Deck 16: The Statement of Cash Flows

Question 1

Which of the following statements accurately describes the statement of cash flows?

A)It shows the relative proportion of debt and assets.
B)It shows the link between accrual based income and the cash reported on the balance sheet.
C)It indicates when long-term debt will mature.
D)It shows the link between book income and earnings per share.

Answer 1

B

Question 2

Operating activities on a statement of cash flows include activities that create revenue or expense in the entity's business.

Answer 2

True

Question 3

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

Answer 3

True

Question 4

A business's cash receipts and cash payments for a specific period are reported on a(n):

A)income statement.
B)balance sheet.
C)cash flow statement.
D)cash reconciliation statement.

Question 5

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

Question 6

The three sections of the statement of cash flows report only activities that involve cash.

Question 7

The ________ section of the statement of cash flows includes increase and decrease in long-term assets.

A)investing activities
B)financing activities
C)operating activities
D)non-cash operating activities

Question 8

Which of the following is true of the statement of cash flows?

A)It indicates when long-term debt will mature.
B)It reports on the qualitative behavior of the company's performance.
C)It covers a specific span of time the same as the income statement.
D)It shows how the profits or losses of the company were generated.

Question 9

Which of the following statements is true of the direct and indirect methods of preparing the statement of cash flows?

A)The indirect method and the direct method will produce the same amount of net cash flow from operating activities.
B)The direct method begins with Net Income and adjusts to calculate operating and investing cash flows.
C)The indirect method shows three types of cash flows, but the direct method does not.
D)The operating activities section of both the direct and the indirect methods are the same.

Question 10

Which of the following describes the financing activities section of the statement of cash flows?

A)It includes increases and decreases in long-term assets.
B)It includes cash transactions affecting the long-term liabilities and equity of the business.
C)It includes transactions that primarily affect current assets and current liabilities.
D)It shows the beginning and ending balances of cash.

Question 11

Which of the following is one of the purposes of the statement of cash flows?

A)to predict future Net Income
B)to evaluate management decisions
C)to evaluate the company's earnings per share
D)to predict the growth of a company's assets

Question 12

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

Question 13

The cash paid for the purchase of equipment will typically be shown under the investing activities section of the statement of cash flows.

Question 14

The investing activities section of the statement of cash flows includes activities that affect the long-term asset section of the balance sheet.

Question 15

A company purchased machinery by issuing a long-term note payable. This is an example of a non-cash investing and financing activity for the statement of cash flows.

Question 16

Which of the following statements is true of the direct and indirect method of preparing the statement of cash flows?

A)The indirect method and the direct method will produce a different amount of net cash flow from investing activities.
B)The indirect method begins with Net Income and adjusts it to net operating cash flows.
C)The direct and indirect methods include different types of cash flows in the investing activities section.
D)The indirect method includes all non-cash activities, whereas the direct method includes only the cash activities.

Question 17

Which of the following is one of the purposes of the statement of cash flows?

A)to predict future profit growth
B)to calculate the turnover of inventory
C)to evaluate the level of debt and leverage of a company
D)to predict the ability of a company to pay debts and dividends

Question 18

Which of the following describes the operating activities section of the statement of cash flows?

A)It includes cash transactions that essentially increase or decrease the long-term assets of a business.
B)It includes cash transactions affecting the capitalization of the business.
C)It includes cash transactions that primarily affect current assets and current liabilities.
D)It shows the beginning and ending balances of cash.

Question 19

The statement of cash flows explains why net income as reported on the income statement does not equal the change in the cash balance.

Question 20

The financing activities section of the statement of cash flows includes activities that affect current assets and current liabilities on the balance sheet.

Question 21

The non-cash investing and financing activities section of the statement of cash flows appears as a separate schedule of the cash flow statement or in the notes to the financial statements.

Question 22

While preparing the statement of cash flows using the indirect method, a decrease in current liabilities is added to the net income to arrive at net cash flow from operating activities.

Question 23

Buying property, plant and equipment for cash would be considered a cash outflow for the financing activities section of the statement of cash flows.

Question 24

Allen Company uses the indirect method to prepare its statement of cash flows. Refer to the following portion of the comparative balance sheet: If the net income for the year was $58,000, the company must have declared $32,000 as dividends during the year.

Question 25

A debtor of Adams Company owes $500,000 but does not have enough cash to repay the debt. Following lengthy negotiations, the parties agreed that the debtor will issue 200,000 shares of Common Stock to settle the debt. This transaction will be reported in the investing activities section of the statement of cash flows for Adams Company.

