Deck 7: Statement of Cash Flows

Question 1

Buying the assets to start up a business is classed as which activity in the statement of cash flows?

A)Operating
B)Investing
C)Financing
D)Non-cash

Answer 1

B

Question 2

Which of the following statements is true?

A)For an entity to survive,the net cash flow from operating activities should be positive.
B)For an entity to survive,the net cash flow from investing activities should be positive.
C)For an entity to survive,the net cash flow from financing activities should be positive.
D)For an entity to survive,the net cash flow from operating activities should be negative.

Answer 2

A

Question 3

Which relationship between items in the statement of cash flows and items in the balance sheet is correct?

A)Cash from investing activities: Non-current assets and liabilities in the balance sheet
B)Cash from financing activities: Non-current assets in the balance sheet
C)Cash from investing activities: Non-current liabilities in the balance sheet
D)Cash from financing activities: Non-current liabilities and equity in the balance sheet

Answer 3

D

Question 4

Investing activities include

A)repaying money previously borrowed.
B)obtaining capital from owners.
C)obtaining cash from creditors.
D)collecting cash on loans previously made.

Question 5

In Australia a statement of cash flows,in its current form,has been required since:

A)1971
B)1981
C)1991
D)2001

Question 6

Cash inflows from financing activities include

A)interest paid.
B)receipts from the issue of shares.
C)receipts from the sale of investments.
D)dividends received.

Question 7

When preparing the note attached to the statement of cash flows reconciling operating profit after tax with net cash flow from operating activities,which adjustment is not correct?

A)Add back depreciation
B)Add a decrease in a current asset
C)Add a decrease in a current liability
D)Deduct a gain on the sale of an asset

Question 8

Which of these is not an example of cash or cash equivalents?

A)Deposit at call
B)Money market deposit with 6 months maturity
C)Bank overdraft
D)Bank and non-bank bills

Question 9

The format followed in the preparation of the statement of cash flows is:

A)cash flows from financing activities,cash flows from operating activities,cash flows from investing activities
B)cash flows from operating activities,cash flows from investing activities,cash flows from financing activities
C)cash flows from investing activities,cash flows from financing activities,cash flows from operating activities
D)cash flows from investing activities,cash flows from operating activities,cash flows from financing activities

Question 10

Which of the following is an example of cash and cash equivalents?

A)cash on hand and in demand deposits (such as bank deposits)
B)highly liquid investments
C)all are examples of cash and cash equivalents
D)short-term borrowings that are subject to an insignificant risk of change in value

Question 11

In which section of the statement of cash flows would the payment of a dividend by a company to its shareholders be included?

A)cash flows from operating activities
B)cash flows from investing activities
C)cash flows from financing activities
D)payment of dividends would not be included in the statement of cash flows

Question 12

All financial statements are prepared on an accruals basis except the:

A)statement of comprehensive income
B)statement of financial performance
C)statement of cash flows
D)statement of changes in equity

Question 13

Cash receipts from interest and dividends are classified as which activity in the statement of cash flows?

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

Question 14

Which is correct?

A)The income statement,the balance sheet and the statement of cash flows are all cash based
B)The income statement and the statement of cash flows are cash based and the balance sheet is accrual based
C)The income statement and the balance sheet are accrual based and the statement of cash flows is cash based
D)The income statement,the balance sheet and the statement of cash flows are all accrual based

Question 15

Which of the following items would not appear in a statement of cash flows?

A)interest paid
B)income tax paid
C)depreciation expense
D)all of the items would appear on a statement of cash flows

Question 16

The primary purpose of the statement of cash flows is to

A)show the deficit of cash during the period.
B)show the cash balance at the end of the period.
C)provide information about the profit or loss during the accounting period.
D)provide information about the cash receipts and cash payments made during the accounting period.

Question 17

Which of the following information can be gleaned from a statement of cash flows but is not obvious from looking at financial statements prepared on an accruals basis?

A)whether the entity is generating cash from its operations
B)whether the entity is collecting its receivables in a timely manner
C)whether the entity is likely to be able to pay its debts as and when they fall due
D)all options are true

Question 18

When preparing the note attached to the statement of cash flows reconciling operating profit after tax with net cash flow from operating activities which adjustment is not correct?

A)Add an increase in a current liability
B)Deduct a decrease in a current asset
C)Deduct a decrease in a current liability
D)Deduct a gain on the sale of an asset

Question 19

Which of these would not be classified as an operating item in a statement of cash flows?

