Deck 12: The Statement of Cash Flows

Question 1

A statement of cash flows:

A) is prepared at the option of management
B) may be combined with the balance sheet
C) is a basic financial statement required for publicly held companies
D) may be combined with the statement of retained earnings at the option of management

Answer 1

C

Question 2

Your best friend just lost his job because the company he was working for went bankrupt. He was complaining to you that even though the company had been profitable for three years in a row, it still went out of business. He asks you how this can happen.
Explain the most likely reason for the company declaring bankruptcy. Could your best friend have seen it coming? How?

Answer 2

A profitable company is a company whose revenues exceed expenses on an accrual basis. This does not necessarily mean that the company is generating enough cash to pay its bills. The most likely reason the best friend's company went bankrupt is the lack of cash. If the friend had access to a statement of cash flows, he most likely would have seen the cash flow problem. Preparation of the statement of cash flows is mandatory for publicly held companies to help investors, creditors, and management evaluate a company's cash position, and its financial health to continue operating in the future.

Question 3

Sometimes income and cash flow follow different patterns.

Answer 3

True

Question 4

Cash equivalents are highly liquid short-term investments that can be converted into cash quickly.

Question 5

The statement of cash flows is a supplement to the balance sheet in a company's annual report.

Question 6

What primary factor should a creditor consider when evaluating whether a corporation can pay the interest and principal on a loan at maturity?

Question 7

Investments in Canadian Government Treasury bills are classified as cash equivalents.

Question 8

The statement of cash flows reports the investments the company is making in non-current assets.

Question 9

Why is the statement of cash flows of interest to investors, creditors, and management?

Question 10

The most important section of a statement of cash flows is the:

A) operating activities
B) investing activities
C) financing activities
D) all of the sections are equally important

Question 11

Which of the following represents the correct order on the statement of cash flows?

A) Investing, operating and then financing activities
B) Operating, investment then financing activities
C) Operating, financing then investing activities
D) Investing, financing then operating activities

Question 12

The statement of cash flows is designed to fulfill all of the following purposes except:

A) to determine the company's ability to pay dividends to shareholders
B) to assess the collectibility of accounts receivable
C) to predict future cash flows
D) to show the relationship of net income to changes in the company's cash

Question 13

All of the following are cash equivalents except:

A) money market investments
B) commercial paper
C) notes receivable
D) investments in Canadian Government Treasury bills

Question 14

Why is the statement of cash flows necessary?

Question 15

The issuance of bonds for cash would be reported on a statement of cash flows under the:

A) operating activities
B) investing activities
C) financing activities
D) no activities because issuing bonds for cash would not be reported on a statement of cash flows

Question 16

The statement of cash flows is divided into three major sections.

Question 17

After a business is up and running, information about which of the following business activities is most important?

A) operating activities
B) investing activities
C) financing activities
D) warehousing activities

Question 18

Cash equivalents would include money market accounts, Canadian Treasury bills, and notes receivable.

Question 19

Which of the following activities increase and decrease the non-current assets available to a company?

A) operating activities
B) investing activities
C) financing activities
D) warehousing activities

Question 20

Cash means more than just cash on hand and cash in the bank. Highly liquid, short-term investments that are easily convertible into cash are called:

A) common shares
B) cash equivalents
C) promissory notes
D) accounts receivable

Question 21

Of the three types of business activities reported on a statement of cash flows-investing, financing, and operating-financing activities are the most important when evaluating a business that is up and running.

Question 22

Only the operating activities section of a statement of cash flows is prepared differently when using the indirect method.

Question 23

Under ASPE the payment of principal and interest on a loan would be reported in the investing activities section of a statement of cash flows.

Question 24

Phosphoric Company reported capital assets, net of accumulated depreciation, on January 1, 2013, at $645,000 and $732,500 on December 31, 2013. The income statement showed depreciation of $48,300 and a $5,600 loss on sale of capital assets. Phosphoric Company acquired $213,000 of capital assets during the year. The proceeds from the sale of capital assets were:

A) $125,500
B) $89,900
C) $71,600
D) $77,200

Question 25

Activities which lead to an increase or decrease in long-term debt of a corporation are referred to as:

A) operating activities
B) investing activities
C) financing activities
D) future debt activities

Question 26

The payment of principal amounts (excluding interest) to creditors would be reported on a statement of cash flows under the:

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

Question 27

The issuance of common shares for cash would be reported on a statement of cash flows under:

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

Question 28

The main source of cash for a business must come from operating activities if it is to prosper in the future.

Question 29

Which of the following is a method for reporting cash flows from operating activities that begins with net income and reconciles to cash flows from operating activities?

A) cash-basis method
B) direct method
C) accrual method
D) indirect method

Question 30

On January 1, 2013, Agronomist Inc. had a balance of $340,000 in the long-term investments account. During 2013, Agronomist Inc. sold long-term investments for $115,000 cash, resulting in a $13,000 gain. On December 31, 2013, the long-term investments account showed a balance of $380,000. The long-term investments purchased during 2013 totalled:

A) $75,000
B) $265,000
C) $155,000
D) $142,000

Question 31

The amount of cash paid for dividends for the current year can be calculated by the following formula:

A) beginning dividends payable minus ending dividends payable plus dividends declared
B) beginning dividends payable plus ending dividends payable plus dividends declared
C) beginning dividends payable minus ending dividends payable minus dividends declared
D) beginning dividends payable plus ending dividends payable minus dividends declared

Question 32

Only the investing activities section of a statement of cash flows differs between the direct and indirect methods.

