Question 1

U.S.GAAP requires that the statement of cash flows disclose the amount of cash flows arising fromfinancing activities including

Accepted Answer

U.S.GAAP requires that the statement of cash flows disclose the amount of cash flows arising from financing activities, which includes short-term and long-term borrowing, repaying short-term or long-term borrowing, issuing of common or preferred stock, reacquiring shares of outstanding common or preferred stock, and payment of dividends to stockholders. Therefore, all of the options mentioned in the given choices are correct.

Question 2

On the statement of cash flows, cash purchase of land is treated as a/an

Accepted Answer

Cash purchase of land is considered as an investing activity because it involves the acquisition of an asset that can generate future economic benefits for the company. Investing activities involve cash flows related to the acquisition or disposal of long-term assets such as property, plant, and equipment, and intangible assets such as patents or trademarks.

Question 3

U.S.GAAP requires that the statement of cash flows disclose the amount of cash flows arising frominvesting activities including

Accepted Answer

U.S. GAAP requires that the statement of cash flows disclose the amount of cash flows arising from investing activities, which includes the cash used for the acquisition of non-current assets. The other options (A, B, D, E) are related to financing activities or investing activities but not required to be separately disclosed in the statement of cash flows.

Question 4

The statement of cash flows reports the amount of cash flow from a firm's

Accepted Answer

The statement of cash flows reports the amount of cash flow from a firm's operating, investing, and financing activities. This helps investors and analysts understand how the company is generating and using its cash. The operating section reports cash flow from day-to-day business operations, the investing section reports cash flow from investing activities like purchasing or selling fixed assets, and the financing section reports cash flow from financing activities like issuing stock or repaying debt.

Question 5

Under U.S.GAAP, the statement of cash flows classifies cash expenditures for interest expense as a(n) _____ activity and classifies cash expenditures to redeem debt as a(n) _____ activity.

Accepted Answer

Cash expenditure for interest expense is considered an operating activity because it is related to the ongoing operations of the business. Cash expenditures to redeem debt are considered financing activities because they are related to the financing and capital structure of the business.

Question 6

Both U.S.GAAP and IFRS permit considerable flexibility with respect to the display of information in the statement of cash flows.Firms must report the beginning and ending cash balances, and the change in the cash balance. The change in cash must reconcile to the sum of the cash inflows and outflows from _____ activities.

Accepted Answer

Both U.S.GAAP and IFRS require firms to report the change in cash balance, which must reconcile to the sum of the cash inflows and outflows from operating, investing, and financing activities. Therefore, the correct choice is D.

Question 7

The statement of cash flows reports the effects of a firm's operating, investing, and financing activities on cash flows.Information in the statement helps in understanding which of the following concept(s)?

Accepted Answer

The statement of cash flows provides information on the effects of a firm's operating, investing, and financing activities on cash flows. Therefore, it can help in understanding the effect of operations on the liquidity of a firm (A), the level of capital expenditures needed (B), and major changes in financing (C), making option D the correct answer. Option E is incorrect as the statement of cash flows does provide valuable information for understanding a firm's financial situation.

Question 8

On the statement of cash flows, cash sale of property, plant and equipment used for the last 5 years in the company's operations is treated as a/an

Accepted Answer

Cash sale of property, plant and equipment used for the last 5 years is considered as an investing activity because it involves the disposal of a long-term asset (property, plant and equipment) that was previously used in the company's operations. This sale generates cash inflows from the sale of the asset, which is classified as an investing activity on the statement of cash flows.

Question 9

Cash flows from operating activities include

Accepted Answer

Cash flows from operating activities include the cash generated from selling goods and providing services. Choices B, C, D, and E are not included in cash flows from operating activities.

Question 10

On the statement of cash flows, the issuance of capital stock for cash to be used for future expansion of a production facility is treated as a/an

Accepted Answer

The issuance of capital stock for cash is a financing activity because it represents a transaction to raise funds through external sources for future investment activities, rather than an operation that generates revenue or an investment in assets that generate returns. It is important to note that the use of funds raised through the issuance of stock, such as investing in a new production facility, would be classified as an investing activity.

Question 11

The amount of cash flow from operations indicates:

Accepted Answer

Cash flow from operations measures the amount of cash generated or used by a company's normal business operations, indicating whether the company is generating enough cash to cover its expenses and investments. A positive cash flow from operations indicates that a company is generating more cash than it is using, while a negative cash flow from operations indicates the opposite. Therefore, option A is the best choice as it correctly states that cash flow from operations indicates the extent to which operating activities generate more cash than they use.