A)decrease in bank overdraft
B)interest expense paid
C)payment of instalment for lease of shop
D)cash dividends received

Question 20

The section of the statement of cash flows that is generally considered to be the best measure of a company's ability to continue as a going concern is

A)Cash flows from financing activities
B)Cash flows from investing activities
C)Cash flows from operating activities
D)Each gives an equal estimation

Question 21

Reliance on the statement of cash flows by the investment community has increased because:

A)of the relative difficulty in manipulating the statement of cash flows compared with manipulating the income statement
B)all the options are correct
C)the comparison of profit or loss to the cash flow from operating activities can highlight how an entity is managing its working capital requirements
D)lenders can use the statement of cash flows to ascertain management efficiency and the ability of the entity to generate cash flow

Question 22

If profit is $53 000 and increases in the current assets,inventory and debtors,over the period total $18 000,net cash inflow from operating activities is:

A)$18 000
B)$71 000
C)$35 000
D)$53 000

Question 23

Which of the following statements is not true with respect to the thinking required to convert accruals basis information to cash basis to prepare the statement of cash flows using the indirect method (reconciliation)?

A)decrease in current assets means an increase in cash
B)increase in current assets means a reduction in cash
C)increase in current liabilities means a decrease in cash
D)decrease in current liabilities means a decrease in cash

Question 24

Calculate net cash flows from operations by adjusting operating profit.
$\begin{array}{llcc} \text { Profit for the year } &\$ 75000 \\ \text { Depreciation } &13000\\ \text { Decrease in accounts receivable } &5000\\ \text {Decrease in accounts payable } &1000\\\end{array}$

A)$82 000
B)$92 000
C)$56 000
D)$94 000

Question 25

If the opening balance of plant and equipment was $310 000,the closing balance was $350 000 and plant and equipment costing $30 000 was sold during the period,what was the cost of equipment purchased?

A)$40 000
B)$30 000
C)$70 000
D)$350 000

Question 26

If the opening balance of Dividends Payable is $45 000,the closing balance is $35 000 and dividends of $25 000 were declared for the period,how much cash was paid for dividends in that period?

A)$25 000
B)$35 000
C)$45 000
D)$70 000

Question 27

If the opening balance of income tax payable is $19 000,the closing balance is $22 000 and income tax expense recorded is $$18 000,how much income tax was paid during the period?

A)$22 000
B)$15 000
C)$18 000
D)$19 000

Question 28

Assume all goods for resale are purchased for cash.If cash payments for inventory in the period are $67 000 and the expense cost of sales,calculated under the accrual basis,is $70 000:

A)Stocks of inventory on hand have increased by $3000 during the period
B)Stocks of inventory on hand have decreased by $3000 during the period
C)Creditors owe $3000 at the end of the period for the purchase of inventory
D)Creditors owe $70 000 at the end of the period for the purchase of inventory

Question 29

If cash received from customers is $234 000,cash paid for salaries and expenses is $130 000,depreciation of equipment,is $13 000,cash received from the sale of equipment is $25 000,gain on the sale of equipment is $12 000,cash flow from operating activities is:

A)$117 000
B)$91 000
C)$129 000
D)$104 000

Question 30

$45 000 is owed to suppliers for inventory purchases at the beginning of the year and $24 000 is owed at the end of the year.If annual credit purchases of inventory are $120 000,the cash paid to suppliers for the year is:

A)$141 000
B)$99 000
C)$165 000
D)$144 000

Question 31

Which of these is an early warning sign indicating problems with cash flows?

A)Cash from operating activities is higher than profit
B)Dividends paid are greater than cash flow from operations
C)A large amount has been spent on the acquisition of fixed assets
D)Proceeds from financing activities are used to finance investment activities

Question 32

A net cash outflow from investing activities:

A)indicates problems in an entity's management of its non-current assets
B)may indicate a healthy growing business which needs to replace its assets as they wear out and purchase new assets to increase its future profits
C)is always an indicator that an entity is well managed
D)all the options are true

Question 33

If the opening balance of the motor vehicles asset account is $240 000 and the closing balance is $190 000 and motor vehicles that originally cost $85 000 were sold during the year the amount spent on purchases of motor vehicles for the year is:

A)$0
B)$105 000
C)$50 000
D)$35 000

Question 34

The correct statement in relation to converting accrual information to the cash basis is:

A)An increase in current assets means less cash
B)A decrease in current assets means less cash
C)An increase in current liabilities means less expense
D)A decrease in current liabilities means more cash

Question 35

Calculate net cash flows from operations by adjusting operating profit.
$\begin{array}{llcc} \text { Profit for the year } & \$122000 \\ \text {Depreciation } &8000\\ \text {Increase in accounts receivable } &5000\\ \text {Increase in accounts payable } &2000\\\end{array}$

A)$111 000
B)$107 000
C)$127 000
D)$133 000

Question 36

Free cash flow is:

A)the cash flow available to repay debt,pay dividends and expand operations.
B)cash balances on which no interest is paid.
C)the cash flow available to meet current liabilities.
D)the cash flow available to expand operations.

