Deck 13: Statement of Cash Flows

Question 1

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

Answer 1

False

Question 2

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

Answer 2

False

Question 3

Like the other financial statements, the statement of cash flows is prepared from an adjusted trial balance.

Answer 3

False

Question 4

Operating activities include the cash effects of transactions that create revenues and expenses.

Question 5

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

Question 6

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

Question 7

Prepare the investing and financing activities sections and complete the statement of cash flows. The second step in the preparation of a statement of cash flows is to analyze the changes in certain non-current asset accounts and record them as investing activities, or disclose them as significant noncash transactions. The third step is to analyze the changes in non-current liability (and any related current portions) and equity accounts and record them as financing activities, or disclose them as significant noncash transactions. In addition to this, changes in the Dividends Payable account should be considered in determining the amount of dividends paid.The fourth and final step in the preparation of a statement of cash flows is to determine the overall net cash flow for the year and add it to the opening amount of cash (and cash equivalents) to determine the ending amount. This result should agree to the cash (and cash equivalents) reported on the statement of financial position.

Question 8

The activity from the statement of financial position to be presented in the financing activities section of the statement of cash flows is based on an analysis of shareholders' equity only.

Question 9

If a company has combined cash equivalents with cash, it must disclose the components of the cash equivalents, with a reconciliation of the amounts reported on the statement of cash flows with those reported on the statement of financial position.

Question 10

Cash flow provided (used) by investing activities is considered the most important category on the statement of cash flows because it is considered the best measure of expected net income.

Question 11

Cash flow information is useful in assessing a company's ability to generate future cash flows.

Question 12

Cash equivalents can include both short-term and long-term investments.

Question 13

Use the statement of cash flows to evaluate a company.

Question 14

Under IFRS, the receipt of dividends from equity investments may be classified as a cash receipt provided (used) by investing activities.

Question 15

For a company using the direct method, both the operating activities and investing activities will report the same net amounts provided or used as the indirect method, but the amount reported under financing activities will be different.

Question 16

The statement of cash flows is a required statement for both public and private corporations.

Question 17

Under ASPE, the payment of interest on a mortgage payable may be classified as a cash payment from financing activities.

Question 18

Prepare the operating activities section of a statement of cash flows using the indirect method.

Question 19

The acquisition of a building by issuing a mortgage payable would be considered an investing and financing activity that did not affect cash and would be reported in the notes to the financial statements.

Question 20

Noncash investing and financing transactions, such as the exchange of common shares to purchase assets, represent significant investing and financing activities and are reported in a note to the financial statements.

Question 21

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

A) financing activities section.
B) notes to the financial statements.
C) investing activities section.
D) shareholders' equity section.

Question 22

Cash provided by operating activities is generally the same as the net income reported on the income statement.19 A disadvantage of the indirect method of reporting cash flows provided (used) by operating activities is that the difference between the net amount of cash flows from operating activities and net income is not emphasized.

Question 23

Use the following information for questions.
Ingles Corp., a private company reporting under ASPE, engaged in the following transactions. For each transaction, indicate where, if at all, it would be classified on the statement of cash flows.
Declaration and issue of a stock dividend:

A) operating activities section
B) investing activities section
C) financing activities section
D) does not represent a cash flow

Question 24

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 25

The indirect and direct methods of preparing the statement of cash flows are identical except for the

A) significant noncash activity section.
B) operating activities section.
C) investing activities section.
D) financing activities section.

Question 26

The statement of cash flows will not report the

A) amount of cheques 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 27

The statement of cash flows

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

Question 28

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

A) write-off of an uncollectible account receivable
B) collection of an account receivable
C) sale of common shares
D) repayment of a bank loan

Question 29

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

Question 30

Significant noncash transactions would not include

A) conversion of preferred shares into common shares.
B) asset acquisition through issue of a note payable.
C) loans to other companies.
D) exchange of equipment.

Question 31

If a company reports a loss, it

A) may still have a net increase in cash.
B) will not be able to pay cash dividends.
C) will not be able to get a loan.
D) will not be able to make capital expenditures.

Question 32

In preparing a statement of cash flows, preferred shares issued in exchange for land would be reported in the

A) financing activities section.
B) investing activities section.
C) operating activities section.
D) notes to the financial statements.

Question 33

The acquisition of land by issuing common shares is

A) a cash transaction and would be reported in the body of a statement of cash flows.
B) a noncash transaction that is not reported in the body of a statement of cash flows.
C) a noncash transaction but 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 34

Which one of the following is false?

A) The statement of cash flows can be prepared using cash and cash equivalents rather than just cash, as its base.
B) The statement of cash flows reports the sources and uses of cash during a specific period.
C) The statement of cash flows shows the effects on net income of a company's operating, investing, and financing activities for an accounting period.
D) The statement of cash flows explains the difference between net income, as shown on the income statement, and the net cash flows generated from operating activities.

