Deck 12: The Statement of Cash Flows

Question 1

An example of a cash equivalent is a money-market account.

Answer 1

True

Question 2

The statement of cash flows does NOT report:

A)cash payments in the current year.
B)cash receipts in the current year.
C)noncash investing and financing activities.
D)revenues and expenses for the current year.

Answer 2

D

Question 3

Which financial statements cover a period of time?

A)Income Statement only
B)Income Statement and Statement of Stockholders' Equity
C)Income Statement, Statement of Stockholders' Equity and Statement of Cash Flows
D)Income Statement, Statement of Stockholders' Equity, Statement of Cash Flows and Balance Sheet

Answer 3

C

Question 4

The statement of cash flows provides information about:

A)a company's ability to pay interest and dividends.
B)a company's future cash flows.
C)decisions made by a company's management.
D)all of the above.

Question 5

A statement of cash flows reports the cash inflows and cash outflows for a company at a point in time.

Question 6

A statement of cash flows accomplishes all of the following EXCEPT:

A)determines the ability of the company to pay dividends and interest.
B)provides information about the cash receipts and cash payments during a period.
C)lists revenues and expenses.
D)predicts future cash flows.

Question 7

The income statement and the statement of cash flows often paint the same picture of the company.

Question 8

The statement of cash flows explains why the cash balance changed over a period of time.

Question 9

Creditors analyze the statement of cash flows to determine:

A)total interest earned during the period.
B)the quality of the company's earnings.
C)whether or not the company can pay principal and interest on its debt.
D)if management was overpaid.

Question 10

The statement of cash flows will NOT help predict future cash flows.

Question 11

Because income and cash flow usually move together, net income and cash flow also move together.

Question 12

Cash equivalents do NOT include highly liquid short-term investments.

Question 13

A good predictor of future cash flows includes:

A)net income in past year.
B)net income in current year.
C)past cash receipts and past cash payments.
D)cash receipts and cash payments in the current year.

Question 14

If a company reports high net income, it may still have difficulty paying its bills.

Question 15

When preparing a statement of cash flows, cash equivalents are subtracted from cash in order to calculate the net change in cash during a period.

Question 16

Highly liquid short-term investments that can be immediately converted into cash are called:

A)trading securities.
B)cash equivalents.
C)current assets.
D)accounts receivable.

Question 17

Successful businesses need net income and strong cash flows.

Question 18

The statement of cash flows is an optional statement.

Question 19

The statement of cash flows is designed to fulfill all the following purposes EXCEPT to:

A)show the relationship of net income to changes in the company's cash.
B)assess the collectability of accounts receivable.
C)evaluate management decisions.
D)help predict future cash flows.

Question 20

The statement of cash flows is presented for a period of time.

Question 21

Of the three types of business activities reported on a statement of cash flows, investing activities are the most important when evaluating a business.

Question 22

The sale of land for cash would be classified as a cash inflow from an operating activity on the statement of cash flows.

Question 23

The three types of activities reported on the statement of cash flows are:

A)operating, investments, and financing.
B)operating, investing, and free flow.
C)operating, investing, and financing.
D)operating, indirect, and direct.

Question 24

The Net cash provided by financing activities is the most important category on the statement of cash flows because it generates the most cash for most companies.

Question 25

The statement of cash flows classifies cash receipts and payments as operating, investing, and financing activities.

Question 26

Which of the following would be reported on a statement of cash flows as an investing activity?

A)depreciation expense
B)purchase of treasury stock
C)sale of equipment for cash
D)payment of cash dividends

Question 27

Which of the three types of activities reported on the statement of cash flows is the MOST critical for a company's long-term survival?

A)investing activities
B)operating activities
C)financing activities
D)noncash investing and financing activities

Question 28

Usually, the most important category on the statement of cash flows is cash flows from:

A)operating activities.
B)investing activities.
C)financing activities.
D)noncash activities.

Question 29

The financial statement that reports cash receipts and cash payments classified according to the company's operating, investing, and financing activities is the:

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

Question 30

On the statement of cash flows, financing activities involve:

A)purchasing investments.
B)acquiring long-term assets.
C)lending money.
D)borrowing by signing a long-term note.

Question 31

Which of the following would be reported on a statement of cash flows as a financing activity?

A)Sale of equipment
B)Amortization expense
C)Collection of notes receivable
D)Purchase of treasury stock

Question 32

The three types of activities reported on the statement of cash flows are presented in the following order:

A)operating, investing, and financing.
B)financing, operating, and investing.
C)investing, operating, and financing.
D)financing, investing, and operating.

Question 33

Collections on long-term loans are reported as investing activities on the statement of cash flows.

Question 34

Purchases of treasury stock would be reported on a statement of cash flows as:

A)operating activities.
B)investing activities.
C)financing activities.
D)noncash investing and financing activities.

Question 35

Increases and decreases in the long-term liability accounts are reported on the statement of cash flows as:

A)operating activities.
B)investing activities.
C)financing activities.
D)noncash activities.

Question 36

There are two ways to format operating activities on the statement of cash flows.

Question 37

On the statement of cash flows, investing activities include:

A)obtaining cash from creditors.
B)collecting cash on long-term loans.
C)selling stock to stockholders.
D)repaying borrowed money.

Question 38

On the statement of cash flows, in which section would the purchase of land with cash appear?

