Deck 21: The Statement of Cash Flows

Question 1

For reporting operating cash flows under the indirect method, a company adds an unrealized holding loss on trading securities to net income to help adjust net income from an accrual basis to a cash basis.

Answer 1

True

Question 2

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

A) the payment of interest on a loan
B) the receipt of cash dividends on an available-for-sale investment
C) the issuance of common stock
D) the sale of an office building at its book value

Answer 2

D

Question 3

Receipts of dividends from investments in equity securities would be reported in the financing activities section of the cash flow statement.

Answer 3

False

Question 4

The visual inspection method is used when a company has simple financial statements and when the relationships between the changes in account balances can be easily analyzed.

Question 5

When employees exercise share options, the company records the gross proceeds received from the employees exercising options as cash inflows from investing activities.

Question 6

Generating positive cash flows from operations is one of the most important cash flow activities of a company.

Question 7

Under the direct method of reporting operating cash flows, a company computes the cash outflows for operating activities by adjusting the various expense accounts for changes in certain liability accounts and deferred revenues, and also eliminates certain "noncash" expenses or losses.

Question 8

In a statement of cash flows, which of the following events would be classified as a financing activity?

A) the purchase of a trading security
B) the payment of interest on a loan
C) the payment of cash dividends to shareholders
D) all of these answer choices are correct

Question 9

In order to prepare the statement of cash flows under the direct method, a company will need the adjusted trial balance from the previous period.

Question 10

In a statement of cash flows, the payment of a cash dividend on common stock outstanding should be classified as cash outflows for

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

Question 11

What is the primary purpose of a company's statement of cash flows?

A) to provide information about the company's operations
B) to provide information about the company's dividend policy
C) to provide information about the company's financing and investing activities
D) to provide information about the company's cash receipts and cash payments during the period

Question 12

Under the direct method of reporting operating cash flows, a company deducts its operating cash outflows from its operating cash inflows to determine its net cash provided by or used) in operating activities.

Question 13

The spreadsheet method is designed to determine changes in each income statement account and then reconstruct the implied effects of those changes on cash.

Question 14

GAAP allows the use of either the direct or indirect method but prefers the direct method. Companies who use the indirect method must also include a separate schedule reconciling net income to net cash flow provided by operating activities.

Question 15

In a statement of cash flows, increases or decreases in noncurrent assets are most closely associated with

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

Question 16

Under the spreadsheet method of preparing the cash flow statement, a company uses a spreadsheet to determine and reconstruct the changes in cash for each asset, liability, and shareholder's equity.

Question 17

The visual inspection method does not provide supporting documentation for the statement of cash flows due to its simplistic nature.

Question 18

In a statement of cash flows using the indirect method, which of the following events would not be classified as an operating activity?

A) a gain from sale of equipment
B) the receipt of a cash dividend
C) proceeds from the issuance of bonds
D) interest expense paid on a loan

Question 19

Under IFRS, a company is allowed to report dividends and interest received as either an operating or a financing cash inflow.

Question 20

The adjusted trial balance is used in the preparation of the statement of cash flows because it contains the balance sheet, income statement, and retained earnings statements for the current period.

Question 21

Which of the following statements is true regarding GAAP and reporting operating activities on the statement of cash flows?

A) The direct method is required of large companies.
B) GAAP expresses a preference for the indirect method.
C) GAAP expresses a preference for the direct method.
D) GAAP did not express a preference for either the direct or indirect method.

Question 22

Unlike GAAP, IFRS encourage the disclosure of all of the following except

A) reconciliation of net income to operating cash flows when the direct method is used in the cash flow statement.
B) undrawn borrowing capacity available for operating activities.
C) separation of cash flows that increase operating capacity from those that maintain operating capacity.
D) operating, investing, and financing activities by segment.

Question 23

Which of the following events would be classified as an operating activity in a statement of cash flows?

A) receipt of cash dividend on an equity-method investment
B) sale of a long-term investment
C) issuing notes payable
D) payment of cash dividends

Question 24

The Roberts Company reported net income of $190,000 in 2016. Additional information follows:
Given just this information, what was the Roberts Company's net cash provided by operating activities in 2016?

A) $115,000
B) $169,000
C) $211,000
D) $162,000

Question 25

In a statement of cash flows prepared by the indirect method, which of the following events would be deducted from net income?

