Deck 13: Statement of Cash Flows

Question 1

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

Answer 1

True

Question 2

Cash provided by operations is generally equal to operating income.

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

All major financing and investing activities affect cash.

Question 13

The receipt of dividends from non-current investments is classified as a cash inflow from investing activities.

Question 14

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.

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

The adjusted trial balance is the only item needed to prepare the statement of cash flows.

Question 22

In preparing a statement of cash flows, an increase in the Share Capital and Treasury Shares accounts during a period would be an investing activity.

Question 23

Under the direct method, the formula for computing cash collections from customers is sales revenues plus the increase in accounts receivable or minus the decrease in accounts receivable.

Question 24

The reconciling entry for depreciation expense in a worksheet is a credit to Accumulated depreciation and a debit to Operating activities-Depreciation expense.

Question 25

Cash provided by operating activities fails to take into account that a company must invest in new fixed assets just to maintain its current level of operations.

Question 26

During the year, Income Tax Expense amounted to $30,000 and Income Taxes Payable increased by $4,000; therefore, the cash paid for income taxes was $26,000.

Question 27

The statement of cash flows should help investors and creditors assess each of the following except the

A) entity's ability to generate future income.
B) entity's ability to pay dividends.
C) reasons for the difference between net income and net cash provided by operating activities.
D) cash investing and financing transactions during the period.

Question 28

A loss on sale of equipment is added to net income in determining cash provided by operations under the indirect method.

Question 29

Financing activities include the obtaining of cash from issuing debt and repaying the amounts borrowed.

Question 30

Which one of the following items is not generally used in preparing a statement of cash flows?

A) Adjusted trial balance
B) Comparative statements of financial position
C) Current income statement
D) Additional information

Question 31

Operating expenses + an increase in prepaid expenses - a decrease in accrued expenses payable = cash payments for operating expenses.

Question 32

The primary purpose of the statement of cash flows is to

A) provide information about the investing and financing activities during a period.
B) prove that revenues exceed expenses if there is a net income.
C) provide information about the cash receipts and cash payments during a period.
D) facilitate banking relationships.

Question 33

Under the indirect method, retained earnings is adjusted for items that affected reported net income but did not affect cash.

Question 34

The use of a worksheet to prepare a statement of cash flows is optional.

Question 35

Free cash flow equals cash provided by operations less capital expenditures and cash dividends.

Question 36

The statement of cash flows classifies cash receipts and cash payments into two categories: operating activities and nonoperating activities.

Question 37

In preparing net cash flow from operating activities using the direct method, each item in the income statement is adjusted from the accrual basis to the cash basis.

Question 38

Using the direct method, major classes of investing and financing activities are listed in the operating activities section.

Question 39

During a period, cost of goods sold + an increase in inventory + an increase in accounts payable = cash paid to suppliers.

Question 40

The statement of cash flows

A) must be prepared on a daily basis.
B) summarizes the operating, financing, and investing activities of an entity.
C) is another name for the income statement.
D) is a special section of the income statement.

Question 41

Lending money and collecting the loans are

A) operating activities.
B) investing activities.
C) financing activities.
D) Non-cash investing and financing activities.

Question 42

Of the items below, the one that appears first on the statement of cash flows is

A) non-cash investing and financing activities.
B) net increase (decrease) in cash.
C) cash at the end of the period.
D) cash at the beginning of the period.

Question 43

The best measure of a company's ability to generate sufficient cash to continue as a going concern is net cash provided by

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

Question 44

The order of presentation of activities on the statement of cash flows is

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

Question 45

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

A) Write-off of an uncollectible account
B) Collection of an accounts receivable
C) Sale of treasury shares
D) Exercise of the call option on bonds payable

Question 46

In addition to the three basic financial statements, which of the following is also a required financial statement?

A) the "Cash Budget"
B) the Statement of Cash Flows
C) the Statement of Cash Inflows and Outflows
D) the "Cash Reconciliation"

Question 47

The statement of cash flows reports each of the following except

A) cash receipts from operating activities.
B) cash payments from investing activities.
C) the net change in cash.
D) cash sales.