A)operating activities
B)investing activities
C)financing activities
D)noncash investing and financing activities

Question 39

Cash received from the issuance of bonds would be reported on a statement of cash flows under:

A)investing activities.
B)financing activities
C)operating activities.
D)noncash activities.

Question 40

Increases and decreases in the long-term assets are reported on the statement of cash flows as:

A)operating activities.
B)investing activities.
C)financing activities.
D)noncash activities.

Question 41

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.

Question 42

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

Question 43

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

Question 44

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.

Question 45

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.

Question 46

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.

Question 47

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.

Question 48

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.

Question 49

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.

Question 50

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.

Question 51

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.

Question 52

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.

Question 53

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

Question 54

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.

Question 55

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.

Question 56

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.

Question 57

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.

Question 58

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

Question 59

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

Question 60

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

Question 61

When preparing the statement of cash flows using the indirect method, which statement is INCORRECT?

A)Gains on the sale of long-term assets are subtracted from net income.
B)Losses on the sale of long-term assets are subtracted from net income.
C)Depreciation expense is added to net income.
D)Increases in current liabilities are added to net income.

Question 62

Which of the following transactions does NOT affect cash during a period?

A)sale of treasury stock
B)write-off of an uncollectible account
C)purchase of property with cash
D)payment of an accounts payable

Question 63

The method of preparing the statement of cash flows that starts with net income and adjusts it for items that affect net income, but do not affect cash is called the:

A)net income method.
B)direct method.
C)indirect method.
D)non-cash method.

Question 64

Most of the time, net income will be the same as net cash provided by operating activities.

Question 65

All of the following may appear as an adjustment of net income when preparing the statement of cash flows using the indirect method EXCEPT:

A)payment of cash dividends.
B)depreciation expense.
C)loss on sale of long-term assets.
D)an increase in accounts payable.

Question 66

On a statement of cash flows prepared using the indirect method, an increase in accounts payable during the period is:

A)added to net income to determine net cash provided by operating activities.
B)deducted from net income to determine net cash provided by operating activities.
C)shown as a cash inflow in the investing activities section.
D)shown as a cash inflow in the financing activities section.

Question 67

In 2017, Chen Corporation purchased treasury stock with a cost of $46,000. During the year, the company declared and paid dividends of $14,000 and issued bonds payable for $900,000. Net cash provided by financing activities for 2017 is:

A)$840,000.
B)$854,000.
C)$886,000.
D)$900,000.

Question 68

The purchase of treasury stock would be reported on a statement of cash flows as a:

A)cash outflow under the financing activities.
B)cash inflow under the investing activities.
C)cash inflow under the operating activities.
D)cash outflow under the investing activities.

Question 69

Using the indirect method, the operating section of the Statement of Cash Flows begins with Net income and is followed by Adjustments to reconcile net income to to Net cash provided by operating activities.

Question 70

In 2017, Forever Young, Inc. sold land for $120,000 cash, purchased equipment for $16,000 cash and issued bonds for $120,000 cash. The Net cash provided by investing activities is:

A)$104,000.
B)$136,000.
C)$224,000.
D)$240,000.

Question 71

Using the indirect method of preparing the statement of cash flows, which of the following would be added to net income?

A)depletion expense
B)an increase in accounts receivable
C)a decrease in accounts payable
D)gain on the sale of property

Question 72

When converting net income to net cash provided by operating activities on the statement of cash flows, indirect method, which of the following is NOT added to net income?

A)gain on sale of land
B)decrease in inventory
C)decrease in accounts receivable
D)depreciation expense

Question 73

Salem, Inc. uses the indirect method to prepare its statement of cash flows. Salem's Accumulated Depreciation-Trucks account increased during the period. Salem did not purchase or sell trucks during the period. The increase in Accumulated Depreciation-Trucks is:

A)subtracted from net income to determine net cash provided by operating activities.
B)added to net income to determine net cash provided by operating activities.
C)shown as a cash outflow on the investing activities section.
D)shown as a cash outflow on the financing activities section.

Question 74

Interest expense is a cash outflow from operating activities on the statement of cash flows.

Question 75

Using the indirect method to prepare the statement of cash flows, dividends paid during the year are:

A)subtracted from net income in the operating activities section.
B)added to net income in the operating activities section.
C)shown as a cash outflow in the financing activities section.
D)shown as a cash outflow in the investing activities section.

Question 76

Under the indirect method of preparing the statement of cash flows, a gain on the sale of equipment is:

A)subtracted from net income in the operating activities section.
B)added to net income in the operating activities section.
C)subtracted from the book value of the equipment in the financing activities section.
D)ignored since this transaction does not affect cash.

Question 77

Using the indirect method to calculate net cash provided by operating activities, a decrease in prepaid expenses is:

A)subtracted from net income.
B)added to net income.
C)ignored since it does not affect expenses.
D)ignored since it does not affect net income.

Question 78

Under the indirect method of preparing a statement of cash flows, amortization expense for the current period is:

A)added in the investing activities section.
B)subtracted in the investing activities section.
C)added in the financing activities section.
D)added in the operating activities section.

Question 79

In computing Net cash provided by operating activities using the indirect method, each of the following is added to net income EXCEPT:

A)an increase in accrued expenses payable.
B)a gain on sale of equipment.
C)depreciation expense.
D)a decrease in inventory.

Question 80

Under the indirect method of preparing the statement of cash flows, the starting point to determine Net cash provided by operating activities is:

A)the beginning cash balance.
B)the ending cash balance.
C)net income.
D)sales.