A) increase in accrued pension cost
B) loss on the sale of an available-for-sale investment
C) proceeds from the sale of plant assets
D) amortization expense on a patent

Question 26

Which statement best defines a company's operating cash inflows?

A) collections from customers and shareholders
B) collections from customers and shareholders and earnings from investments
C) collections from customers and earnings from investments
D) collections from customers

Question 27

Which statement is false? Current GAAP

A) requires that the cash flows from the issuance of stock be reported as a financing activity and not be included in net cash flow from operating activities.
B) does not allow cash flow per share reporting in a company's financial statements.
C) states that under the indirect method, a company must report its operating cash inflows separately from its operating cash outflows.
D) requires that the cash inflows and cash outflows for related investing activities as well as related financing activities be shown separately and not netted against each other.

Question 28

In a statement of cash flows prepared by the indirect method, an increase in accounts receivable should be

A) deducted from net income in the operating activities section.
B) added to net income in the operating activities section.
C) reported as an inflow in the investing activities section.
D) reported as an inflow in the financing activities section.

Question 29

The following information relates to the Stork Company:
What is the net cash provided by financing activities?

A) $1,350
B) $1,850
C) $2,350
D) $5,850

Question 30

Treatments of items in the cash flow statement that differ between IFRS and GAAP include all of the following except the allowed treatment of

A) any cash outflows for development costs that were capitalized as intangible assets.
B) losses on the early retirement of bonds.
C) bank overdrafts.
D) income taxes related to financing and investing activities.

Question 31

When preparing a statement of cash flows under the indirect method, an increase in ending accounts receivable over beginning accounts receivable will result in an adjustment to net income in the operating activities section because

A) cash was increased since accounts receivable is a current asset.
B) the accounts receivable increase was a revenue included in net income, but it was not a source of cash.
C) the net increase in accounts receivable decreases net sales and represents an assumed use of cash.
D) all changes in noncash accounts must be disclosed on the cash flow statement.

Question 32

Which of the following events would not result in a cash inflow?

A) sale of preferred convertible stock
B) common stock issued as a stock dividend
C) reissuance of treasury stock
D) loss of building destroyed by hurricane but partially reimbursed by insurance

Question 33

Which of the following items would be deducted from net income to determine the net cash provided by operating activities using the indirect method?

A) gain on sale of noncurrent assets and amortization of discount on investment in bonds.
B) amortization of bonds payable premium and amortization of intangibles.
C) loss on sale of noncurrent assets and amortization of discount on investment in bonds.
D) gain on sale of noncurrent assets and amortization of premium on investment in bonds.

Question 34

In a statement of cash flows prepared by the indirect method, which of the following events would be added to net income?

A) the sale of a company automobile at a gain.
B) income in excess of dividends received from an equity-method investment
C) proceeds from the sale of an available-for-sale investment
D) loss on the sale of plant assets

Question 35

Which of the following would be added to net income in computing cash flows from operating activities?

A) an increase in accounts receivable
B) an increase in inventories
C) a decrease in deferred taxes payable
D) a decrease in prepaid expenses

Question 36

A company sold equipment for $5,000. The equipment originally cost $16,000 and had accumulated depreciation of $12,000. Which of the following statements is correct regarding the statement of cash flows prepared using the indirect method to report operating activities?

A) $5,000 will be added to net income.
B) Investing activities will reflect proceeds of $4,000 from the sale.
C) $1,000 will be added to net income.
D) $1,000 will be deducted from net income.

Question 37

Selected accounting information regarding the Chime Corporation in 2016 follows:
In 2016, Chime should report a net increase in cash of

A) $1,100,000.
B) $1,200,000.
C) $1,600,000.
D) $1,700,000.

Question 38

A cash flow statement is one of the basic financial statements that is required under

A) I
B) II
C) III
D) IV

Question 39

The following information relates to the Joshua, Inc:
What is the net cash provided by operating activities?

A) $2,100
B) $2,650
C) $3,200
D) $3,150

Question 40

According to current GAAP, cash flow per share statistics

A) are required disclosures only if EPS information is disclosed.
B) are not allowed disclosures.
C) are required disclosures for the direct method only.
D) are required disclosures in all situations.

Question 41

Exhibit 21-2
In preparation for completing the statement of cash flows using the spreadsheet method, Williams Company provided the following information relating to patents for 2016:

-Refer to Exhibit 21-2. The Cash Flows from Investing Activities section would include a net change related to patents of

A) $(600).
B) $(310).
C) $ 310.
D) $ 600.