Question 48

Financing activities include

A) lending money.
B) acquiring investments.
C) issuing debt.
D) acquiring non-current assets.

Question 49

If a company has both an inflow and outflow of cash related to property, plant, and equipment, the

A) two cash effects can be netted and presented as one item in the investing activities section.
B) cash inflow and cash outflow should be reported separately in the investing activities section.
C) two cash effects can be netted and presented as one item in the financing activities section.
D) cash inflow and cash outflow should be reported separately in the financing activities section.

Question 50

Each of the following are particularly interested in the statement of cash flows except

A) creditors.
B) employees.
C) shareholders.
D) government agencies.

Question 51

The category that is generally considered to be the best measure of a company's ability to continue as a going concern is

A) cash flows from operating activities.
B) cash flows from investing activities.
C) cash flows from financing activities.
D) usually different from year to year.

Question 52

In preparing a statement of cash flows, a conversion of bonds into ordinary shares will be reported in

A) the financing section.
B) the operating section.
C) a separate note or supplementary schedule to the financial statements.
D) the equity section.

Question 53

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

A) operating activities.
B) investing activities.
C) financing activities.
D) significant non-cash activities.

Question 54

By examining the statement of cash flows, investors can make predictions of the

A) amounts of future cash flows.
B) timing of future cash flows.
C) uncertainty of future cash flows.
D) All of these answer choices are correct.

Question 55

The statement of cash flows will not report the

A) amount of checks outstanding at the end of the period.
B) sources of cash in the current period.
C) uses of cash in the current period.
D) change in the cash balance for the current period.

Question 56

Investing activities include

A) collecting cash on loans made.
B) obtaining cash from creditors.
C) obtaining capital from owners.
D) repaying money previously borrowed.

Question 57

Significant non-cash transactions would not include

A) conversion of bonds into ordinary shares.
B) asset acquisition through bond issuance.
C) treasury share acquisition.
D) exchange of plant assets.

Question 58

The acquisition of land by issuing ordinary shares is

A) a non-cash transaction which is not reported in the body of a statement of cash flows.
B) a cash transaction and would be reported in the body of a statement of cash flows.
C) a non-cash transaction and would be reported in the body of a statement of cash flows.
D) only reported if the statement of cash flows is prepared using the direct method.

Question 59

Each of the following is an example of a significant non-cash activity except

A) conversion of bonds into ordinary shares.
B) exchanges of plant assets.
C) issuance of debt to purchase assets.
D) share dividends.

Question 60

Cash receipts from interest and dividends are classified as

A) financing activities.
B) investing activities.
C) operating activities.
D) either financing or investing activities.

Question 61

The net income reported on the income statement for the current year was ¥2,750,000. Depreciation recorded on plant assets was ¥380,000. Accounts receivable and inventories increased by ¥20,000 and ¥80,000, respectively. Prepaid expenses and accounts payable decreased by ¥10,000 and ¥110,000 respectively. How much cash was provided by operating activities?

A) ¥2,550,000
B) ¥2,930,000
C) ¥2,750,000
D) ¥3,090,000

Question 62

Indicate where the transaction of paying income taxes would appear, if at all, on the statement of cash flows.

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

Question 63

The net income reported on the income statement for the current year was ¥2,700,000. Depreciation was ¥500,000. Account receivable and inventories decreased by ¥100,000 and ¥300,000, respectively. Prepaid expenses and accounts payable increased, respectively, by ¥10,000 and ¥80,000. How much cash was provided by operating activities?

A) ¥3,310,000
B) ¥3,670,000
C) ¥3,510,000
D) ¥3,590,000

Question 64

Cline Company issued ordinary shares for proceeds of $392,000 during 2014. The company paid dividends of $66,000 and issued a non-current note payable for $90,000 in exchange for equipment during the year. The company also purchased treasury shares that had a cost of $14,000. The financing section of the statement of cash flows will report net cash inflows of

A) $312,000.
B) $424,000.
C) $326,000.
D) $378,000.

Question 65

Accounts receivable arising from sales to customers amounted to ¥800,000 and ¥700,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was ¥2,600,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is

A) ¥2,600,000.
B) ¥2,700,000.
C) ¥3,300,000.
D) ¥2,500,000.

