Deck 13: Statement of Cash Flows

Question 1

A major disadvantage of the indirect method of reporting cash flows from operating activities is that the difference between the net amount of cash flows from operating activities and net income is emphasized.

Answer 1

False

Question 2

Cash flows from investing activities, as part of the statement of cash flows, would include any payments for the purchase of treasury stock.

Answer 2

False

Question 3

The statement of cash flows shows the effects on cash of a company's operating, investing, and financing activities.

Answer 3

True

Question 4

There are two alternatives to reporting cash flows from operating activities in the statement of cash flows: (1) the direct method and (2) the indirect method.

Question 5

The statement of cash flows is an optional financial statement.

Question 6

The statement of cash flows reports a firm's major sources of cash receipts and major uses of cash for a period of time.

Question 7

The main disadvantage of the direct method of reporting cash flows from operating activities is that the necessary data are often costly to accumulate.

Question 8

Cash flows from investing activities, as part of the statement of cash flows, include payments for the acquisition of fixed assets.

Question 9

Cash outflows from financing activities include the payment of cash dividends, the acquisition of treasury stock, and the repayment of amounts borrowed.

Question 10

The statement of cash flows is not one of the basic financial statements.

Question 11

If a business issued bonds payable in exchange for land, the transaction would be reported in a separate schedule on the statement of cash flows.

Question 12

Cash flows from investing activities, as part of the statement of cash flows, would include any receipts from the issuance of bonds payable.

Question 13

Under the direct method of reporting cash flows from operations, the primary source of cash is cash received from customers.

Question 14

Cash, as the term is used for the statement of cash flows, could indicate either cash or cash equivalents.

Question 15

Cash flows from financing activities, as part of the statement of cash flows, would include any payments for dividends.

Question 16

Cash flows from operating activities, as part of the statement of cash flows, include cash flow from transactions that enter into the determination of net income.

Question 17

Cash flows from investing activities, as part of the statement of cash flows, would include any receipts from the sale of land.

Question 18

To arrive at cash flows from operations, it is necessary to convert the income statement from an accrual basis to the cash basis of accounting.

Question 19

The acquisition of land in exchange for common stock is an example of noncash investing and financing activity.

Question 20

The direct method of preparing the operating activities section of the statement of cash flows reports major classes of cash receipts and cash payments related to the day-to-day operations of the business.

Question 21

Net income for the year was $29,500. Accounts receivable increased $2,500, and accounts payable increased $5,400. There were no other changes in noncash current assets and liabilities. Under the indirect method, the cash flow from operations is $32,400.

Question 22

Net income was $51,000 for the year. The accumulated depreciation balance increased by $14,000 over the year. There were no sales of fixed assets or changes in noncash current assets or liabilities. Under the indirect method, the cash flow from operations is $37,000.

Question 23

In preparing the statement of cash flows, the correct order of reporting cash activities is financing, operating, and investing.

Question 24

The declaration and issuance of a stock dividend would be reported on the statement of cash flows.

Question 25

Repayments of bonds would be shown as a cash outflow in the investing section of the statement of cash flows.

Question 26

In preparing the cash flows from operating activities section of the statement of cash flows by the indirect method, the amortization of bond discount for the period is deducted from the net income for the period.

Question 27

Rarely will the cash flows from operating activities, as reported on the statement of cash flows, be the same as the net income reported on the income statement.

Question 28

If cash dividends of $135,000 were paid during the year and the company sold 1,000 shares of common stock at $30 per share, the statement of cash flows would report net cash flow from financing activities as $165,000.

Question 29

Under the indirect method, expenses that do not affect cash are added to net income in the operating activities section of the statement of cash flows.

Question 30

Cash paid to acquire treasury stock should be shown on the statement of cash flows under investing activities.

Question 31

If 800 shares of $40 par common stock are sold for $43,000, the $43,000 would be reported in the cash flows from financing activities section of the statement of cash flows.

Question 32

If land costing $145,000 was sold for $205,000, the $60,000 gain on the sale would be added to net income in the operating activities section of the statement of cash flows (prepared by the indirect method).

Question 33

Using the indirect method, if land costing $85,000 was sold for $145,000, the amount reported in the financing activities section of the statement of cash flows would be $85,000.

