Deck 7: Presentation of Cash Flows

Question 1

Cash flows from operating activities is a negative amount. From this fact you know that:

A) the company's cash balance decreased during this period.
B) the company's cash flows from operations are less than its net profit.
C) the company's operations used more cash resources than they generated.
D) the company's accounts receivable balance is increasing quickly.

Answer 1

C

Question 2

The cash flow statement is designed to report:

A) how the previous period's statement of comprehensive income relates to the current period's statement.
B) only the sources and uses of cash during the current period.
C) the cash from operating, financing and investing activities of the firm during the current period.
D) the effects of the current period's statement of comprehensive income on the current period's balance sheet.

Answer 2

C

Question 3

A cashier is employed at the Square Eyes Movie Theatre Complex in downtown Flatscreen. The cashier is responsible for the collection of cash in return for issuing a movie ticket, including acceptance of payment for tickets on credit card and by discount vouchers. While credit sales and full cash payments are recorded on the computer at the time of sale, the vouchers received need to be cross-checked with the discounted tickets recorded on the computer at the time of sale. This procedure is carried out at the end of every week by an employee of the company, but not by the cashier, who has argued that it would be more efficient for the cross-check to be done at the end of every day by the cashier who has issued the discounted tickets, as that person would be most familiar with what tickets had been sold. Based on this information, which of the following statements is correct regarding the current procedure?

A) It is an inefficient use of time and staff resources.
B) It shows a lack of trust of the cashier.
C) It effectively separates individual responsibilities.
D) It prevents the cashier from stealing cash.

Answer 3

C

Question 4

Which of the following bases of accounting measurement recognises revenues when resources are created as part of an organisation's operating activities?

A) Cash
B) Financing
C) Investing
D) Accrual

Question 5

The cash flow statement is designed to fulfil all of the following purposes except:

A) to predict cash flows.
B) to evaluate employee performance.
C) to relate net profit to changes in cash.
D) to evaluate firm performance.

Question 6

Which of the following best describes the purpose of the cash flow statement?

A) To identify the cash balance at the end of the year
B) To report the inflows and outflows of cash
C) To balance current period revenues with those of the previous period
D) To report assets, liabilities and owners' equity as of a specific date

Question 7

Dividends received are most commonly classified as an operating activity, but dividends paid are normally classified as a financing activity on the cash flow statement.

Question 8

The most common classification for interest paid and received on a cash flow statement is under operating activities.

Question 9

Depreciation is an arbitrary allocation of the cost of an asset and as such it is not a cash item and is not reported on the cash flow statement, but it still needs to be deducted from operating profit in the calculation of net cash flows from operating activities.

Question 10

The methods an organisation uses to obtain financial resources from financial markets and the ways in which it manages those resources are:

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

Question 11

Which of the following is a fundamental purpose of the cash flow statement? To report the To report the
Inflows of cash outflows of cash

A) Yes Yes
B) Yes No
C) No Yes
D) No No

Question 12

When calculating the net cash flows from operating activities, an increase in accounts receivables needs to be subtracted from the profit figure.

Question 13

Investing all cash to maximise returns to the business is a more effective management of cash than ensuring cash is available to pay debts as they fall due.

Question 14

On a cash flow statement, the payment of taxation is considered an operating activity and the payment of dividends is normally classified as a financing activity.

Question 15

An increase in accounts receivables and an increase in inventory will need to be subtracted from operating profit in the calculation of net cash flows from operating activities.

Question 16

Which of the following would be considered the least effective management of cash?

A) Protect cash and ensure cash is available to pay debts as they fall due.
B) Protect cash and enable accurate reporting of cash.
C) Enable accurate reporting of cash
D) Ensure cash is available to pay debts as they fall due and allow idle cash to be invested.

Question 17

Instead of paying cash for the purchase of land and buildings, an entity issued shares in exchange. This transaction would be correctly reflected as an investing activity on the cash flow statement.

Question 18

Activities that obtain funds from investors and liabilities to start and sustain a business are called:

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

Question 19

Which of the following is not one of the items reported on a cash flow statement?