Question 26

Financing activities on the statement of cash flows affect the long-term liability and equity accounts, such as Long-Term Notes Payable, Bonds Payable, Common Stock, and Retained Earnings.

Question 27

Transnational Company is 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 stock in the company. This transaction would be shown in the financing activities section of the statement of cash flows.

Question 28

The financing section of the statement of cash flows involves transactions relating to the Equity accounts and the Long-Term Liability accounts.

Question 29

While preparing a statement of cash flows using the indirect method, an increase in current assets are added to net income to arrive at net cash flow from operating activities.

Question 30

Issuing preferred stock to stockholders in exchange for cash would be shown under the financing activities section of the statement of cash flows.

Question 31

While preparing the statement of cash flows using the indirect method, Depreciation Expense is subtracted from Net Income under operating activities.

Question 32

Arturo Sales purchased some equipment for $12,000 by issuing a 6-month Note Payable. This would appear as a separate schedule of the cash flow statement under a section called non-cash investing and financing activities.

Question 33

Allen Company uses the indirect method to prepare its statement of cash flows. The Treasury Stock account had a debit balance of $9,000 at the beginning of the year, and a debit balance of $13,000 at the end of the year. No Treasury Stock was sold during the year.
The financing section of the statement of cash flows will show a positive cash flow of $4,000 for the buyback of Treasury Stock.

Question 34

The purchase of equipment financed by a Long-Term Notes Payable is an example of:

A)investing activity.
B)financing activity.
C)operating activity.
D)non-cash investing and financing activity.

Question 35

The contribution of equipment by a stockholder in exchange for common stock is an example of:

A)investing activity.
B)financing activity.
C)operating activity.
D)non-cash investing and financing activity.

Question 36

Which of the following sections of the statement of cash flows are presented differently between the direct method and indirect method?

A)investing activity
B)financing activity
C)operating activity
D)non-cash activity

Question 37

While preparing the statement of cash flows using the indirect method, a loss on the sale of plant assets must be shown as a subtraction from the investing activities section.

Question 38

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

Question 39

The third section presented on the statement of cash flows is the non-cash operating activities section.

Question 40

Partisan Services purchased 10 delivery vehicles by issuing a 10-year installment Note Payable for $320,000. This transaction would be shown in the investing activities section of the statement of cash flows.

Question 41

Walker Inc. uses the indirect method to prepare the statement of cash flows. Refer to the following section of the comparative balance sheet: The change in Accounts Receivable will be shown as a negative cash flow in the adjustments to Net Income.

Question 42

Nelson Corp. uses the indirect method to prepare the statement of cash flows. Refer to the following section of the comparative balance sheet: The change in Accrued Liabilities will be shown as a negative cash flow in the adjustments to Net Income.

Question 43

Which of the following are the three major categories included on the statement of cash flows?

A)investing, operating and financing activities
B)investing, capital and financing activities
C)investing, operating and contracting activities
D)financial, operating and internal control activities

Question 44

Which of the following sections of the statement of cash flows include purchases and sales of long-term assets?

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

Question 45

Which of the following is a cash outflow for a financing activity on the statement of cash flows?

A)purchase of long-term investments, such as the stock of another company
B)loans made to another party
C)purchase of treasury stock
D)purchase of land

Question 46

Which of the following sections of the statement of cash flows include activities that increase and decrease long-term assets?

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

Question 47

Which of the following sections from the statement of cash flows include borrowing money and paying off loans?

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

Question 48

Which of the following sections from the statement of cash flows include the cash paid for the purchase of Treasury Stock?

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

Question 49

Nelson Corp. uses the indirect method to prepare the statement of cash flows. Refer to the following section of the comparative balance sheet: The change in Accounts Payable will be shown as a negative cash flow in the adjustments to Net Income.

Question 50

Which of the following are the activities that are included in the operating activities section of the statement of cash flows?

A)activities that obtain the cash needed to launch and sustain the business
B)activities that create revenue or expenses
C)activities that increase or decrease long-term assets
D)activities that pertain to construction of new facilities

Question 51

Cash borrowed on a mortgage note would be a(n)________ activity on the statement of cash flows.

A)operating
B)investing
C)financing
D)non-cash

Question 52

Which of the following sections of the statement of cash flows include the issuance of stock and the payment of cash dividends?

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

Question 53

Which of the following sections of the statement of cash flows include activities that create revenue and expenses of the business?