Question 42

Exhibit 21-3
The Travis Company uses the spreadsheet method for completing the statement of cash flows. The balance sheet accounts and other information related to those accounts are presented below for Travis Company: Additional information related to 2017 activities:
Additional information related to 2017 activities:
1. Net loss for 2017 was $40,000.
2. Cash dividends of $12,000 were declared and paid in 2017.
3. 4,000 shares of common stock were issued to bondholders converting bonds payable into common stock.
4. A long-term investment was sold for $100,000 cash.
5. Equipment costing $100,000 and having accumulated depreciation of $30,000 was sold for
$50,000 cash.

-Refer to Exhibit 21-3. Net cash provided used) in the operating activities section of Travis's 2017 statement of cash flows was

A) $(40,000).
B) $ 50,000.
C) $ 52,000.
D) $ 56,000.

Question 43

The Red Blast Company uses the visual inspection method for completing the statement of cash flows. The following information relates to the Red Blast Company:
What is the net cash provided by operating activities?

A) $ 9,065
B) $11,415
C) $11,935
D) $12,415

Question 44

Mavis Company's statement of cash flows showed net cash provided by operating activities of $47,000 in 2016. Mavis reported an increase in accounts payable of $6,000, an increase in inventory of $2,000, depreciation expense of $3,000, and dividends paid of $8,000. Mavis's net income for 2016 was

A) $48,000.
B) $40,000.
C) $39,000.
D) $32,000.

Question 45

The statement of cash flows would not report which one of the following items?

A) stock dividends
B) purchase of capital stock
C) redemption of long-term debt
D) issuance of long-term debt

Question 46

Exhibit 21-1
The Raymond Corporation reported $11,000 of net income for the current year and also uses the visual inspection method for completing the statement of cash flows. The following additional information relates to Raymond for the year:
Subsidiary gain included in investment income under the
Refer to Exhibit 21-1. What is Raymond's net cash used by financing activities?

A) $1,240)
B) $1,650)
C) $1,860)
D) $2,150)

Question 47

Exhibit 21-3
The Travis Company uses the spreadsheet method for completing the statement of cash flows. The balance sheet accounts and other information related to those accounts are presented below for Travis Company: Additional information related to 2017 activities:
Additional information related to 2017 activities:
1. Net loss for 2017 was $40,000.
2. Cash dividends of $12,000 were declared and paid in 2017.
3. 4,000 shares of common stock were issued to bondholders converting bonds payable into common stock.
4. A long-term investment was sold for $100,000 cash.
5. Equipment costing $100,000 and having accumulated depreciation of $30,000 was sold for
$50,000 cash.

-Refer to Exhibit 21-3. Net cash provided used) in the financing activities section of Travis's 2017 statement of cash flows was

A) $ 0.
B) $(12,000).
C) $(52,000).
D) $(32,000).

Question 48

Exhibit 21-1
The Raymond Corporation reported $11,000 of net income for the current year and also uses the visual inspection method for completing the statement of cash flows. The following additional information relates to Raymond for the year:
Subsidiary gain included in investment income under the
Refer to Exhibit 21-1. What is Raymond's net cash provided by operating activities?

A) $11,540
B) $12,210
C) $12,860
D) $14,800

Question 49

Marty uses the visual inspection method for preparing the statement of cash flows. Selected information for Marty Company during 2016 follows:
If Marty reported net income of $320, what was the net cash provided by operating activities for 2016?

A) $329
B) $330
C) $332
D) $342

Question 50

One area of difference between GAAP and IFRS cash flow reporting is the

A) treatment of losses on sale of equipment.
B) general categories required for various types of cash flows.
C) use of the direct or indirect method of reporting operating cash flows.
D) allowed classifications of dividends and interest paid or received.

Question 51

Exhibit 21-3
The Travis Company uses the spreadsheet method for completing the statement of cash flows. The balance sheet accounts and other information related to those accounts are presented below for Travis Company: Additional information related to 2017 activities:
Additional information related to 2017 activities:
1. Net loss for 2017 was $40,000.
2. Cash dividends of $12,000 were declared and paid in 2017.
3. 4,000 shares of common stock were issued to bondholders converting bonds payable into common stock.
4. A long-term investment was sold for $100,000 cash.
5. Equipment costing $100,000 and having accumulated depreciation of $30,000 was sold for
$50,000 cash.