A) Reporting activities
B) Operating activities
C) Financing activities
D) Investing activities

Question 20

Under accrual-basis accounting, sales made on credit are usually reported as:

A) liabilities.
B) revenue.
C) cash from operating activities.
D) a contra account to sales revenue.

Question 21

Which of the following statements is correct concerning investing activities?

A) They involve obtaining and managing financial resources.
B) They use financial resources to acquire items to sell in the normal course of activities.
C) They use financial resources to acquire the assets a company needs to produce and sell its products.
D) They involve buying and selling a company's own shares.

Question 22

Which of the following is subtracted from net profit to arrive at cash from operations?

A) Depreciation
B) An increase in wages payable
C) An increase in prepaid rent
D) A decrease in accounts receivable

Question 23

The following information is given for Ollufsen Co. Ltd for the financial year ending 31 December: From this information and assuming dividends paid are treated in financing, what is the net cash inflow from financing activities for the financial year ending 31 December?

A) $2000
B) $1800
C) $1200
D) $800

Question 24

Use the following information to calculate the cash from operating activities:

A) $2797
B) $4077
C) $4243
D) $5077

Question 25

Sales on credit for the year totalled $125 000. The following information is also available: Bad debts written off during the year: $10 000
How much cash was collected from customers during the year?

A) $70 000
B) $130 000
C) $110 000
D) $155 000

Question 26

At the end of April, the Blue Water Company sent out statements to customers for April charges totalling $100 000. During April, the company received $85 000 from customers for water bills incurred during March. Blue's employees earned $35 000 during April, but by month end only $30 000 had been paid. Determine the net cash flow from operations and net profit from operations for the month of April.
Net profit Net cash flow

A) $65 000 $85 000
B) $70 000 $55 000
C) $65 000 $55 000
D) $50 000 $70 000

Question 27

The following information is extracted from a set of financial statements: The net cash flow from operating activities based only on the above information is:

A) $11 000
B) $20 000
C) $29 000
D) $33 000

Question 28

In the financial year ending 31 December, Price Pty Ltd collected $80 000 from customers, paid wages to employees of $10 000, and received dividends of $12 000. What was the net cash flow from operating activities for the financial year ending 31 December?

A) $58 000
B) $70 000
C) $80 000
D) -$12 000

Question 29

Which of the following is a cash flow from an investing activity?

A) Payment for advertising
B) Cash receipt from a customer for a previous credit sale
C) Cash received from sale of equipment
D) Payment of dividends

Question 30

Which of the following has a different effect on net profit than it does on cash flow?

A) Payment for wages
B) Cash sale to customer
C) Amortisation of a patent
D) Payment for rent

Question 31

The receipt of dividends on an investment will be reported in a cash flow statement as:

A) a cash outflow for financing activities.
B) a cash inflow for investing activities.
C) a cash inflow from operating activities.
D) either B or
C)

Question 32

The Hambone Soup Store reported the following information for its most recent fiscal year: Accounts payable increased by $39 000; inventory decreased by $27 000; net profit was $66 000; and depreciation expense was $15 000.
On the cash flow statement, net cash flow from operating activities should be reported at:

A) $15 000.
B) $69 000.
C) $117 000.
D) $147 000.

Question 33

Joyce Ltd had cash sales of $80 000 in January. Accounts Receivable decreased by $10 000 during January and there were no credit sales and no bad debts. How much cash was collected from customers in January?

A) $60 000
B) $70 000
C) $80 000
D) $90 000

Question 34

Which of the following events is properly classified as an investing activity?

A) Purchase of equipment
B) Borrowing money from creditors
C) Selling goods to customers
D) Running the factory

Question 35

You are considering starting a new business. In general, which of the following types of activities would have to occur before operating activities could begin? Investing activities Financing activities

A) Yes Yes
B) Yes No
C) No Yes
D) No No

Question 36

Paid $6000 cash for utilities What was the cash flow from operating activities?

A) $51 000
B) $41 000
C) $47 000
D) $54 000

Question 37

Which of the following would be considered a cash inflow or outflow from investing activities?

A) Purchase of shares in another company
B) Payment of an overdue creditors account
C) Interim dividend declared and paid
D) Loan interest paid

Question 38

Which financial statements cover a period of time?