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

Question 54

Which of the following will be shown under the investing activities section of the statement of cash flows?

A)purchased treasury stock for cash
B)issued notes payable to purchase equipment
C)paid cash dividends to stockholders
D)loaned money to a third party

Question 55

Which of the following sections of the statement of cash flows include activities that affect Net Income on the income statement? (Assume the indirect method is used.)

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

Question 56

Selling property, plant and equipment for $10,000 cash would be considered a cash inflow from investing activities on the statement of cash flows.

Question 57

Which of the following sections of the statement of cash flows include activities that affect current assets and current liabilities on the balance sheet? (Assume the indirect method is used.)

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

Question 58

Which of the following is the typical order of the sections on a statement of cash flows?

A)operating, financing, investing
B)financing, investing, operating
C)investing, operating, financing
D)operating, investing, financing

Question 59

Which of the following sections of the statement of cash flows include activities that increase and decrease long-term liabilities and stockholders' equity?

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

Question 60

Walker Inc. uses the indirect method to prepare the statement of cash flows. Refer to the following section of the comparative balance sheet: The change in Inventory will be shown as a negative cash flow in the adjustments to Net Income.

Question 61

Walker Corp. uses indirect method to prepare the statement of cash flows. Refer to the following section of the comparative balance sheet: How will the change in inventory be shown on the statement of cash flows?

A)positive cash flow under the operating activities section
B)negative cash flow under the operating activities section
C)positive cash flow under the financing activities section
D)negative cash flow under the investing activities section

Question 62

Which of the following is a cash outflow for a financing activity on the statement of cash flows?

A)payment of interest on a loan
B)payment for purchasing inventory
C)payment of dividends
D)payments to the government for taxes

Question 63

While preparing a statement of cash flows using the indirect method, the Depreciation Expense:

A)is added back as an adjustment to Net Income in the operating activities section.
B)is shown as a negative cash flow in the investing activities section.
C)is added back to Purchases of Plant Assets under investing activities.
D)is shown as a negative cash flow under operating activities.

Question 64

Martin Company is preparing its statement of cash flows using the indirect method. During the year, they sold equipment for $5,990 cash. The net book value of the asset prior to sale was $5,550. Which of the following statements is true?

A)The gain on sale of $440 would be added back to net income in the operating activities section.
B)The book value of the assets sold would be shown as a negative cash flow in the investing activities section.
C)The cash receipt of $5,990 would be shown as a positive cash flow in the investing activities section.
D)The gain on sale of $440 would be shown as a positive cash flow in the financing activities section.

Question 65

The issue of Common Stock for cash will be shown as a:

A)negative cash flow in the investing section of the statement of cash flows.
B)positive cash flow in the investing section of the statement of cash flows.
C)negative cash flow in the financing section of the statement of cash flows.
D)positive cash flow in the financing section of the statement of cash flows.

Question 66

Rodriguez Inc. uses the indirect method to prepare its statement of cash flows. Refer to the following portion of the comparative balance sheet: Additional information provided by the company includes the following: 1)Equipment costing $65,000 was purchased for cash.
"2)Equipment with a cost of $32,000 and accumulated depreciation of $7,000 was sold for $45,000.
What was the amount of net cash provided by (used for)investing activities?"

A)$120,000
B)$20,000
C)$(120,000)
D)$(20,000)

Question 67

Christopher Corp. is preparing its statement of cash flows using the indirect method. It provides the following information about transactions for the year: Plant assets, net-beginning balance: $108,000
Plant assets, net-ending balance: $144,000
Equipment costing $62,400 was purchased for cash
Equipment with a net asset value of $12,000 was sold for $16,800
Depreciation Expense of $14,400 was recorded during the year
What was the amount of net cash provided by (used for)investing activities?

A)$(45,600)
B)$45,600
C)$(60,000)
D)$(45,000)

Question 68

Martin Company is preparing its statement of cash flows using the indirect method. During the year, they purchased equipment for $15,000 cash. Which of the following statements is true?

A)$15,000 would be shown as a negative cash flow in the operating activities section.
B)$15,000 would be shown as a negative cash flow in the investing activities section.
C)$15,000 would be shown as a positive cash flow in the investing activities section.
D)$15,000 would be shown as a positive cash flow in the financing activities section.

Question 69

Jelly Bean Company uses the indirect method to prepare its statement of cash flows. Refer to the following portion of the comparative balance sheet: Note:1)There were no stock retirements during the year. "2)There were no sales of treasury stock during the year.
Which of the following statements would be true?"