Question 35

Generally, the first category shown on the statement of cash flows is cash flows provided (used) by

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

Question 36

Under IFRS, cash receipts from interest and dividends are classified as

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

Question 37

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 cash receipts and cash payments during a period.
D) report to Canada Revenue Agency.

Question 38

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 39

In preparing a statement of cash flows,

A) an increase in the Common Shares account during a period would be classified as an investing activity.
B) the issue of debt should be reported separately from the retirement of debt.
C) the net movement of loans and repayments are reported as a financing activity.
D) the issue of shares to acquire land are reported as financing and investing, respectively.

Question 40

Investing activities affect non-current asset accounts.

Question 41

In preparing the statement of cash flows, determining the net increase or decrease in cash requires the use of

A) the adjusted trial balance.
B) the current period's statement of retained earnings.
C) a comparative statement of financial position.
D) a comparative income statement.

Question 42

Ingles Corp., a private company reporting under ASPE, engaged in the following transactions. For each transaction, indicate where, if at all, it would be classified on the statement of cash flows. Assume the indirect method is used. Ingles Corp. experienced an increase in inventory in the

A) operating activities section.
B) investing activities section.
C) financing activities section.
D) does not represent a cash flow.

Question 43

Ingles Corp., a private company reporting under ASPE, engaged in the following transactions. For each transaction, indicate where, if at all, it would be classified on the statement of cash flows. Assume the indirect method is used. Ingles Corp. experienced a decrease in accounts receivable in the

A) operating activities section.
B) investing activities section.
C) financing activities section.
D) does not represent a cash flow.

Question 44

Ingles Corp., a private company reporting under ASPE, engaged in the following transactions. For each transaction, indicate where, if at all, it would be classified on the statement of cash flows. Assume the indirect method is used. Ingles Corp. experienced a receipt of dividends on held for trading investments in the

A) operating activities section.
B) investing activities section.
C) financing activities section.
D) does not represent a cash flow.

Question 45

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

A) noncash 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 46

Accounts receivable arising from sales to customers amounted to $35,000 and $40,000 at the beginning and end of the year, respectively. Net income reported on the income statement for the year was $120,000. Ignoring the effect of any other adjustments, the cash flow provided (used) by operating activities, prepared using the indirect method, is

A) $120,000.
B) $125,000.
C) $155,000.
D) $115,000.

Question 47

Purchase of land and building with a mortgage:

A) operating activities section
B) investing activities section
C) financing activities section
D) does not represent a cash flow

Question 48

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 49

In calculating cash flows provided (used) by operating activities using the indirect method, a gain on the sale of equipment is

A) added to net income.
B) deducted from net income.
C) ignored because it does not affect cash.
D) not reported on a statement of cash flows.

Question 50

Use the following information for questions.
Ingles Corp., a private company reporting under ASPE, engaged in the following transactions. For each transaction, indicate where, if at all, it would be classified on the statement of cash flows.
Issue of preferred shares for cash:

A) operating activities section
B) investing activities section
C) financing activities section
D) does not represent a cash flow

Question 51

Cash flows provided (used) by operating activities, prepared using the indirect method, would include

A) receipts from the sale of investments.
B) net income.
C) payments for dividends.
D) receipts from the issue of preferred shares.

Question 52

If accounts receivable have increased during a 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 53

Use the following information for questions.
Ingles Corp., a private company reporting under ASPE, engaged in the following transactions. For each transaction, indicate where, if at all, it would be classified on the statement of cash flows.
Issue of common shares in exchange for equipment:

A) operating activities section
B) investing activities section
C) financing activities section
D) does not represent a cash flow

Question 54

Galaxy Corporation reported net income of $75,000 for the year. During the year, accounts receivable increased by $6,000, accounts payable decreased by $3,000 and depreciation expense of $5,000 was recorded. Using the indirect method, cash provided by operating activities for the year is

A) $80,000.
B) $78,000.
C) $70,000.
D) $71,000.

Question 55

Use the following information for questions.
Ingles Corp., a private company reporting under ASPE, engaged in the following transactions. For each transaction, indicate where, if at all, it would be classified on the statement of cash flows.
Repurchase of Ingles' own common shares on the open market:

A) operating activities section
B) investing activities section
C) financing activities section
D) does not represent a cash flow

Question 56

In preparing the operating activities section of the statement of cash flows, most companies in Canada prefer to

A) use the direct method.
B) use the indirect method.
C) present both the indirect and direct methods in their financial reports.
D) prepare the operating activities section on the accrual basis.

Question 57

In calculating cash flows provided (used) by operating activities using the indirect method, a loss on the sale of equipment is

A) added to net income.
B) deducted from net income.
C) ignored because it does not affect cash.
D) not reported on a statement of cash flows.

