Deck 16: The Cash Flow Statement

Question 1

Which of the following describes the financing activities as shown in the cash flow statement?

A)Shows the beginning and ending balance of cash
B)Includes increases and decreases in non- current assets
C)Includes transactions that primarily impact current assets and current liabilities
D)Includes transactions affecting the non- current liabilities and equity of the business

Answer 1

D

Question 2

For purposes of the cash flow statement, cash includes cash on hand, cash in the bank and cash equivalents.

Answer 2

True

Question 3

The cash flow statement explains the difference between profit and the change in cash balance.

Answer 3

True

Question 4

Investing activities include activities that affect the non- current asset section of the balance sheet.

Question 5

The financing section of the cash flow statement reflects transactions in the equity accounts only.

Question 6

The investing activities section of the cash flow statement reflects the cash flows that increase or decrease non- current assets.

Question 7

The financing activities section of the cash flow statement reflects the cash flows that affect current assets and liabilities.

Question 8

Investors and management use the cash flow statement to evaluate a firm's profitability.

Question 9

Which of the following is NOT a true statement about the cash flow statement?

A)It shows where cash came from and how it was spent.
B)It shows how the profits or losses of the company were generated.
C)It reports why cash increased or decreased.
D)It covers a specific span of time, the same as the income statement.

Question 10

Operating activities include activities that affect non- current liabilities and owners' equity.

Question 11

Interest expense incurred on a bill payable would be included in the financing section of the cash flow statement.

Question 12

Financing activities include activities that affect current assets and liabilities on the balance sheet.

Question 13

Qtopia Company uses the direct method to prepare its cash flow statement. It has reported sales revenues of $100 000 on its income statement for the year 2014. If the balance in accounts receivable has gone up by $4 000 during the year, then $4 000 will have to be added to $100 000 to calculate collections from customers.

Question 14

The term cash as used on the cash flow statement includes all of the following EXCEPT:

A)cash equivalents.
B)cash due from customers within 30 days.
C)cash on hand.
D)cash in bank.

Question 15

Cash equivalents are assets that can be converted to cash within one year.

Question 16

The financing section of the cash flow statement reflects transactions in the equity accounts and the non- current liability accounts.

Question 17

Which of the following would be considered an operating activity on the cash flow statement?

A)Payment to purchase equipment
B)The sale of inventory
C)Dividends paid to shareholders
D)The receipt of cash from sale of equipment

Question 18

Which of the following describes the investing activities as shown in the cash flow statement?

A)Shows the beginning and ending balance of cash
B)Includes transactions that primarily impact current assets and current liabilities
C)Includes transactions affecting the capitalisation of the business
D)Includes increases and decreases in non- current assets

Question 19

The financing activities section of the cash flow statement includes paying dividends and paying off loans.

Question 20

Which of the following describes the operating activities as shown in the cash flow statement?

A)Includes transactions affecting the capitalisation of the business
B)Includes increases and decreases in non- current assets
C)Shows the beginning and ending balance of cash
D)Includes transactions that primarily impact current assets and current liabilities

Question 21

Arturo Sales purchased some equipment for $12 000 by issuing a 6- month bill payable. How would this transaction be shown on the cash flow statement?

A)In the operating activities section
B)In the investing activities section
C)In the non- cash financing and investing activities section
D)In the financing activities section

Question 22

In creating a cash flow statement using the indirect method, a gain on the sale of non- current assets must be shown as an addition to Profit in the operating activities section.

Question 23

Qtopia Company uses the direct method to prepare its cash flow statement. It has reported Cost of sales of $70 000 on its income statement for the year 2014. If the balance in the inventory account has gone up by $2 000 during the year, then $2 000 will have to be added to $70 000 as part of the process to calculate payments to suppliers for inventory purchases.

Question 24

Companies sometimes obtain financing other than cash. Although such transactions do not directly involve cash, they still must be reported in the financing section of the cash flow statement.

Question 25

In creating a cash flow statement using the indirect method, depreciation expense is added back as an adjustment to profit under operating activities.

Question 26

Sonesta Company owed one of its creditors $250 000, but did not have enough cash to repay the debt. Following lengthy negotiations, the parties agreed that Sonesta would issue 100 000 ordinary shares to settle the debt. How would this transaction be shown on the cash flow statement?

A)In the financing activities section
B)In the investing activities section
C)In the operating activities section
D)In the non- cash investing and financing activities section

Question 27

Which of the following transactions would be shown in the non- cash investing and financing activities section of the cash flow statement?

A)Purchased land for a $20 000 deposit and a mortgage note for $180 000
B)Sold equipment with book value of $4 000 in exchange for $1 000 cash and a $3 000 note
C)Issued 10 000 shares at $5 per share
D)Settled a long- term bill payable by issuing ordinary shares

Question 28

Which of the following sections from the cash flow statement would include the acquisition of a building by issuing ordinary shares?