-Refer to Exhibit 21-3. Net cash provided used) in the investing activities section of Travis's 2017 statement of cash flows was

A) $ 0.
B) $(150,000).
C) $( 50,000).
D) $ 150,000.

Question 52

Mayberry's statement of cash flow is completed using the visual inspection method. Information regarding the Mayberry Company in 2016 appears below:
What was Mayberry's net increase in cash?

A) $190,000
B) $225,000
C) $245,000
D) $255,000

Question 53

The following information relates to the Davensmith Company:
What was the amount of interest paid?

A) $820
B) $830
C) $850
D) $870

Question 54

Which of the following should be presented in a statement of cash flows?

A) I
B) II
C) III
D) IV

Question 55

The IFRS categories of cash flows are

A) long-term changes and short-term changes.
B) operating and other.
C) operating, investing, and financing.
D) operating and nonoperating.

Question 56

When preparing a statement of cash flows using a spreadsheet, it is best to begin the spreadsheet with

A) a trial balance.
B) an adjusted trial balance.
C) a balance sheet.
D) a balance sheet and an income statement.

Question 57

Bernard, Inc. prepares a statement of cash flows using the visual inspection method. In 2016, Bernard had net income of $54,000. In addition, the following information is available:
What net cash provided by operating activities should Bernard report in 2016?

A) $46,000
B) $72,000
C) $49,000
D) $50,000

Question 58

Angel Heating Co. reported $27,000 of net income. The company uses the visual inspection method to complete the statement of cash flows. Additional information is listed below:
The net cash provided by operating activities was

A) $27,150.
B) $27,050.
C) $26,900.
D) $26,850.

Question 59

Exhibit 21-1
The Raymond Corporation reported $11,000 of net income for the current year and also uses the visual inspection method for completing the statement of cash flows. The following additional information relates to Raymond for the year:
Subsidiary gain included in investment income under the
Refer to Exhibit 21-1. What is Raymond's net cash provided by investing activities?

A) $ 250
B) $ 900
C) $2,170
D) $3,370

Question 60

Exhibit 21-2
In preparation for completing the statement of cash flows using the spreadsheet method, Williams Company provided the following information relating to patents for 2016:

-Refer to Exhibit 21-2. The Cash Flows from Operating Activities section prepared using the indirect method would include which of the following deductions or add-back amounts related to patents?

A) $(310)
B) $(290)
C) $ 290
D) $ 600

Question 61

The following information relates to the Maxwell Company for 2016: Required:
Compute net cash provided by operating activities for the Maxwell Company for 2016.

Question 62

Which statement is false?

A) Salaries expense + Decrease in salaries payable = Cash payments to employees.
B) Other revenues + Increase in unearned revenues − Gains on disposal of assets − Equity investment income = Other operating cash receipts.
C) Sales revenue − Increase in accounts receivable = Cash collections from customers.
D) Other expenses + Decrease in prepaid expenses − Depreciation expense + Losses on disposal of assets − Equity investment loss = Other operating cash payments.

Question 63

Which of the following items would be deducted from net income to determine net cash provided by operating activities using the direct method?

A) loss on sale of plant assets and amortization of bond payable discount
B) amortization of bond payable premium and gain on sale of equipment
C) amortization expense and gain on sale of equipment
D) None of these choices would be deducted from net income

Question 64

The information below was taken from the records of the Piper Company for the year ended December 31, 2016:
Required:
Prepare Piper's statement of cash flows for 2016, using the indirect method.

Question 65

A company's unearned rental revenue account increases from the beginning to the end of the year. In the statement of cash flows using the direct method, the cash collected from tenants would be

A) rent revenue plus unearned rent revenue at the beginning of the year.
B) rent revenue plus the increase in unearned rent revenue during the year.
C) rent revenue minus the increase in unearned rent revenue during the year.
D) equal to rental revenue on the income statement.

Question 66

A company had an increase in interest payable during the year and also amortized discount on bonds payable. Under the direct method, the amount of interest paid during the year to be reflected in the statement of cash flows is

A) interest expense plus the increase in interest payable minus the discount amortization.
B) interest expense plus the increase in interest payable plus the discount amortization.
C) interest expense minus the increase in interest payable minus the discount amortization.
D) interest expense minus the increase in interest payable plus the discount amortization.