Question 37

Which of the following items would be classified as financing activities in a statement of cash flows?

A)repayment of borrowings
B)proceeds from borrowings
C)proceeds from the issue of shares
D)all the item would be classified as financing activities

Question 38

Changes in the balance sheet items making up non-current liabilities and equity appear in the statement of cash flows under:

A)operating activities
B)investing activities
C)financing activities
D)the reconciliation of profit with cash flow from operating activities

Question 39

If $20 000 is owed by customers at the beginning of the year,$15 000 is owed at the end and credit sales are $100 000,the cash received from customers for the year is:

A)$120 000
B)$115 000
C)$100 000
D)$105 000

Question 40

Which of the following would not be classified as a cash flow from investing activities?

A)proceeds from repayment of loans to other parties
B)proceeds from the sale of plant and equipment
C)proceeds from a loan to the entity
D)payment for plant and equipment

Question 41

A possible explanation for a company reporting a loss on the profit report but a positive cash inflow of funds from operations is:

A)a decrease in trade debtors.
B)an increase in trade debtors.
C)an increase in inventory.
D)a decrease in trade creditors.

Question 42

The common business expense that does not appear in the statement of cash flows is ____________________ expense.

Question 43

The statement of cash flows helps ascertain the cash generated from an entity's _______________ cycle and whether or not the entity is collecting its receipts in a timely manner.

Question 44

Cash flows from investing activities are determined from changes in the balance sheet classification non- ___________ ____________.

Question 45

The sale of land for cash would be classified as a cash inflow from ______________ activities.

Question 46

A healthy business would normally expect to have a net cash __________ from operating activities.

Question 47

Which of the following suggest that an entity may be facing cash flow problems?

A)inflows from investing activities are inconsistent
B)proceeds from borrowings are continually much greater than the repayment of borrowings.
C)cash receipts from customers are less than cash payments to suppliers and employees.
D)all options suggest that the entity may be facing cash flow problems

Question 48

During the accounting period,if income tax expense amounted to
$10 000,and tax payable rose by $2000 over the period,tax paid must be equal to ____________________.

Question 49

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

Question 50

In Australia entities are encouraged to use the ___________ method when preparing a statement of cash flows.

Question 51

Which of these is not one of the ways by which entities would normally seek to improve their cash flow?

A)Sell off surplus stock
B)Invest surplus cash
C)Allow only cash sales
D)Take advantage of the available credit terms when paying suppliers

Question 52

___________________ activities include the cash effects of income and expense transactions.

Question 53

On a statement of cash flows borrowing money and raising share capital are examples of ________________ activities.

Question 54

If cost of sales expense is $350 000 for the period and inventory has decreased by $35 000 during the period,assuming creditors' balances have not altered,cash paid to suppliers is _____________.

Question 55

If credit sales are $800 000 and debtors have increased by $60 000 over the period cash inflows from debtors on the statement of cash flows will be __________.

Question 56

The statement concerning the cash adequacy ratio that is true is:

A)It expresses the cash flow from operating activities as a percentage of capital expenditure plus dividends
B)It measures the entity's ability to reinvest in its operations and to make distributions to owners from its operating cash flow
C)A ratio result greater than one suggests a good performance
D)All the statements are true

Question 57

Cash from operating activities less the amount spent on capital expenditure to maintain the existing level of operations is the formula for:

A)free cash flow
A
B)the cash flow to sales ratio
C)the cash adequacy ratio
D)the debt coverage ratio

Question 58

For the purposes of the preparation and interpretation of the statement of cash flows,cash

Question 59

The formula for the debt coverage ratio is:

A)non-current liabilities divided by cash from operating activities
B)non-current liabilities divided by non-current assets
C)non-current liabilities divided by current liabilities
D)non-current liabilities divided by cash from financing activities

Question 60

The statement concerning the cash flow ratio that is true is:

A)The cash flow ratio compares the cash flow from operating activities with the current liabilities.
B)The cash flow ratio it is used to assess liquidity.
C)The cash flow ratio is a better measure of liquidity than the current ratio because it calculated using cash flow generated over a whole reporting period rather than the current assets at a point in time.
D)all the statements are true

Question 61

The relative difficulty in manipulating the statement of cash flows compared with manipulating the ________________ _______________has increased the reliance on the statement of cash flows.

Question 62

The comparison of profit or loss with net cash from operating activities can shed light on how well an entity is managing its ______________ _____________.