Question 12

U.S.GAAP classifies all of the following as investing activities on the statement of cash flows except for

Accepted Answer

Cash outflows for interest expense are classified as operating activities in the statement of cash flows, not investing activities.

Question 13

Both U.S.GAAP and IFRS permit considerable flexibility with respect to the display of information in the statement of cash flows. Within the investing and financing cash flow categories, the presentation for most items should _____.

Accepted Answer

Under both U.S. GAAP and IFRS, the general rule for the statement of cash flows is not to net cash inflows against cash outflows within the investing and financing sections. This ensures that the statement provides a clear view of the cash movements in these categories.

Question 14

Alsup Company had the following transactions during the fiscal year ended December 31, Year 4.
·Accounts receivable decreased from $115,000 on December 31, Year 3, to $100,000
On December 31, Year 4.
·Alsup's Board of Directors declared dividends on December 31, Year 4, of $.05
Per share on the 2.8 million shares outstanding, payable to shareholders of record
On January 31, Year 5.The company did not declare or pay dividends for fiscal year,
Year 3.
·Sold a truck with a net book value of $7,000 for $5,000 cash, reporting a loss of $2,000.
·Paid interest to bondholders of $780,000.
·Cash increased from $106,000 on December 31, Year 3, to $284,000 on December 31, Year 4.

(CMA Dec 95 #2) Refer to the Alsup Company example.Alsup Company uses the direct method to prepare its statement of cash flows at December 31, Year 4.The interest that is paid to bondholders would be reported in the

Accepted Answer

The interest paid to bondholders is an operating activity since it is an expense related to the company's main operations. It should be reported in the Operating Section as a use or outflow of cash.

Question 15

Examples of nonmonetary transactions is/are:

Accepted Answer

Nonmonetary transactions are those that involve the exchange of noncash assets or liabilities. Choices A and B involve the acquisition of equipment and the conversion of debt into common shares, respectively, in exchange for shares of common stock - both of which are noncash assets. On the other hand, paying interest (choice C) and dividends (choice D) involve cash transactions, and thus are not considered nonmonetary transactions.

Question 16

Under U.S.GAAP, the statement of cash flows classifies changes in accounts payable as a(n) _____ activity and classifies changes in short-term bank borrowing as a(n) _____ activity.

Accepted Answer

Changes in accounts payable are related to the purchase of goods and services and are therefore considered operating activities. Changes in short-term bank borrowing involve the use of debt financing and are considered financing activities.

Question 17

Under U.S.GAAP, the statement of cash flows classifies cash expenditures for interest on debt as a(n) _____ activity and classifies cash expenditures for dividends to shareholders as a(n) _____ activity.

Accepted Answer

Under U.S. GAAP, cash expenditures for interest on debt are classified as operating activities because they relate to the entity's primary revenue-producing activities. Cash expenditures for dividends to shareholders are classified as financing activities because they relate to the ways an entity finances its operations through issuing or repaying equity and debt.

Question 18

On the statement of cash flows, payment of dividends is treated as a/an

Accepted Answer

Payment of dividends is considered a financing activity because it involves distributing profits to the company's shareholders, which reduces the amount of cash available for future operations or investments.

Question 19

Both U.S.GAAP and IFRS permit considerable flexibility with respect to the display of information in the statement of cash flows.If the firm uses the direct method of reporting cash flows from _____ activities rather than the indirect method, it must also provide a separate reconciliation of net income to cash flows from _____

Accepted Answer

If the firm uses the direct method of reporting cash flows, it must provide a separate reconciliation of net income to cash flows from operating activities. This is because the direct method reports actual cash inflows and outflows from operating activities, while net income is calculated using accrual accounting. The direct method does not require separate reconciliations for financing and investing activities.

Question 20

The following information is available from JB Corporation's accounting records for the year ended December 31, Year 4: $\begin{array}{ll}
\text { Cash received from customers } & \$ 600,000 \
\text { Dividends received from marketable securities } & 80,000 \
\text { Cash paid for purchase of supplies } & 300,000 \
\text { Income taxes paid } & 50,000 \
\text { Cash dividends paid to shareholders } & 30,000
\end{array}$Net cash flow from operating activities for Year 4 totaled

Accepted Answer

The answer of The following information is available from JB...

Quiz 6: Statement of Cash Flows