net income in the operating section of an indirect cash flow statement?

Accepted Answer

An increase in inventory is subtracted from net income in the operating section of an indirect cash flow statement because it represents a use of cash that is not reflected in net income.

Question 18

Gains and losses do not represent Cash Flows.

Accepted Answer

Gains and losses are accounting concepts that represent the difference between the selling price of an asset and its original cost. They do not necessarily represent actual cash inflows or outflows. Cash flows are the actual movement of money in and out of a business.

Question 19

Gains on the sale of long-term assets are:

Accepted Answer

The answer of Gains on the sale of long-term assets...

Question 20

Which would NOT be subtracted from net income in the operating section of an indirect cash flow statement?

Accepted Answer

An increase in Accounts Payable is added to net income in the operating section of an indirect cash flow statement, as it represents a source of cash.

Quiz 11: The Statement of Cash Flows