A)There was zero net cash flow from transactions involving treasury stock.
B)There was $4,000 of positive cash flow from transactions involving treasury stock.
C)There was $4,000 negative cash flow from transactions involving treasury stock.
D)There was $12,000 negative cash flow from transactions involving treasury stock.

Question 70

Avatar Company is preparing its statement of cash flows using the indirect method. Refer to the following portion of the comparative balance sheet: Additional information provided by the company includes the following: 1)During 2014, the company repaid $35,000 of Long-Term Notes Payable.
"2)During 2014, the company borrowed $27,000 on a new Note Payable.
Based on the above information only, what amount of net cash flow would be shown in the financing section of the statement of cash flows?"

A)$(8,000)
B)$8,000
C)$62,000
D)$(62,000)

Question 71

Avatar Company uses the indirect method to prepare the statement of cash flows. Refer to the following section of the comparative balance sheet: How will the change in Accrued Liabilities be shown on the statement of cash flows?

A)as an addition to Net Income
B)as a deduction from Net Income
C)as a deduction from operating cash flows
D)as an addition to operating cash flows

Question 72

Perez Company is preparing its statement of cash flows using the indirect method. Refer to the following information: 1)Repayments on Long-Term Notes Payable $58,000
"2)New borrowing on Long-Term Notes Payable $19,000
Which of the following statements is accurate regarding the statement of cash flows?"

A)Net cash used for financing activities will amount to $(39,000).
B)Net cash used for investing activities will amount to $58,000.
C)Net cash provided by financing activities will amount to $39,000.
D)Net cash provided by investing activities will amount to $39,000.

Question 73

Cash received from the issuance of Notes Payable is a(n)________ on the statement of cash flows.

A)non-cash activity
B)financing activity
C)operating activity
D)investing activity

Question 74

Avatar Company uses the indirect method to prepare the statement of cash flows. Refer to the following section of the comparative balance sheet: How will the change in Accounts Payable be shown on the statement of cash flows?

A)as an addition to Net Income
B)as a deduction from Net Income
C)as a deduction from investing cash flows
D)as an addition to operating cash flows

Question 75

Martin Company sold equipment for cash. The income statement shows a gain on sale of $920. The net book value of the asset prior to sale was $3,510. Which of the following statements describes the cash effect of the transaction?

A)negative cash flow of $4,430 for financing activities
B)negative cash flow of $2,590 for operating activities
C)positive cash flow of $4,430 from investing activities
D)positive cash flow of $2,590 from investing activities

Question 76

Felix Company uses the indirect method to prepare the statement of cash flows. Refer to the following income statement: Additional information provided by the company includes the following: 1)Current assets, other than cash, increased by $24,000
"2)Current liabilities decreased by $1,000
How much is the net cash provided by operating activities?"

A)$21,000
B)$34,000
C)$29,000
D)$39,000

Question 77

Walker Corp. uses the indirect method to prepare the statement of cash flows. Refer to the following section of the comparative balance sheet: How will the change in Accounts Receivable be shown on the statement of cash flows?

A)positive cash flow under the operating activities section
B)negative cash flow under the operating activities section
C)positive cash flow under the financing activities section
D)negative cash flow under the investing activities section

Question 78

Avatar Company uses the indirect method to prepare its statement of cash flows. Refer to the following portion of the comparative balance sheet: Note:1)There was no retirement of stock during the year. "2)There were no sales of treasury stock during the year.
Which of the following statements would be true?"

A)There was zero net cash flow from transactions involving Common Stock.
B)There was a negative cash flow of $4,000 from the issuance of Common Stock.
C)There was a positive cash flow of $4,000 from the issuance of Common Stock.
D)There was positive cash flow of $16,000 from issuance of Common Stock.

Question 79

Sonesta Company sold equipment for cash. The income statement shows a loss on sale of $7,000. The net book value of the asset prior to the sale was $26,900. Which of the following statements describes the cash effect of the transaction?

A)positive cash flow of $33,900 from financing activities
B)negative cash flow of $19,900 for operating activities
C)negative cash flow of $19,900 for financing activities
D)positive cash flow of $19,900 from investing activities

Question 80

Rodriguez Inc. uses the indirect method to prepare the statement of cash flows. Refer to the following income statement: Additional information provided by the company includes the following: Current assets, other than cash, decreased by $5,000
Current liabilities increased by $2,000
How much is the net cash provided by operating activities?

A)$4,700
B)$7,300
C)$10,000
D)$(300)