Deck 23: Statement of Cash Flows

Question 1

Most companies using IFRS show dividends paid as a financing activity.

Answer 1

True

Question 2

The basis recommended by the IASB for the statement of cash flows is actually "cash and cash equivalents."

Answer 2

True

Question 3

The statement of cash flows provides information to help investors and creditors assess the cash and non-cash investing and financing transactions during the period.

Answer 3

True

Question 4

The primary purpose of the statement of cash flows is to provide cash-basis information about the company's operating, investing, and financing activities.

Question 5

A company can convert net income to net cash flow from operating activities through either the direct method or the indirect method.

Question 6

Under the accrual basis of accounting, net income is usually the same as net cash flow from operating activities.

Question 7

The most contentious decision that the IASB faced related to cash flow reporting was choosing between the direct method and the indirect method of determining net cash flow from operating activities.

Question 8

Cash receipts from customers are computed by adding a decrease in accounts receivable to revenue from sales.

Question 9

Income from an investment in ordinary shares using the equity method is added to net income in computing net cash provided from operating activities.

Question 10

The direct method, also called the reconciliation method, reports cash receipts and cash disbursements from operating activities.

Question 11

When prepaid expenses decrease during a period, expenses on the accrual-basis are lower than they are on a cash-basis.

Question 12

Companies classify some cash flows relating to investing or financing activities as operating activities.

Question 13

The first step in the preparation of the statement of cash flows is to determine the net cash flow from operating activities.

Question 14

The net increase (decrease) in cash reported on the statement of cash flows should reconcile the beginning and ending cash balances reported in the comparative statements of financial position.

Question 15

When accounts receivable decrease during a period, cash-basis revenues are higher than revenues reported on an accrual basis.

Question 16

The indirect method adjusts net income for items that affected reported net income but did not affect cash.

Question 17

The IASB encourages the use of the indirect method over the direct method.

Question 18

IFRS does not allow flexibility regarding the classification of certain items on the statement of cash flows.

Question 19

The IASB encourages the use of the direct method over the indirect method for the presentation of the statement of cash flows.

Question 20

The IASB does not permit the direct method presentation of the statement of cash flows.

Question 21

An objective of the statement of cash flows is to

A)disclose changes during the period in all asset and all equity accounts.
B)disclose the change in working capital during the period.
C)provide information about a company's operating, investing, and financing activities.
D)none of these.

Question 22

Cash equivalents are

A)treasury bills, commercial paper, and money market funds purchased with excess cash.
B)investments with original maturities of three months or less.
C)readily convertible to known amounts of cash.
D)all of these.

Question 23

All of the following are required by IFRS for the statement of cash flows except:

A)The operating activities section.
B)The financing activities section.
C)The investing activities section.
D)Significant non-cash transactions.

Question 24

A company should add back bond premium amortization to net income to arrive at net cash flow from operating activities.

Question 25

The issuance of share dividends is entered on the cash flow worksheet, but is not reported in the statement of cash flows.

Question 26

Presently, the IASB and the FASB are involued in a joint project on the presentation and organization of information in the financial statements.

Question 27

Which of the following under IFRS, but not U.S.GAAP is considered to be part of cash and cash equivalents?

A)Treasury bills
B)bank overdrafts
C)commercial paper
D)money market funds

Question 28

IAS 7 indicates that cash flows related to interest received and paid, and dividends received and paid, should be separately disclosed in the statement of cash flows

Question 29

Companies report the cash flows from purchases and sales of trading invesments as cash flows from operating activities.

Question 30

When preparing a statement of cash flows (indirect method), an increase in ending inventory over beginning inventory will result in an adjustment to reported net earnings because

A)cash was increased while cost of goods sold was decreased.
B)cost of goods sold on an accrual basis is lower than on a cash basis.
C)acquisition of inventory is an investment activity.
D)inventory purchased during the period was less than inventory sold resulting in a net cash increase.

Question 31

The majority of IASB members express a preference for not requiring use of the direct method of reporting operating cash flows.