Question 58

Which of the following statements are false when using the indirect method?

A) A loss on the sale of equipment is added to net income in calculating cash provided by operating activities.
B) An increase in accounts receivable during a period is deducted from net income in calculating cash provided by operating activities.
C) An increase in accounts payable during a period is added to net income in calculating cash provided by operating activities.
D) A decrease in accumulated depreciation during a period is added to net income in calculating cash provided by operating activities.

Question 59

Ingles Corp., a private company reporting under ASPE, engaged in the following transactions. For each transaction, indicate where, if at all, it would be classified on the statement of cash flows. Assume the indirect method is used. Ingles Corp. experienced a payment of interest on a long-term bank loan in the

A) operating activities section.
B) investing activities section.
C) financing activities section.
D) does not represent a cash flow.

Question 60

Use the following information for questions.
Ingles Corp., a private company reporting under ASPE, engaged in the following transactions. For each transaction, indicate where, if at all, it would be classified on the statement of cash flows.
Retirement of non-current debt (incurred for lending purposes) with cash:

A) operating activities section
B) investing activities section
C) financing activities section
D) does not represent a cash flow

Question 61

Using the indirect method, which of the following would not be an adjustment to net income?

A) depreciation expense
B) an increase in prepaid insurance
C) an increase in inventories
D) an increase in Land

Question 62

Net income reported for the current year was $200,000. Depreciation expense was $35,000. During the year, Accounts Receivable and Inventory increased $18,000 and $26,000, respectively. Prepaid Expenses and Accounts Payable decreased $4,000 and $9,000, respectively. There was also a loss on the sale of equipment of $6,000. Using the indirect method, how much cash was provided by operating activities?

A) $182,000
B) $192,000
C) $210,000
D) $244,000

Question 63

Using the indirect method, which of the following would be subtracted from net income?

A) depreciation expense
B) increase in accounts receivable
C) increase in accounts payable
D) decrease in prepaid expenses

Question 64

In calculating net cash provided by operating activities using the indirect method, an increase in prepaid expenses during a period is

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

Question 65

Using the indirect method, which of the following would be added to net income?

A) increase in accounts receivable
B) increase in prepaid expenses
C) depreciation expense
D) decrease in accounts payable

Question 66

Starting with net income and adjusting it for items that affected reported net income but not cash is called the

A) direct method.
B) indirect method.
C) working capital method.
D) cost-benefit method.

Question 67

Net income reported for the current year was $100,000. Depreciation expense was $25,000. Accounts Receivable and Inventories decreased $5,000 and $15,000, respectively. Prepaid Expenses and Accounts Payable increased, respectively, by $500 and $4,000. Using the indirect method, how much cash was provided by operating activities?

A) $101,500
B) $123,500
C) $140,500
D) $148,500

Question 68

In calculating cash flows provided (used) by operating activities using the indirect method, a loss on the sale of equipment will appear as a(n)

A) subtraction from net income.
B) addition to net income.
C) addition to cash flow from investing activities.
D) subtraction from cash flow from investing activities.

Question 69

Using the indirect method, which of the following adjustments to convert net income to net cash provided by operating activities is correct?

Question 70

Using the indirect method, which of the following adjustments to convert net income to net cash provided by operating activities is incorrect?

Question 71

Net income reported for the current year was $222,000. Depreciation expense was $35,000. Accounts Receivable and Inventories increased $4,000 and $7,000, respectively. Prepaid Expenses and Accounts Payable decreased $3,000 and $9,000, respectively. Using the indirect method, how much cash was provided by operating activities?

A) $170,000
B) $180,000
C) $240,000
D) $258,000

Question 72

Using the indirect method, if equipment is sold at a gain, the

A) sale proceeds received are deducted in the operating activities section.
B) sale proceeds received are added in the operating activities section.
C) amount of the gain is added in the operating activities section.
D) amount of the gain is deducted in the operating activities section.

Question 73

Applegate Ltd. reported a loss of $10,000 for the year. During the year, accounts receivable decreased $3,000, inventory increased $5,000, accounts payable increased by $11,000, and depreciation expense of $6,000 was recorded. Using the indirect method, operating activities

A) used net cash of $23,000.
B) used net cash of $17,000.
C) provided net cash of $5,000.
D) provided net cash of $15,000.

Question 74

Using the indirect method, which of the following adjustments to convert net income to net cash provided by operating activities is not added to net income?

A) gain on Sale of Equipment
B) Depreciation Expense
C) loss on Sale of Equipment
D) amortization of Bond Discount

Question 75

Using the indirect method, depreciation expense for the period

A) is deducted from net income.
B) is ignored.
C) causes cash to decrease.
D) is added to net income.