Deck 13: Statement of Cash Flows

Question 1

The statement of financial position is a special case of the more general cash flow statement.

Answer 1

False

Question 2

For capital leases, the interest portion is classified as an operating activity, whereas the reduction of principal portion is a financing activity.

Answer 2

True

Question 3

SFAS No. 95 requires that all non-cash investing and financing transactions be reported in the body of the cash flow statement.

Answer 3

False

Question 4

The statement of changes in financial position reported on changes in assets, liabilities, and owners' equity account balances.

Question 5

Interest expense and long-term notes payable both appear in the financing section of the cash flow statement.

Question 6

Only transactions having a direct effect on fund accounts were included in the statement of changes in financial position.

Question 7

The balance sheet gives insight into the cash-generating potential of the operations of a firm.

Question 8

An exit-price accounting system provides an estimate of the cash conversion value of a firm's resources.

Question 9

On the statement of cash flows, the proceeds from the sale of equipment would be classified as a financing activity.

Question 10

The statement of cash flows superseded the previously required sources and uses of funds statement.

Question 11

In the statement of changes in financial position, sources of resources are defined as transaction debits.

Question 12

With SFAS No. 95 defining funds as cash, the FASB has moved from a position of rigid uniformity to a flexibility orientation.

Question 13

The funds flow statement included only transactions affecting fund accounts.

Question 14

The cash flow statement is the statement of financial position with funds defined as cash.

Question 15

In the cash flow statement, cash is defined as literal cash on hand or on demand deposit plus cash equivalents.

Question 16

The direct method requires a schedule reconciling net operating cash flow with net income.

Question 17

In the sources section of the statement of changes in financial position, transactions are subclassified into those affecting liquid assets and those affecting other accounts.

Question 18

Inclusion of a cash flow statement is mandatory.

Question 19

Use of the direct method on the cash flow statement frequently results in non-articulation.

Question 20

Most firms elected to define funds in the statement of changes in financial position as cash.

Question 21

Which of the following is not a true statement?

A)The cash flow statement superceded the previously required statement of changes in financial position.
B)The cash flow statement is the statement of financial position with funds defined as cash.
C)The statement of financial position is a special case of the more general cash flow statement.
D)Inclusion of a cash flow statement is mandatory.

Question 22

In the sources section of the statement of changes in financial position, transactions are subclassified into those affecting:

A)the fund balance and other accounts.
B)cash and other accounts.
C)current assets or liabilities and other accounts.
D)liquid assets and other accounts.

Question 23

Which of the following is a true statement?

A)Liquidity is the ability of the firm to adapt to new situations and opportunities.
B)Cash flow measurement is more uniform than income measurement.
C)The current-non-current classification system in the balance sheet is a good guide to liquidity.
D)The balance sheet gives insight into the cash-generating potential of operations.

Question 24

In the statement of changes in financial position, uses of resources are defined as:

A)transaction debits.
B)fund increases.
C)transaction credits.
D)fund decreases.

Question 25

On the statement of cash flows, the direct method starts with accrual income and adjusts it for the non-cash items it contains.

Question 26

The statement of changes in financial position reported on:

A)changes in current assets and current liabilities.
B)changes in assets.
C)changes in assets, liabilities, and owners' equity account balances
D)changes in working capital

Question 27

A FASB discussion memorandum suggested that cash flow data are a useful supplemental disclosure for all of the following reasons except:

A)they provide information about the quality of income.
B)they aid in assessing flexibility and liquidity.
C)they help to identify the relationship between accounting income and cash flows.
D)they are a better predictor of future earnings than is accounting income.

Question 28

For capital budgeting purposes, an investment is acceptable if:

A)the present value of the expected net cash flows is positive.
B)net present value is positive.
C)the intrinsic value is greater than the current market price.
D)all of the above.

Question 29

Which of the following directly preceded the statement of changes in financial position?

A)The statement of cash flows
B)The funds flow statement
C)The sources and uses of funds statement
D)The sources and uses of resources statement

Question 30

On the statement of cash flows, the direct method reports literal cash flows related to income statement classifications.

Question 31

With SFAS No. 95, the FASB chose to follow the entity model rather than the traditional income statement (proprietary) approach.

Question 32

The funds flow statement included:

A)all sources and uses of resources.
B)only cash transactions.
C)only transactions affecting current assets.
D)only transactions affecting fund accounts.

Question 33

Research is supportive of the contention that cash and funds flow data are informative above and beyond accrual data.

Question 34

APB Opinion No. 19 permitted fund balance accounts in the statement of changes in financial position to include which of the following?

A)Quick assets only
B)Cash and near cash only
C)Working capital only
D)Cash, cash and near cash, quick assets, or working capital

Question 35

Which of the following directly preceded the statement of cash flows?

A)The funds flow statement
B)The sources and uses of funds statement
C)The statement of changes in financial position
D)The sources and uses of resources statement

Question 36

In the statement of changes in financial position, sources of resources are defined as:

A)transaction debits.
B)fund increases.
C)transaction credits.
D)fund decreases.