Question 32

Cash payments for operating expenses are computed by subtracting an increase in prepaid expenses and a decrease in accrued expenses payable from operating expenses.

Question 33

A statement of cash flows typically would not disclose the effects of

A)ordinary shares issued at an amount greater than par value.
B)share dividends declared.
C)cash dividends paid.
D)a purchase and immediate retirement of treasury shares.

Question 34

Significant non-cash transactions are disclosed either in a separate schedule or in the notes to the financial statements.

Question 35

The IASB favors presentation of operating cash flows using the direct method only, but the FASB does not.

Question 36

A company borrows $10,000 and signs a 90-day nontrade note payable.In preparing a statement of cash flows (indirect method), this event would be reflected as a(n)

A)addition adjustment to net income in the cash flows from operating activities section.
B)cash outflow from investing activities.
C)cash inflow from investing activities.
D)cash inflow from financing activities.

Question 37

When numerous adjustments are necessary, companies often use a cash flow worksheet instead of preparing a statement of cash flows.

Question 38

When preparing a statement of cash flows (indirect method), which of the following is not an adjustment to reconcile net income to net cash provided by operating activities?

A)A change in interest payable
B)A change in dividends payable
C)A change in income taxes payable
D)All of these are adjustments.

Question 39

An increase in inventory balance would be reported in a statement of cash flows using the indirect method (reconciliation method) as a(n)

A)addition to net income in arriving at net cash flow from operating activities.
B)deduction from net income in arriving at net cash flow from operating activities.
C)cash outflow from investing activities.
D)cash outflow from financing activities.

Question 40

Declaration of a cash dividend on ordinary shares affects cash flows from operating activities under the direct and indirect methods as follows:

Question 41

When using the indirect method to prepare the operating section of a statement of cash flows, which of the following is added to net income to compute cash provided by\used by operating activities?

A)Increase in accounts receivable.
B)Gain on sale of land.
C)Amortization of patent.
D)All of the above are added to net income to arrive at cash flow from operating activities.

Question 42

All of the following would appear as significant non-cash transactions in the notes to the financial statements, except:

A)issuance of shares for attomey services
B)issuance of shares to liquidate debt
C)issuance of bonds for land
D)issuance of preference shares

Question 43

When preparing a statement of cash flows, an increase in accounts payable during a period would require which of the following adjustments in determining cash flows from operating activities?

Question 44

Which of the following statements is correct?

A)The indirect method starts with income before income taxes.
B)The direct method is known as the reconciliation method.
C)The direct method is more consistent with the primary purpose of the statement of cash flows.
D)All of these.

Question 45

Use the following information for questions.
Napier Co.provided the following information on selected transactions during 2011:

The net cash provided (used) by investing activities during 2011 is

A)$50,000.
B)$(300,000).
C)$(550,000).
D)$(1,250,000).

Question 46

All of the following could potentially be classified as either operating or investing cash flows under IFRS, except:

A)Interest received
B)Dividends received
C)Taxes paid that are specifically identified with investing
D)Dividends paid

Question 47

When using the indirect method to prepare the operating section of a statement of cash flows, which of the following is deducted from net income to compute cash provided by\used by operating activities?

A)Decrease in accounts receivable.
B)Gain on sale of land.
C)Amortization of patent.
D)All of the above are deducted from net income to arrive at cash flow from operating activities.

Question 48

Use the following information for questions.
Napier Co.provided the following information on selected transactions during 2011:

The net cash provided by financing activities during 2011 is

A)$550,000.
B)$650,000.
C)$800,000.
D)$900,000.

Question 49

All of the following are arguments in favor of using the indirect (reconciliation) method as opposed to the direct method for reporting a statement of cash flows except:

A)By providing a reconciliation between net income and cash provided by operations, the differences are highlighted.
B)The direct method is nothing more than a cash basis income statement which will confuse and create uncertainty for financial statement users who are familiar with the accrual-based income statements.
C)The direct method would probably lead to additional preparation cost because the financial records are not maintained on a cash basis.
D)The indirect method shows higher quality cash flows from investing and financing activities.