Question 66

Indicate where the transaction of purchasing land for cash would appear, if at all, on the indirect statement of cash flows.

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

Question 67

Which one of the following items is not necessary in preparing a statement of cash flows?

A) Determine the change in cash
B) Determine the cash provided by operations
C) Determine cash from financing and investing activities
D) Determine the cash in all bank accounts

Question 68

Indicate where the transaction of purchasing land and a building with a mortgage would appear, if at all, on the indirect statement of cash flows.

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

Question 69

Indicate where the transaction of issuing ordinary shares for cash would appear, if at all, on the indirect statement of cash flows.

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

Question 70

If accounts payable have increased during a period,

A) revenues on an accrual basis are less than revenues on a cash basis.
B) expenses on an accrual basis are less than expenses on a cash basis.
C) expenses on an accrual basis are greater than expenses on a cash basis.
D) expenses on an accrual basis are the same as expenses on a cash basis.

Question 71

If a loss of $30,000 is incurred in selling (for cash) office equipment having a book value of $120,000, the total amount reported in the cash flows from investing activities section of the statement of cash flows is

A) $90,000.
B) $120,000.
C) $150,000.
D) $30,000.

Question 72

In Gentry Company, land decreased $180,000 because of a cash sale for $180,000, the equipment account increased $40,000 as a result of a cash purchase, and Bonds Payable increased $130,000 from issuance for cash at face value. The net cash provided by investing activities is

A) $180,000.
B) $270,000.
C) $140,000.
D) $130,000.

Question 73

If a gain of $15,000 is incurred in selling (for cash) office equipment having a book value of $120,000, the total amount reported in the cash flows from investing activities section of the statement of cash flows is

A) $105,000.
B) $135,000.
C) $120,000.
D) $15,000.

Question 74

Harbor Company reported net income of $70,000 for the year ended December 31, 2014. During the year, inventories decreased by $12,000, accounts payable decreased by $18,000, depreciation expense was $20,000 and a gain on disposal of equipment of $9,000 was recorded. Net cash provided by operating activities in 2014 using the indirect method was

A) $129,000.
B) $75,000.
C) $87,000.
D) $65,000.

Question 75

Miller Company purchased treasury shares with a cost of $15,000 during 2014. During the year, the company paid dividends of $20,000 and issued bonds payable for proceeds of $916,000. Cash flows from financing activities for 2014 total

A) $896,000 net cash inflow.
B) $911,000 net cash inflow.
C) $916,000 net cash outflow.
D) $881,000 net cash inflow.

Question 76

Buster Company reported a net loss of $9,000 for the year ended December 31, 2014. During the year, accounts receivable increased $21,000, inventory decreased $15,000, accounts payable decreased by $30,000, and depreciation expense of $15,000 was recorded. During 2014, operating activities

A) used net cash of $30,000.
B) used net cash of $42,000.
C) provided net cash of $42,000.
D) provided net cash of $27,000.

Question 77

Accounts receivable arising from sales to customers amounted to ¥350,000 and ¥400,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was ¥1,800,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is

A) ¥1,800,000.
B) ¥1,850,000.
C) ¥2,150,000.
D) ¥1,750,000.

Question 78

If accounts receivable have increased during the period,

A) revenues on an accrual basis are less than revenues on a cash basis.
B) revenues on an accrual basis are greater than revenues on a cash basis.
C) revenues on an accrual basis are the same as revenues on a cash basis.
D) expenses on an accrual basis are greater than expenses on a cash basis.

Question 79

Wilton Company reported net income of $70,000 for the year. During the year, accounts receivable decreased by $7,000, accounts payable increased by $3,000 and depreciation expense of $5,000 was recorded. Net cash provided by operating activities for the year is

A) $60,000.
B) $85,000.
C) $69,000.
D) $65,000.

Question 80

The third (final) step in preparing the statement of cash flows is to

A) analyze changes in non-current asset and liability accounts.
B) compare the net change in cash with the change in the cash account reported on the statement of financial position.
C) determine net cash provided by operating activities.
D) list the non-cash activities.