Question 34

In preparing the cash flows from operating activities section of the statement of cash flows by the indirect method, the net decrease in inventories from the beginning to the end of the period is added to net income for the period.

Question 35

A cash flow per share amount should be reported on the statement of cash flows.

Question 36

If $475,000 of bonds payable are sold at 101, $475,000 would be reported in the cash flows from financing activities section of the statement of cash flows.

Question 37

Cash inflows and outflows are not netted in the investing or financing sections of the statement of cash flows but are separately disclosed to give the reader full information.

Question 38

A building with a cost of $153,000 and accumulated depreciation of $42,000 was sold for an $11,000 gain. When using the indirect method, the cash generated from this investing activity was $121,000.

Question 39

In determining the cash flows from operating activities for the statement of cash flows by the indirect method, the depreciation expense for the period is added to the net income for the period.

Question 40

Purchasing equipment by issuing a six-month note should be shown on the statement of cash flows under the investing activities section.

Question 41

Preferred stock issued in exchange for land would be reported in the statement of cash flows in

A)the cash flows from financing activities section
B)the cash flows from investing activities section
C)a separate schedule
D)the cash flows from operating activities section

Question 42

Free cash flow is the measure of operating cash flow available for corporate purposes after providing sufficient fixed asset additions to maintain current operations.

Question 43

To determine cash payments for operating expenses for the statement of cash flows using the direct method, a decrease in prepaid expenses is added to operating expenses other than depreciation.

Question 44

Cash paid for preferred stock dividends should be shown on the statement of cash flows under

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

Question 45

Cash paid to purchase long-term investments would be reported in the statement of cash flows in

A)the cash flows from operating activities section
B)the cash flows from financing activities section
C)the cash flows from investing activities section
D)a separate schedule

Question 46

On the statement of cash flows, the cash flows from operating activities section would include

A)receipts from the issuance of common stock
B)receipts from the sale of investments
C)payments for the acquisition of investments
D)cash receipts from sales of merchandise

Question 47

To determine cash payments for operating expenses for the statement of cash flows using the direct method, a decrease in accrued expenses is added to operating expenses other than depreciation.

Question 48

When using the spreadsheet (work sheet) method to analyzing noncash accounts, no order of analysis is required, but it is more efficient to start with Retained Earnings and proceed upward in the account listing.

Question 49

Which of the following does not represent an outflow of cash and therefore would not be reported on the statement of cash flows as a use of cash?

A)purchase of noncurrent assets
B)purchase of treasury stock
C)discarding an asset that had been fully depreciated
D)payment of cash dividends

Question 50

Which of the following is not one of the four basic financial statements?

A)balance sheet
B)statement of cash flows
C)statement of changes in financial position
D)income statement

Question 51

A ten-year bond was issued at par for $250,000 cash. This transaction should be shown on a statement of cash flows under

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

Question 52

There is no difference in the investing and financing sections of the statement of cash flows using the indirect and direct method.

Question 53

To determine cash payments for merchandise for the statement of cash flows using the direct method, a decrease in accounts payable is added to the cost of goods sold. Assume all accounts payable are owed to merchandise suppliers.

Question 54

Which of the following represents an inflow of cash and therefore would be reported on the statement of cash flows?

A)retirement of bond payable
B)acquisition of treasury stock
C)declaration of stock dividends
D)issuance of long-term debt

Question 55

Which of the following can be found on the statement of cash flows?

A)cash flows from operating activities
B)total assets
C)total changes in stockholders' equity
D)changes in retained earnings

Question 56

Under the direct method of preparing a statement of cash flows, the gain on the sale of land is not adjusted or reported as part of cash flows from operating activities.

Question 57

Which of the following would not be found in a schedule of noncash investing and financing activities, reported at the end of a statement of cash flows?

A)equipment acquired in exchange for a note payable
B)bonds payable exchanged for common stock
C)purchase of treasury stock
D)common stock issued to acquire fixed assets

Question 58

Sales reported on the income statement were $372,000. The accounts receivable balance declined $4,500 over the year. The amount of cash received from customers was $367,500.

Question 59

To determine cash payments for income taxes for the statement of cash flows using the direct method, an increase in income taxes payable is added to the income tax expense.