Question 50

In 2012, Witherby Inc issued 1,000 ordinary shares of €10 par value for land worth €40,000.if witherby uses IFRS responding, how would the company most likely reported the transaction on the statements of cash flows?

A)It is reported as net cash provided by financing activities.
B)It is reported as net cash used by financing activities.
C)It is not presented on the statement of cash flows;it will be presented in the notes to the financial statement as significant non-cash transactions.
D)None of these are acceptable

Question 51

When preparing a statement of cash flows, a decrease in accounts receivable during a period would cause which one of the following adjustments in determining cash flow from operating activities?

Question 52

If non-cash investing and financing activities are part cash and part non-cash, which of the following is true?

A)Companies should report only the cash portion on the statement of cash flows and ignore the non-cash component.
B)Companies should report the non-cash component in a separate note and report the cash portion on the statement of cash flows.
C)Companies should report the cash portion lass the cash equivalent of the non-cash component on the statement of cash flows.
D)None of these is correct.

Question 53

When preparing a statement of cash flows, the following are used for which method in determining cash flows from operating activities?

Question 54

Which of the following is false concerning the statement of cash flows?

A)When pension expense exceeds cash funding, the difference is deducted from investing activities on the statement of cash flows.
B)The IASB requires companies to classify all income taxes paid as operating cash outflows.
C)Under IFRS, the purchase of land by issuing ordinary shares will be shown as a cash outflow under investing activities and a cash inflow under financing activities.
D)All of the above are true concerning the statement of cash flows.

Question 55

Use the following information for questions.
The balance sheet data of Kohler Company at the end of 2011 and 2010 follow:
Land was acquired for $100,000 in exchange for ordinary shares, par $100,000, during the year; all equipment purchased was for cash.Equipment costing $10,000 was sold for $4,000; book value of the equipment was $8,000 and the loss was reported in net income.Cash dividends of $20,000 were charged to retained earnings and paid during the year; the transfer of net income to retained earnings was the only other entry in the Retained Earnings account.In the statement of cash flows for the year ended December 31, 2011, for Naley Company:

The net cash provided by operating activities was

A)$52,000.
B)$66,000.
C)$56,000.
D)$48,000.

Question 56

Dolan Company reports its income from investments under the equity method and recognized income of $25,000 from its investment in Moss Co.during the current year, even though no dividends were declared or paid by Moss during the year.On Dolan's statement of cash flows (indirect method), the $25,000 should

A)not be shown.
B)be shown as cash inflow from investing activities.
C)be shown as cash outflow from financing activities.
D)be shown as a deduction from net income in the cash flows from operating activities section.

Question 57

Most of the companies interpret IFRS to mean that significant non-cash transactions should be reported

A)in the cash flow statement.
B)in the notes to the financial statement.
C)in the statement of financial position.
D)in a separate schedule which is part of the statement of cash flows.

Question 58

When preparing a statement of cash flows, a decrease in prepaid insurance during a period would require which of the following adjustments in determining cash flows from operating activities?

Question 59

Which of the following best represents the group that expressed to the IASB a strong preference in favor of the direct method of the statement of cash flows?

A)Public companies
B)Private companies
C)Commercial lending officers
D)None of these

Question 60

In determining net cash flow from operating activities, a decrease in accounts payable during a period

A)means that income on an accrual basis is less than income on a cash basis.
B)requires an addition adjustment to net income under the indirect method.
C)requires an increase adjustment to cost of goods sold under the direct method.
D)requires a decrease adjustment to cost of goods sold under the direct method.

Question 61

During 2011, Stout Inc.had the following activities related to its financial operations:
The amount of net cash used in financing activities to appear in Stout's statement of cash flows for 2011 should be

A)$1,590,000.
B)$1,776,000.
C)$2,136,000.
D)$2,148,000.