A) Statement of comprehensive income and balance sheet.
B) Balance sheet and cash flow statement.
C) Statement of comprehensive income and cash flow statement.
D) Cash flow statement and statement of assets, liabilities and owners' equity.

Question 39

The following information is given for Ollufsen Co. Ltd for the financial year ending 31 December: From this information, what is the net cash inflow from operating activities for the financial year ending 31 December?

A) $29 800
B) $35 800
C) $43 000
D) $69 000

Question 40

Car Locks Company reported annual sales of $640 000. The following information is also available: Bad debts written off during the year: $40 000
On a cash flow statement (direct format), what amount would be reported for 'Cash collected from customers' for the year?

A) $510 000
B) $630 000
C) $610 000
D) $720 000

Question 41

Activities that obtain funds from investors and lenders to start and sustain a business are called:

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

Question 42

The following information about Thompson Corp. applies to the entity for the year ended 30 June.
(a) What was Thompson Corp.'s cash flow from operating activities?
(b) What was Thompson Corp.'s cash flow from investing activities?
(c) What was Thompson Corp's cash flow from financing?

Question 43

Which duties associated with handling and accounting for cash should ideally be separated in order to promote the internal control of the asset?

Question 44

Big Deals, Inc., had the following cash flows during March: What was the cash flow from investing activities?

A) $5000 inflow
B) $8000 outflow
C) $12 000 outflow
D) $6000 outflow

Question 45

Cash received from the sale of long-term assets is reported as:

A) operating activities.
B) financing activities.
C) an adjustment to shareholders' equity.
D) investing activities.

Question 46

Payments to employees would be classified on the cash flow statement as a(n):

A) operating activity.
B) investing activity.
C) financing activity.
D) operating expense.

Question 47

Which of the following is an investing activity?

A) Purchase of a patent
B) Payment of cash dividends
C) Payment of interest
D) Purchase of inventory

Question 48

In the year ending 31 December, North Lakes Co. Ltd purchased machinery for $20 000, loaned $8000 to another company, borrowed $4000, and sold investments for $10 000. What was the net cash flow from investing activities for the year ending 31 December?

A) ($20 000)
B) ($28 000)
C) ($24 000)
D) ($18 000)

Question 49

Briefly describe what information is contained in the Statement of Cash Flows.

Question 50

Activities that involve the production or delivery of goods for sale or the providing of services for sale should be listed under which classification on a cash flow statement?

A) Operating activities
B) Investing activities
C) Financing activities
D) Refunding activities

Question 51

The following financial statements have been prepared for Clearview for the month of June. The financial statements have been prepared using accrual accounting, except to the extent evident in the information provided. The business is a sole proprietorship. Trading commenced on 1 June. The business offers a window cleaning service on both cash and credit terms. Forty per cent of the work completed in June was on credit. Customers are given 30 days to pay. The proprietor invested cash of $2500 and a vehicle valued at $27 000 at 1 June.
Clearview
Statement of comprehensive income
For the month of June
Clearview
Balance sheet
As at 30 June
Discuss the performance of the business for the period as revealed by the foregoing financial statements, paying particular attention to the entity's profitability and cash position.

Question 52

Which item would be included in cash flows from financing activities?

A) Payments to suppliers
B) Receipts from customers
C) Repayment of loan
D) Purchase of a non-current asset

Question 53

Pele runs a soccer coaching school. During the year ended 30 June, coaching fees of $54 800 were received in cash. Fees due but not received or recorded at 30 June totalled $1000. Fees received in advance at 30 June totalled $800. Cash expenses paid during the year ended 30 June totalled
$32 000. Accrued expenses due but not paid at 30 June totalled $2850.

Question 54

Which item would not be included in cash flows from operating activities?

A) Salaries paid
B) Cash proceeds from disposal of a non-current asset
C) Cash sales
D) Receipts from customers

Question 55

How is the statement of cash flows structured?

Question 56

What type of activity is the paying off of a bank loan?

A) Operating
B) Financing
C) Investing
D) Either A or B

Question 57

Which of the following would not normally be classified as an operating activity on a cash flow statement?

A) Dividends received
B) Interest received
C) Dividends paid
D) Interest paid

Question 58

What is accrual accounting?

Question 59

Why is the statement of cash flows important?