Question 1

On the lines below, provide the components for the calculation of free cash flow.

Accepted Answer

Net cash flows from operating activities
- Dividends
- Purchases of plant assets
+ Sales of plant assets
= Free cash flow

Question 2

Royer Corporation engaged in this transaction: Issued common stock for cash.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.

Accepted Answer

A)  Operating activities section 
B)  Does not represent a cash flow 
C)  Investing activities section 
D)  Financing activities section 
A)  Operating activities section 
B)  Does not represent a cash flow 
C)  Investing activities section 
D)  Financing activities section D

Question 3

Why does the acquisition of land in exchange for common stock qualify as a noncash investing and financing transaction?

Accepted Answer

By acquiring land in exchange for shares of stock, a company has altered its balance sheet with transactions that would normally involve cash therefore appearing on the statement of cash flows. Even though cash is not involved in this transaction, the balance sheet changes are significant occurrences that should be disclosed in a schedule of significant noncash transactions in conjunction with the statement of cash flows.

Question 4

Net cash flows from operating activities would be needed to calculate cash flow yield, cash flows to assets, and cash flows to sales.

Accepted Answer

A) True 
 B)False

Question 5

The most future-directed of the basic financial statements is the

Accepted Answer

A)  statement of stockholders' equity. 
B)  statement of cash flows. 
C)  income statement. 
D)  balance sheet. 
A)  statement of stockholders' equity. 
B)  statement of cash flows. 
C)  income statement. 
D)  balance sheet.

Question 6

The statement of cash flows shows the effects on net income of a company's operating, investing, and financing activities for an accounting period.

Accepted Answer

A) True 
 B)False

Question 7

Repayments of accounts payable or accrued liabilities are considered repayments of loans under financing activities.

Accepted Answer

A) True 
 B)False

Question 8

Assume the indirect method is used to compute net cash flows from operating activities. For this item extracted from the financial statements-Increase in Inventory-indicate the effect on net income in arriving at net cash flows from operating activities by choosing one of the following:

Accepted Answer

A)  Add to net income to arrive at net cash flows from operating activities 
B)  Subtract from net income to arrive at net cash flows from operating activities 
C)  Not used to adjust net income to calculate net cash flows from operating activities 
A)  Add to net income to arrive at net cash flows from operating activities 
B)  Subtract from net income to arrive at net cash flows from operating activities 
C)  Not used to adjust net income to calculate net cash flows from operating activities

Question 9

A decrease in the balance of merchandise inventory is added to net income when calculating net cash flows from operating activities using the indirect method.

Accepted Answer

A) True 
 B)False

Question 10

Noncash investing and financing transactions, such as the exchange of a long-term asset for a long-term liability, represent significant investing and financing activities and are reflected in a separate schedule as part of the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 11

Elkwood Corporation acquired a land site with a building by issuing a 30-year mortgage payable. In Elkwood's statement of cash flows, this transaction should be shown

Accepted Answer

A)  only as a cash flow from investing activity for the purchase of the land and building. 
B)  only as a cash flow from financing activity for the issuance of the mortgage payable. 
C)  in the schedule of noncash investing and financing transactions. 
D)  as both a cash flow from investing activity and a cash flow from financing activity. 
A)  only as a cash flow from investing activity for the purchase of the land and building. 
B)  only as a cash flow from financing activity for the issuance of the mortgage payable. 
C)  in the schedule of noncash investing and financing transactions. 
D)  as both a cash flow from investing activity and a cash flow from financing activity.

Question 12

In preparing a statement of cash flows using the indirect method, an increase in an unearned revenue account should

Accepted Answer

A)  be shown as a financing activity. 
B)  be shown as a deduction from net income in computing net cash flows from operating activities. 
C)  not be shown on the statement of cash flows. 
D)  be shown as an addition to net income in computing net cash flows from operating activities. 
A)  be shown as a financing activity. 
B)  be shown as a deduction from net income in computing net cash flows from operating activities. 
C)  not be shown on the statement of cash flows. 
D)  be shown as an addition to net income in computing net cash flows from operating activities.

Question 13

Royer Corporation engaged in this transaction: Received dividends on securities held.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.

Accepted Answer

A)  Schedule of noncash investing and financing transactions 
B)  Operating activities section 
C)  Financing activities section 
D)  Investing activities section 
A)  Schedule of noncash investing and financing transactions 
B)  Operating activities section 
C)  Financing activities section 
D)  Investing activities section

Question 14

The direct method of preparing a statement of cash flows

Accepted Answer

A)  is the overwhelming choice of most companies. 
B)  begins with net income in the operating activities section. 
C)  is more difficult to understand than the indirect method for the average reader. 
D)  will produce the same net figure as the indirect method. 
A)  is the overwhelming choice of most companies. 
B)  begins with net income in the operating activities section. 
C)  is more difficult to understand than the indirect method for the average reader. 
D)  will produce the same net figure as the indirect method.