Question 62

Use the following information for questions.
The balance sheet data of Kohler Company at the end of 2011 and 2010 follow:
Land was acquired for $100,000 in exchange for ordinary shares, par $100,000, during the year; all equipment purchased was for cash.Equipment costing $10,000 was sold for $4,000; book value of the equipment was $8,000 and the loss was reported in net income.Cash dividends of $20,000 were charged to retained earnings and paid during the year; the transfer of net income to retained earnings was the only other entry in the Retained Earnings account.In the statement of cash flows for the year ended December 31, 2011, for Naley Company:

The net cash provided (used) by investing activities was

A)$26,000.
B)$(40,000).
C)$(136,000).
D)$(36,000).

Question 63

During 2011, equipment was sold for $156,000.The equipment cost $252,000 and had a book value of $144,000.Accumulated Depreciation-Equipment was $687,000 at 12\31\10 and $735,000 at 12\31\11.Depreciation expense for 2011 was

A)$60,000.
B)$96,000.
C)$156,000.
D)$192,000.

Question 64

Selected information from Dinkel Company's 2011 accounting records is as follows:
Dinkel's statement of cash flows for the year ended December 31, 2011, would show net cash provided (used) by financing activities of

A)$60,000.
B)$(220,000).
C)$160,000.
D)$1,360,000.

Question 65

Equipment which cost $213,000 and had accumulated depreciation of $114,000 was sold for $111,000.This transaction should be shown on the statement of cash flows (indirect method) as a(n)

A)addition to net income of $12,000 and a $111,000 cash inflow from financing activities.
B)deduction from net income of $12,000 and a $99,000 cash inflow from investing activities.
C)deduction from net income of $12,000 and a $111,000 cash inflow from investing activities.
D)addition to net income of $12,000 and a $99,000 cash inflow from financing activities.

Question 66

The following information on selected cash transactions for 2011 has been provided by Mancuso Company:

What is the cash provided (used) by investing activities for the year ended December 31, 2011, as a result of the above information?

A)$16,000
B)$256,000.
C)$160,000.
D)$800,000.

Question 67

Hager Company sold some of its plant assets during 2011.The original cost of the plant assets was $750,000 and the accumulated depreciation at date of sale was $700,000.The proceeds from the sale of the plant assets were $105,000.The information concerning the sale of the plant assets should be shown on Hager's statement of cash flows (indirect method) for the year ended December 31, 2011, as a(n)

A)subtraction from net income of $55,000 and a $50,000 increase in cash flows from financing activities.
B)addition to net income of $55,000 and a $105,000 increase in cash flows from investing activities.
C)subtraction from net income of $55,000 and a $105,000 increase in cash flows from investing activities.
D)addition of $105,000 to net income.

Question 68

Use the following information for questions.
Harlan Mining Co.has recently decided to go public and has hired you as an independent CPA.One statement that the enterprise is anxious to have prepared is a statement of cash flows.Financial statements of Harlan Mining Co.for 2011 and 2010 are provided below.
The following additional data were provided:

The net cash provided by operating activities is

A)$204,000.
B)$144,000.
C)$120,000.
D)$100,000.

Question 69

An analysis of the machinery accounts of Noller Company for 2011 is as follows:

The information concerning Noller's machinery accounts should be shown in Noller's statement of cash flows (indirect method) for the year ended December 31, 2011, as a(n)

A)subtraction from net income of $100,000 and a $200,000 decrease in cash flows from financing activities.
B)addition to net income of $100,000 and a $200,000 decrease in cash flows from investing activities.
C)$100,000 increase in cash flows from financing activities.
D)$200,000 decrease in cash flows from investing activities.

Question 70

Use the following information for questions.
Harlan Mining Co.has recently decided to go public and has hired you as an independent CPA.One statement that the enterprise is anxious to have prepared is a statement of cash flows.Financial statements of Harlan Mining Co.for 2011 and 2010 are provided below.
The following additional data were provided:

Under the direct method, the cash received from customers is

A)$4,272,000.
B)$4,128,000.
C)$4,200,000.
D)$4,220,000.