A)The investing section
B)The non- cash investing and financing section
C)The financing section
D)The operating section

Question 29

Which of the following sections from the cash flow statement would include the purchase of a building totally financed by a mortgage?

A)The financing section
B)The operating section
C)The non- cash investing and financing section
D)The investing section

Question 30

In creating a cash flow statement using the indirect method, we consider that an increase in current assets causes a decrease in cash.

Question 31

In creating a cash flow statement using the indirect method, we consider that a decrease in current liabilities causes an increase in cash.

Question 32

Partisan Services purchased 10 delivery vehicles by issuing a 10- year instalment bill payable for
$320 000. This transaction would be shown in the investment section of the cash flow statement.

Question 33

Transnational Company just started in business and was looking for additional capital in order to purchase a property to build their headquarters. They found an investor who was willing to sell them land worth $500 000 in exchange for shares in the company. How would this transaction be shown on the cash flow statement?

A)In the non- cash investing and financing activities section
B)In the financing activities section
C)In the investing activities section
D)In the operating activities section

Question 34

Companies sometimes make investments that do NOT require cash. Such transactions are called non- cash investing activities and appear in a separate section of the cash flow statement.

Question 35

Which of the following transactions would be shown in the non- cash investing and financing activities section of the cash flow statement?

A)Purchased a building in exchange for 10 000 ordinary shares
B)Issued 10 000 shares at $5 per share
C)Sold equipment with book value of $4 000 in exchange for $1 000 cash and a $3 000 note
D)Borrowed $22 000 cash on a bill payable

Question 36

Qtopia Company uses the direct method to prepare its cash flow statement. It has reported Cost of sales of $70 000 on its income statement for the year 2014. If the balance in accounts payable (for inventory suppliers only)has gone down by $5 000 during the year, then $5 000 will have to be added to $70 000 as part of the process to calculate payments to suppliers for inventory purchases.

Question 37

Partisan Services purchased 10 delivery vehicles by issuing a 10- year instalment bill payable for $320 000. How would this transaction be shown on the cash flow statement?

A)In the operating activities section
B)In the financing activities section
C)In the non- cash investing and financing activities section
D)In the investing activities section

Question 38

Qtopia Company uses the direct method to prepare its cash flow statement. It has reported operating expenses of $21 000 on its income statement for the year 2014. If the balance in accrued liabilities has gone up by $1 000 during the year, then $1 000 will have to be added to $21 000 as part of the process to calculate payments to suppliers for operating expenses.

Question 39

Which of the following transactions would be shown in the non- cash investing and financing activities section of the cash flow statement?

A)Issued 10 000 shares at $5 per share
B)Purchased land by signing an 8- year bill for $200 000
C)Retired company bonds before the maturity date by paying a negotiated amount
D)Sold equipment with book value of $4 000 in exchange for $1 000 cash and a $3 000 bill

Question 40

Which of the following sections from the cash flow statement would include the payment of a bill payable by issuing ordinary shares?

A)The payment of a bill payable by issuing ordinary shares would be included in the operating section.
B)The payment of a bill payable by issuing ordinary shares would be included in the financing section.
C)The payment of a bill payable by issuing ordinary shares would be included in the non- cash investing and financing section.
D)The payment of a bill payable by issuing ordinary shares would be included in the investing section.

Question 41

Free cash flow is the same thing as cash flow from operating activities.

Question 42

A company purchases land using its ordinary shares. Where would this transaction appear when the company prepares the cash flow statement?

A)The purchase of land would be presented in the financing activities section as a cash payment.
B)The purchase of land would be presented in the operating activities section as a reduction in profit.
C)The purchase of land would be presented in the investing activities section as a cash payment under both methods.
D)The purchase of land would be presented in the non- cash investing and financing activities section.

Question 43

If an investor wants to know how much cash a company can free up for new opportunities, such as expanding into a new sales region, they would most likely wish to calculate the company's free cash flow figure.

Question 44

Free cash flow is equal to the cash flow from operating activities less cash payments:

A)for planned investments and cash dividends.
B)for inventory purchases.
C)for planned salary raises.
D)to retire bonds.

Question 45

If an investor wants to know how much cash a company can free up for new opportunities, such as expanding into a new sales region, they would most likely look at:

A)acid ratio.
B)cash flow from investing activities.
C)free cash flow.
D)earnings per share.

Question 46

Free cash flow is the measure of cash available from operations after paying for planned investment acquisitions and planned dividend disbursements.

Question 47

Where are non- cash investing and financing activities reported?

A)Non- cash investing and financing activities are reported in the investing activities section of the cash flow statement.
B)Non- cash investing and financing activities are reported in the financing activities section of the cash flow statement.
C)Non- cash investing and financing activities are not reported at all in connection with the cash flow statement.
D)Non- cash investing and financing activities are reported in a separate schedule accompanying the cash flow statement.