Question 60

The manner of reporting cash flows from investing and financing activities will be different under the direct method as compared to the indirect method.

Question 61

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 62

Which of the following would not be on the statement of cash flows?

A)cash flows from investing activities
B)cash flows from financing activities
C)cash flows from operating activities
D)cash flows from contingent activities

Question 63

The net income reported on the income statement for the current year was $275,000. Depreciation recorded on fixed assets and amortization of patents for the year were $40,000 and $9,000, respectively. Balances of current asset and current liability accounts at the end and at the beginning of the year are as follows: What is the amount of cash flows from operating activities reported on the statement of cash flows prepared by the indirect method?

A)$198,000
B)$324,000
C)$352,000
D)$296,000

Question 64

Which of the following should be added to net income in calculating net cash flow from operating activities using the indirect method?

A)a gain on the sale of land
B)a decrease in accounts payable
C)an increase in accrued expenses
D)dividends paid on common stock

Question 65

Which of the following would not be classified as an operating activity?

A)payment of accrued interest expense
B)payment of accrued income taxes
C)payment of dividends
D)payment of accrued selling expenses

Question 66

Which of the following increases cash?

A)depreciation expense
B)acquisition of treasury stock
C)borrowing money by issuing a six-month note
D)the declaration of a cash dividend

Question 67

Cash flow per share is

A)required to be reported on the balance sheet
B)required to be reported on the income statement
C)required to be reported on the statement of cash flows
D)not required to be reported on any statement

Question 68

Which of the following should be shown on a statement of cash flows under the financing activities section?

A)the purchase of a long-term investment in the common stock of another company
B)the payment of cash to retire a long-term note
C)the proceeds from the sale of a building
D)the issuance of a long-term note to acquire land

Question 69

Which of the following should be added to net income in calculating net cash flow from operating activities using the indirect method?

A)an increase in inventory
B)a decrease in accounts payable
C)preferred dividends declared and paid
D)a decrease in accounts receivable

Question 70

The last item on the statement of cash flows prior to the schedule of noncash investing and financing activities reports

A)the change in cash
B)cash at the end of the period
C)net cash flow from investing activities
D)net cash flow from financing activities

Question 71

The statement of cash flows is not useful for

A)planning future investing and financing activities
B)determining a company's ability to pay its debts
C)determining a company's ability to pay dividends
D)calculating the net worth of a company

Question 72

Accounts receivable from sales transactions were $51,000 at the beginning of the year and $64,000 at the end of the year. Net income reported on the income statement for the year was $105,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows prepared by the indirect method is

A)$105,000
B)$118,000
C)$92,000
D)$169,000

Question 73

A company purchases equipment for $32,000 cash. This transaction should be shown on the statement of cash flows under

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

Question 74

On the statement of cash flows prepared by the indirect method, a $50,000 gain on the sale of investments would be

A)deducted from net income in converting the net income reported on the income statement to cash flows from operating activities
B)added to net income in converting the net income reported on the income statement to cash flows from operating activities
C)added to dividends declared in converting the dividends declared to the cash flows from financing activities related to dividends
D)deducted from dividends declared in converting the dividends declared to the cash flows from financing activities related to dividends

Question 75

Which of the following is a noncash investing and financing activity?

A)payment of a cash dividend
B)payment of a six-month note payable
C)purchase of inventory on account
D)issuance of common stock to acquire land

Question 76

Depreciation on factory equipment would be reported in the statement of cash flows prepared by the indirect method in

A)the cash flows from financing activities section
B)the cash flows from investing activities section
C)a separate schedule
D)the cash flows from operating activities section

Question 77

Cash receipts received from the issuance of a mortgage notes payable would be classified as a(n)

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

Question 78

Which of the following should be deducted from net income in calculating net cash flow from operating activities using the indirect method?

A)depreciation expense
B)gain on sale of land
C)a loss on the sale of equipment
D)dividends declared and paid

Question 79

On the statement of cash flows prepared by the indirect method, the cash flows from operating activities section would include

A)receipts from the sale of investments
B)amortization of premium on bonds payable
C)payments for cash dividends
D)receipts from the issuance of common stock

Question 80

Financing activities include

A)lending money
B)acquiring investments
C)issuing debt
D)acquiring long-lived assets