Deck 12: Statement of Cash Flows

Question 1

The information in a statement of cash flows helps investors and creditors assess the company's ability to pay dividends and meet obligations.

Answer 1

True

Question 2

In preparing a statement of cash flows, increases in the Common Stock and Treasury Stock accounts during a period would be investing activities.

Answer 2

False

Question 3

The statement of cash flows

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

Answer 3

B

Question 4

Cash receipts from interest and dividends are classified as

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

Question 5

In calculating cash flows from 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 6

Land acquired from the issuance of common stock is reported

A)as a financing activity.
B)as an investing activity.
C)as an operating activity.
D)in a separate schedule at the bottom of the statement of cash flows.

Question 7

The information to prepare the statement of cash flows usually comes from each of the following except

A)the comparative balance sheet.
B)the prior year's income statement.
C)additional information.
D)the current income statement.

Question 8

Financial statement readers can determine future investing and financing transactions by
examining a company's statement of cash flows.

Question 9

Cash provided by operating activities fails to take into account that a company must invest in new fixed assets just to maintain its current level of operations.

Question 10

Which one of the following items is not generally used in preparing a statement of cash flows?

A)Adjusted trial balance
B)Comparative balance sheets
C)Current income statement
D)Additional information

Question 11

Each of the following is an example of a significant noncash activity except

A)conversion of bonds into common stock.
B)exchanges of plant assets.
C)issuance of debt to purchase assets.
D)stock dividends.

Question 12

Starting with net income and adjusting it for items that affected reported net income but which did not affect cash when calculating operating cash flows is called the

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

Question 13

The statement of cash flows

A)is prepared instead of an income statement under generally accepted accounting principles.
B)is used to assess an entity's ability to pay dividends and meet obligations.
C)is prepared from comparative income statements.
D)reflects earnings per share figures on a cash basis and on an accrual basis in the body of the statement.

Question 14

The statement of cash flows is prepared from all of the following except

A)the adjusted trial balance.
B)comparative balance sheets.
C)selected transaction data.
D)the current income statement.

Question 15

In preparing a statement of cash flows, the issuance of debt should be reported separately from the retirement of debt.

Question 16

Free cash flow equals cash provided by operations less capital expenditures and cash dividends.

Question 17

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 the cash receipts and cash payments during a period.
D)facilitate banking relationships.

Question 18

If a company has both an inflow and outflow of cash related to property, plant, and equipment, the

A)two cash effects can be netted and presented as one item in the investing activities section.
B)cash inflow and cash outflow should be reported separately in the investing activities section.
C)two cash effects can be netted and presented as one item in the financing activities section.
D)cash inflow and cash outflow should be reported separately in the financing activities section.

Question 19

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 income.
D)ignored because it does not affect expenses.

Question 20

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 balance sheet.
C)a comparative balance sheet.
D)a comparative income statement.

Question 21

The information in a statement of cash flows will not help investors to assess the entity's ability to

A)generate future cash flows.
B)obtain favorable borrowing terms at a bank.
C)pay dividends.
D)pay its obligations when they become due.

Question 22

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

Question 23

Operating expenses + an increase in prepaid expenses - a decrease in accrued expenses payable = cash payments for operating expenses.

Question 24

If a company reports a net 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 25

Of the items listed, the one that appears first 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 26

Using the indirect method, patent amortization expense for the period

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

Question 27

To determine the net cash provided (used) by operating activities, it is necessary to analyze

A)the current year's income statement.
B)a comparative balance sheet.
C)additional information.
D)all of these must be analyzed.

Question 28

In converting net income to net cash provided by operating activities using the indirect method:

A)decreases in accounts receivable and increases in prepaid expenses are added.
B)decreases in inventory and increases in accrued liabilities are added.
C)decreases in accounts payable and decreases in inventory are deducted.
D)increases in accounts receivable and increases in accrued liabilities are deducted.