Question 15

Use the following data for Hines Music Company to prepare a statement of cash flows using the indirect method for the year ended June 30, 2010.
     Additional information:

Accepted Answer

The answer of Use the following data for Hines Music...

Question 16

Using the indirect method, calculate the amount of net cash flows from operating activities from the following data. Show your work

Accepted Answer

The answer of Using the indirect method, calculate the amount...

Question 17

Which of the following is reported as a noncash investing and financing transaction on the statement of cash flows?

Accepted Answer

A)  Conversion of bonds payable to stock 
B)  Purchase of treasury stock 
C)  Payment of long-term debt 
D)  Sale of preferred stock 
A)  Conversion of bonds payable to stock 
B)  Purchase of treasury stock 
C)  Payment of long-term debt 
D)  Sale of preferred stock

Question 18

Under the indirect method, gains or losses from the sale of equipment used in operations would appear as adjustments in the cash flows from operating activities section of the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 19

Assume the indirect method is used to compute net cash flows from operating activities. For this item extracted from the financial statements-Gain on Disposal of Equipment-indicate the effect on net income in arriving at net cash flows from operating activities by choosing one of the following:

Accepted Answer

A)  Add to net income to arrive at net cash flows from operating activities 
B)  Subtract from net income to arrive at net cash flows from operating activities 
C)  Not used to adjust net income to calculate net cash flows from operating activities 
A)  Add to net income to arrive at net cash flows from operating activities 
B)  Subtract from net income to arrive at net cash flows from operating activities 
C)  Not used to adjust net income to calculate net cash flows from operating activities

Question 20

Determining net cash flows from operating activities using the indirect method reveals cash collected from customers.

Accepted Answer

A) True 
 B)False

Exam 15: The Statement of Cash Flows

On the lines below, provide the components for the calculation of free cash flow.

Royer Corporation engaged in this transaction: Issued common stock for cash. Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.

Why does the acquisition of land in exchange for common stock qualify as a noncash investing and financing transaction?

Net cash flows from operating activities would be needed to calculate cash flow yield, cash flows to assets, and cash flows to sales.

The most future-directed of the basic financial statements is the

The statement of cash flows shows the effects on net income of a company's operating, investing, and financing activities for an accounting period.

Repayments of accounts payable or accrued liabilities are considered repayments of loans under financing activities.

Assume the indirect method is used to compute net cash flows from operating activities. For this item extracted from the financial statements-Increase in Inventory-indicate the effect on net income in arriving at net cash flows from operating activities by choosing one of the following:

A decrease in the balance of merchandise inventory is added to net income when calculating net cash flows from operating activities using the indirect method.

Noncash investing and financing transactions, such as the exchange of a long-term asset for a long-term liability, represent significant investing and financing activities and are reflected in a separate schedule as part of the statement of cash flows.

Elkwood Corporation acquired a land site with a building by issuing a 30-year mortgage payable. In Elkwood's statement of cash flows, this transaction should be shown

In preparing a statement of cash flows using the indirect method, an increase in an unearned revenue account should

Royer Corporation engaged in this transaction: Received dividends on securities held. Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.

The direct method of preparing a statement of cash flows

Use the following data for Hines Music Company to prepare a statement of cash flows using the indirect method for the year ended June 30, 2010. Additional information:

Using the indirect method, calculate the amount of net cash flows from operating activities from the following data. Show your work

Which of the following is reported as a noncash investing and financing transaction on the statement of cash flows?

Under the indirect method, gains or losses from the sale of equipment used in operations would appear as adjustments in the cash flows from operating activities section of the statement of cash flows.

Assume the indirect method is used to compute net cash flows from operating activities. For this item extracted from the financial statements-Gain on Disposal of Equipment-indicate the effect on net income in arriving at net cash flows from operating activities by choosing one of the following:

Determining net cash flows from operating activities using the indirect method reveals cash collected from customers.

Uses of Accounting Information and the Financial Statements

Analyzing Business Transactions

Measuring Business Income

Completing the Accounting Cycle

Financial Reporting and Analysis

The Operating Cycle and Merchandising Operations

Internal Control

Inventories

Cash and Receivables

Current Liabilities and Fair Value Accounting

Long Term Assets

Contributed Capital

Long Term Liabilities

The Corporate Income Statement and the Statement of Stockholders Equity

Financial Performance Measurement

Partnerships

The Changing Business Environment-A Managers Pers

Cost Concepts and Cost Allocation

Costing Systems: Job Order Costing

Costing Systems Process Costing

Activity-Based Systems-Abm and Lean

Cost Behavior Analysis

The Budgeting Process

Performance Management and Evaluation

Standard Costing and Variance Analysis

Short Run Decision Analysis

Capital Investment Analysis

Filters