Question 67

A statement of cash flows contains the following sections:
a. net cash flow from operating activities
b. cash flows from investing activities
c. cash flows from financing activities
d. investing and financing activities not affecting cash
A list of items that appear on the statement is provided below:
____ 1. Depreciation expense
____ 2. Proceeds from sale of land at a gain
____ 3. Decrease in accounts payable
____ 4. Conversion of bonds to common stock
____ 5. Payment of dividends, declared last fiscal year
____ 6. Proceeds from issuance of short-term note payable,
not relating to operating activities
____ 7. Loss on cash sale of equipment
____ 8. Payment for purchase of a building
____ 9. Bond premium amortization using the effective interest method
____ 10. Issuance of common stock to convert bonds payable
Required:
In the space provided, using the letters a-d), indicate in which sections) of the statement of cash flows or accompanying schedule) the preceding items would most likely be classified. After each item affecting cash, indicate with a plus sign +) or a minus sign −) whether the item would be reported as an increase inflow) or a decrease outflow).

Question 68

The following information relates to the Fowler Company for 2016:
What was the amount of cash sales?

A) $61,200
B) $59,800
C) $63,800
D) $65,200

Question 69

On the statement of cash flows prepared using the direct method, cash from customers would be computed as sales plus

A) an increase in accounts receivable.
B) an increase in accounts payable.
C) a decrease in accounts receivable.
D) a decrease in accounts payable.

Question 70

The following are totals from selected financial statements of Macy May Company for the years ended December
31, 2015, 2016 and 2017:
Required:
1) Compute the operating cash flow ratios for the years ended December 31, 2016 and 2017.
2) Compute the operating cash flow to total liabilities ratios for the years ended December 31, 2016, and 2017.

Question 71

Selected accounting information for the Zebra Company for 2016 follows:
Required:
Prepare the 2016 Net Cash Flow from Operating Activities section of Zebra's statement of cash flows, using the indirect method.

Question 72

On its January 1, 2016, balance sheet, Calvin Company reported equipment of $60,000 and accumulated depreciation of $20,000. During 2016, Calvin sold equipment with an original cost of $5,000. Selected information from Calvin's
2016 statement of cash flows follows:
Required:
Compute the amount of equipment and accumulated depreciation that should appear on Calvin's December 31, 2016, balance sheet.

Question 73

The Fancy Company's comparative balance sheets for 2016 and 2017, and additional information, are presented below.
Fancy Company
Comparative Balance Sheets Required:
Prepare Fancy Company's 2017 statement of cash flows using the indirect method.

Question 74

When reading the Cash Outflows from Operating Activities portion of the statement of cash flows, you would expect to find which of the following? I. Payments to suppliers II. Payments to customers III. Payments to employees IV. Payments of interest
V) Payments for income taxes
VI) Other operating payments

A) I, II, III, and V
B) I, III, IV, and VI
C) I, II, III, IV, V, and VI
D) I, III, IV, VI, and V

Question 75

Under the direct method, which one of the following would represent cash paid?

A) gains on sales of plant assets
B) losses on sales of plant assets
C) depreciation expense, adjusted for changes in depreciation methods
D) interest expense, adjusted for changes in interest payable and amortization of bond premium or discount

Question 76

Accounting information from the records of the Sarah Jane's Clothing Corporation at the end of 2016 is shown below:
Required:
Prepare Sarah Jane's Clothing 's 2016 Net Cash Flow from Operating Activities section of a statement of cash flows, using the indirect method.

Question 77

An abbreviated set of financial statements for Caraba's Company for 2017 and 2016 is shown below:

Required:
Prepare the cash flows from investing and financing activities sections of the 2017 statement of cash flows.

Question 78

Which of the following is true concerning the direct method of calculating operating cash flows?

A) does not tie the net income reported on a company's income statement to the net cash provided from operating activities
B) does not show how the changes in the elements of a company's operating cycle affected its operating cash flows
C) reports a company's operating cash inflows separately from its operating cash outflows
D) All of these choices are true concerning the direct method.

Question 79

When reading the Cash Inflows from Operating Activities portion of the statement of cash flows using the direct method, you would expect to find which of the following? I. Collections from customers
II) Interest and dividends collected
III) Other operating receipts
IV) Receipts from shareholders

A) I
B) I and IV
C) I, II, and III
D) I, II, III, and IV

Question 80

On the statement of cash flows prepared using the direct method, cash paid for income taxes would be income tax expense minus

A) an increase in income taxes payable.
B) a decrease in income taxes payable.
C) beginning income taxes payable.
D) ending income taxes payable.