Question 29

The statement of cash flows classifies cash receipts and payments as operating, nonoperating, financial, and unusual activities.

Question 30

During the year, Income Tax Expense amounted to $30,000 and Income Taxes Payable increased by $4,000; therefore, the cash paid for income taxes was $26,000.

Question 31

In addition to the three basic financial statements, which of the following is also a required financial statement?

A)the Cash Budget
B)the Statement of Cash Flows
C)the Statement of Cash Inflows and Outflows
D)the Cash Reconciliation

Question 32

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

A)Write-off of an uncollectible account
B)Collection of an accounts receivable
C)Sale of treasury stock
D)Exercise of the call option on bonds payable

Question 33

In developing the cash flows from operating activities, most companies in the United States

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 34

Which of the following would not be needed to determine net cash provided by operating activities?

A)Depreciation expense
B)Change in accounts receivable
C)Payment of cash dividends
D)Change in prepaid expenses

Question 35

Selected transactions for the Ecker Company are listed here.

Question 36

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

Question 37

In preparing net cash flow from operating activities using the direct method, each item in the income statement is adjusted from the accrual basis to the cash basis.

Question 38

The statement of cash flows will not report the

A)amount of checks 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 39

Significant noncash transactions would not include

A)conversion of bonds into common stock.
B)asset acquisition through bond issuance.
C)treasury stock acquisition.
D)exchange of plant assets.

Question 40

Each of the following is added to net income in computing net cash provided by operating activities except

A)amortization expense.
B)an increase in accrued expenses payable.
C)a gain on sale of equipment.
D)a decrease in inventory.

Question 41

When equipment is sold for cash, the amount received is reflected as a cash

A)inflow in the operating section.
B)inflow in the financing section.
C)inflow in the investing section.
D)outflow in the operating section.

Question 42

Garton Company had net income of $195,000 in 2020.Depreciation expense for the year is $50,000.During the year, Accounts Receivable increased $8,000 and Prepaid Expenses decreased $1,000.The company also sold equipment at a loss of $3,000.
Instructions
Calculate net cash flows from operating activities using the indirect method.

Question 43

Cash flow from investing activities is considered the most important category on the statement of cash flows because it is considered the best measure of expected income.

Question 44

Using the direct method, major classes of investing and financing activities are listed in the operating activities section.

Question 45

The statement of cash flows reports each of the following except

A)cash receipts from operating activities.
B)cash payments from investing activities.
C)the net change in cash.
D)cash sales.

Question 46

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

A)the financing section.
B)the "extraordinary" section.
C)a separate schedule or note to the financial statements.
D)the stockholders' equity section.

Question 47

Which of the following would be subtracted from net income using the indirect method?

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

Question 48

The statement of cash flows will not provide insight into

A)why dividends were not increased.
B)whether cash flow is greater than net income.
C)the exact proceeds of a future bond issue.
D)how the retirement of debt was accomplished.

Question 49

During 2020, Blaine Company sold a building with a book value of $145,000 for proceeds of $175,000.The company also sold long-term investments for proceeds of $32,000.The company purchased land and a new building for $320,000 by signing a long-term note payable.No other transactions impacted long-term asset accounts during 2020.
Instructions
Compute net cash flows from investing activities.

Question 50

The receipt of dividends from long-term investments in stock is classified as a cash inflow from investing activities.

Question 51

The reconciling entry for depreciation expense in a worksheet is a credit to Accumulated Depreciation and a debit to Operating-Depreciation Expense.

Question 52

Each of the following are particularly interested in the statement of cash flows except

A)creditors.
B)employees.
C)shareholders.
D)government agencies.

Question 53

Indicate where the payment of income taxes would appear, if at all, on the statement of cash flows.

A)Operating activities section
B)Investing activities section
C)Financing activities section
D)Does not represent a cash flow

Question 54

Which of the following would be added to net income using the indirect method?

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

Question 55

Which of the following transactions would not be classified as a financing activity?