Question 71

Use the following information for questions.
Harlan Mining Co.has recently decided to go public and has hired you as an independent CPA.One statement that the enterprise is anxious to have prepared is a statement of cash flows.Financial statements of Harlan Mining Co.for 2011 and 2010 are provided below.
The following additional data were provided:

The net cash provided (used) by financing activities is

A)$(120,000).
B)$24,000.
C)$(216,000).
D)$96,000.

Question 72

Use the following information for questions.
Equipment that cost $300,000 and had a book value of $156,000 was sold for $180,000.Data from the comparative statements of financial position are:

Depreciation expense for 2011 was

A)$258,000.
B)$234,000.
C)$54,000.
D)$36,000.

Question 73

Use the following information for questions.
Equipment that cost $300,000 and had a book value of $156,000 was sold for $180,000.Data from the comparative statements of financial position are:

Equipment purchased during 2011 was

A)$510,000.
B)$300,000.
C)$210,000.
D)$90,000.

Question 74

Use the following information for questions.
The balance sheet data of Kohler Company at the end of 2011 and 2010 follow:
Land was acquired for $100,000 in exchange for ordinary shares, par $100,000, during the year; all equipment purchased was for cash.Equipment costing $10,000 was sold for $4,000; book value of the equipment was $8,000 and the loss was reported in net income.Cash dividends of $20,000 were charged to retained earnings and paid during the year; the transfer of net income to retained earnings was the only other entry in the Retained Earnings account.In the statement of cash flows for the year ended December 31, 2011, for Naley Company:

The net cash provided (used) by financing activities was

A)$ -0-.
B)$(20,000).
C)$(40,000).
D)$60,000.

Question 75

Use the following information for questions.
Harlan Mining Co.has recently decided to go public and has hired you as an independent CPA.One statement that the enterprise is anxious to have prepared is a statement of cash flows.Financial statements of Harlan Mining Co.for 2011 and 2010 are provided below.
The following additional data were provided:

The net cash provided (used) by investing activities is

A)$(176,000).
B)$24,000.
C)$120,000.
D)$(144,000).

Question 76

The board of directors of Akiko Corp.declared cash dividends of ¥265,000 during the current year.If dividends payable was ¥83,000 at the beginning of the year and ¥77,000 at the end of the year, how much cash was paid in dividends during the year?

A)¥425,000
B)¥271,000
C)¥259,000
D)¥265,000

Question 77

Use the following information for questions.
Financial statements for Kiner Company are given below:

Total assets on the statement of financial position at December 31, 2011 are $2,216,000.Accumulated deprecia-tion on the equipment sold was $112,000.
When the equipment was sold, the Buildings and Equipment account received a credit of

A)$96,000.
B)$208,000.
C)$160,000.
D)$112,000.

Question 78

Use the following information for questions.
Harlan Mining Co.has recently decided to go public and has hired you as an independent CPA.One statement that the enterprise is anxious to have prepared is a statement of cash flows.Financial statements of Harlan Mining Co.for 2011 and 2010 are provided below.
The following additional data were provided:

Under the direct method, the total taxes paid is

A)$48,000.
B)$20,000.
C)$28,000.
D)$68,000.

Question 79

Kensington Industries reported net income of £50,000 in 2012.Depreciation expense was £19,000.
The following working capital accounts changed:
If Kensington uses IFRS reporting and the indirect method, what amount is their adjustments to reconcile net income to net cash provided by or (used in) operating activities?

A)£3,100
B)£49.500
C)£12,900
D)£10,500

Question 80

The net income for Akira Industries for 2012 was ¥302,000.During 2012, depreciation on plant assets was ¥114,000, amortization of patent was ¥50,000, and the company incurred a loss on sale of plant assets of ¥27,000.What is the net cash flow from operating activities?

A)¥111,000
B)¥439,000
C)¥339,000
D)¥493,000