Question 37

With SFAS No. 95 defining funds as cash, the FASB has:

A)moved from a flexibility orientation to a position of rigid uniformity.
B)moved from a position of rigid uniformity to one of finite uniformity.
C)moved from a position of rigid uniformity to a flexibility orientation.
D)moved from a flexibility orientation to a position of finite unity.

Question 38

Which of the following is not a function of financial statements as stated in the text?

A)Assessing managerial performance
B)Valuing the company
C)Providing accurate information to taxing agencies
D)Making credit decisions

Question 39

In the uses section of the statement of changes in financial position, transactions are subclassified into those affecting:

A)the fund balance and other accounts.
B)cash and other accounts.
C)current assets or liabilities and other accounts.
D)liquid assets and other accounts.

Question 40

Most firms elected to define funds in the statement of changes in financial position as:

A)cash.
B)working capital.
C)current assets.
D)owners' equity.

Question 41

Which of the following is a true statement regarding an exit-price accounting system?

A)It measures flexibility of the firm in terms of the amount of cash that would be realized from a forced liquidation of assets.
B)It provides an excellent indicator of liquidity.
C)It provides an estimate of the speed of conversion of a firm's resources.
D)It provides an estimate of the cash conversion value of a firm's resources.

Question 42

Which of the following is a true statement?

A)Research is supportive of the contention that cash and funds flow data are informative above and beyond accrual data.
B)Use of the direct method in the cash flow statement frequently results in non-articulation.
C)Interest expense and long-term notes payable both appear in the financing section of the cash flow statement.
D)With SFAS No. 95, the FASB chose to follow the entity model rather than the traditional income statement (proprietary) approach.

Question 43

Which of the following methods reports literal cash flows related to income statement classifications?

A)The indirect method
B)The direct method
C)Both a and b.
D)None of the above

Question 44

Which of the following is true for intrinsic values?

A)It is the present value of future expected cash flows.
B)It is unaffected by changes in interest rates.
C)It must be below current market price for a stock purchase to be acceptable.
D)It is the undiscounted value of the cash that can be taken out of a business during its remaining life.

Question 45

Identify and describe the two balancing sections of the statement of changes in financial position.

Question 46

Discuss how Ingram and Lee used the cash flow statement in conjunction with the income statement for analytical purposes.

Question 47

Identify and describe the three categories of cash flows reported on the statement of cash flows. What problems have been noted related to this classification system?

Question 48

In the cash flow statement, cash is defined as:

A)quick assets.
B)literal cash on hand or on demand deposit, plus cash equivalents.
C)literal cash on hand or on demand deposit, plus marketable securities.
D)all of the above.

Question 49

Which of the following is true about the Statement of Cash Flows (SCF)?

A)The SCF is more subject to manipulation than the income statement.
B)Cash flow from financing activities is considered to be the most important part of the SCF.
C)Classification rules prevent manipulation of cash flows from operating activities on the SCF.
D)Flexibility in applying classification rules on the SCF allows companies in the same industry to give vastly different perspectives.

Question 50

Which of the following is not true regarding free cash flows (FCFs)

A)Investors can estimate the intrinsic value of a firm by discounting forecasted FCFs.
B)Spending FCFs will not affect the firm's ability to generate more.
C)FCFs can be obtained directly from the Statement of Cash Flows.
D)Unlike Cash From Operating Activities, FCFs do not include interest expense.

Question 51

How does the statement of cash flows sometimes cause a non-articulation problem?

Question 52

Which of the following methods requires a separate schedule reconciling net operating cash flow with net income?

A)The indirect method
B)The direct method
C)Both a and b
D)None of the above

Question 53

Which of the following methods starts with accrual income and adjusts it for the non-cash items it contains?

A)The indirect method
B)The direct method
C)Both a and b
D)None of the above

Question 54

Compare and contrast the two methods that may be used to present operating cash flows in the statement of cash flows. Which method is preferred by firms and by outsiders?

Question 55

Which of the following is a true statement regarding SFAS No. 95?

A)It requires all non-cash investing and financing transactions be reported in the body of the cash flow statement.
B)It requires all non-cash investing and financing transactions be reported as a supplement to the cash flow statement, either in a schedule or in a narrative format.
C)Only cash transactions are reported on the cash flow statement.
D)Only operating transactions are reported on the cash flow statement.

Question 56

On the statement of cash flows, the proceeds from the sale of equipment would be classified as:

A)an investing activity.
B)an operating activity.
C)a financing activity.
D)either an investing, operating, or financing activity.

Question 57

Discuss reasons why the FASB replaced the more general funds flow concept with a cash flow statement.

Question 58

Discuss arguments supporting the need for improving the Statement of Cash Flows (SCF). What suggestions do Broom and the authors of the text make regarding improvement?