A)Purchase of treasury stock
B)Payment of dividends
C)Issuance of bonds at a discount
D)Purchase of a long-term investment in bonds

Question 56

Madisun Company issued common stock for proceeds of $20,000 during 2020.The company paid dividends of $5,000.The company also issued a long-term note payable for $35,000 in exchange for equipment during the year.The company sold treasury stock that had a cost of $3,000 for $9,000.
Instructions
Compute net cash flows from financing activities.

Question 57

The payment of interest on bonds payable is classified as a cash outflow from operating activities.

Question 58

Analysis of the changes in all of the noncash balance sheet accounts will explain the change in the cash account.

Question 59

Lending money and collecting the loans are

A)operating activities.
B)investing activities.
C)financing activities.
D)Non-cash investing and financing activities.

Question 60

Indicate where the issuance of common stock issued for cash would appear, if at all, on the indirect statement of cash flows.

A)Operating activities section
B)Investing activities section
C)Financing activities section
D)Does not represent a cash flow

Question 61

Which of the following would not 1.method?

A)Depreciation Expense
B)An increase in Prepaid Insurance
C)Amortization Expense
D)An increase in Land

Question 62

A measure that describes the cash remaining from operations after adjustment for capital expenditures and dividends is

A)adjusted cash from operations.
B)cash provided by operations.
C)free cash flow.
D)net cash provided by operating activities.

Question 63

At January 1, 2020, Benny Enterprises reported a balance in the Equipment account of $45,000.During the year, the company purchased equipment with a cost of $60,000 and sold equipment with a book value of $30,000.The company reported a loss on the sale of equipment of $4,000.Assume the indirect method is used.
Instructions
Determine what amounts will be reported in (a) the operating activities section and (b) the investing activities section with regard to the purchase and sale of equipment.

Question 64

Any item that appears on the income statement would be considered as either a cash inflow or cash outflow from operating activities.

Question 65

The change in cash is equal to the change in liabilities less the change in equity plus the change in noncash assets.

Question 66

The cash effects of transactions that create revenues and expenses are

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

Question 67

Indicate where the purchase of land for cash would appear, if at all, on the indirect statement of cash flows.

A)Operating activities section
B)Investing activities section
C)Financing activities section
D)Does not represent a cash flow

Question 68

In calculating cash flows from 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

Free cash flow equals cash provided by

A)operations less capital expenditures and cash dividends.
B)operations less cash dividends.
C)investing activities less capital expenditures and cash dividends.
D)operations less capital expenditures.

Question 70

Assume the indirect method is used to compute cash flows from operations.For each item listed below, indicate the effect on net income in arriving at cash flows from operations by choosing one of the following code letters.

Question 71

The acquisition of a building by issuing bonds would be considered an investing and financing activity that did not affect cash.

Question 72

Financing activities include obtaining cash from issuing debt and repaying the amounts borrowed.

Question 73

The acquisition of land by issuing common stock is

A)a noncash transaction that is not reported in the body of a statement of cash flows.
B)a cash transaction and would be reported in the body of a statement of cash flows.
C)a noncash transaction and 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 74

Indicate where the event, purchase of land and a building with a mortgage would appear, if at all, on the indirect statement of cash flows.

A)Operating activities section
B)Investing activities section
C)Financing activities section
D)Does not represent a cash flow

Question 75

Which of the following adjustments to convert net income to net cash provided by operating activities is correct?

Question 76

Each of the following would be reported under operating activities except cash receipts

A)from sales of goods.
B)from sales of investments.
C)of interest on loans.
D)of dividends from investments.

Question 77

Doctor Company prepared the tabulation at December 31, 2020.

Question 78

The statement of cash flows is a required financial statement that must be prepared along with an income statement, balance sheet, and retained earnings statement.

Question 79

All major financing and investing activities affect cash.

Question 80

The adjusted trial balance is the only item needed to prepare the Statement of Cash Flows.