Question 33

Retained Earnings had a balance on January 1, 2013, and December 31, 2013, respectively, of $234,500 and $411,000. Net income for the year was $199,500 and the only other event affecting Retained Earnings was the declaration of dividends. If there was no change in the Dividends account during the year, the payments for dividends was:

A) $23,000
B) $176,500
C) $376,000
D) indeterminable from the information given

Question 34

Jantzi Company reported capital assets, net of accumulated depreciation, on January 1, 2013, at $427,500 and $579,300 on December 31, 2013. The income statement showed depreciation of $38,700. Jantzi Company acquired $275,000 of capital assets during the year and reported proceeds from the sale of capital assets of $89,200 for the year. The gain or loss resulting from the sale of capital assets was:

A) $3,400 loss
B) $2,390 loss
C) $4,700 gain
D) $5,050 gain

Question 35

The balance in Common Shares on January 1, 2013, and December 31, 2013, is respectively $145,000 and $172,500. During the year, $57,000 repurchase of shares was recorded. During the year, shares were issued. The proceeds from the issue of shares amounted to:

A) $29,500
B) $64,500
C) $84,500
D) $260,500

Question 36

The indirect method of computing cash flows from operating activities begins with net income and reconciles net income to operating cash flows.

Question 37

The indirect method of preparing the statement of cash flows:

A) is more commonly used in practice than the direct method
B) is preferred by the Accounting Standards Board over the direct method
C) produces a different amount for cash flows from operating activities than the direct method
D) produces a different amount for cash flows from investing activities than the direct method

Question 38

Under ASPE which of the following is not an example of an operating activity?

A) dividends declared
B) dividend income
C) interest income
D) interest expense

Question 39

Which of the following activities creates revenues and expenses in a company's major line of business?

A) operating activities
B) investing activities
C) financing activities
D) warehousing activities

Question 40

On an indirect method statement of cash flows, the purchase of machinery in exchange for common shares is:

A) ignored
B) shown in the schedule of noncash investing and financing activities which accompanies the statement of cash flows
C) reflected in the operating activities section
D) reflected in the investing activities section

Question 41

The sale of equipment at book value would be reported on a statement of cash flows under:

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

Question 42

The declaration of dividends by the board of directors would be reported on a statement of cash flows as a(an):

A) cash inflow under the financing activities
B) cash outflow under the financing activities
C) cash outflow under the investing activities
D) activity that would not be reported on a statement of cash flows

Question 43

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

A) payments to a supplier
B) cash sales
C) cost of goods sold
D) proceeds from issuance of common shares

Question 44

On an indirect method statement of cash flows, a gain on the sale of capital assets is:

A) reflected in the investing activities section
B) reflected in the financing activities section
C) added to net income
D) deducted from net income

Question 45

The sale of repurchased shares would be reported on a statement of cash flows as a:

A) cash inflow under the operating activities
B) cash outflow under the financing activities
C) cash inflow under the financing activities
D) cash inflow under the investment activities

Question 46

The operating activities section of an indirect method statement of cash flows includes:

A) cash paid for inventory
B) changes in current asset balances
C) cash paid for operating expenses
D) cash received from customers

Question 47

All of the following might appear on an indirect method statement of cash flows except:

A) depreciation expense
B) decrease in inventory
C) loss on sale of capital assets
D) interest received on notes receivable

Question 48

Under ASPE the receipt of interest on loans would be reported on a statement of cash flows under the:

A) operating activities
B) investing activities
C) financing activities
D) no activities because interest received on loans would not be reported on a statement of cash flows

Question 49

The repurchase of shares would be reported on a statement of cash flows under the:

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

Question 50

Under ASPE all of the following might appear as adjustments to net income on an indirect method statement of cash flows except:

A) depreciation expense
B) an increase in Accounts Receivable
C) gain on sale of capital assets
D) payment of dividends

Question 51

No Harm Corporation sold some of its used equipment with a book value of $52,000 for $47,000. The indirect method statement of cash flows will reflect an addition in the investing activities section of:

A) $47,000 and a deduction of $5,000 in the operating activities section
B) $47,000 and an addition of $5,000 in the operating activities section
C) $52,000 and an addition of $5,000 in the operating activities section
D) $52,000 and a deduction of $5,000 in the operating activities section

Question 52

Under the indirect method of preparing a statement of cash flows, cash disbursed for the acquisition of a capital asset is:

A) added in the investing activities section
B) added in the financing activities section
C) subtracted in the operating activities section
D) subtracted in the investing activities section

Question 53

Cassidy Lake Corporation sold some of its used equipment for $65,000. The indirect method statement of cash flows shows an addition to net income of $6,000. The accumulated depreciation on the equipment to date of sale was $63,000. The original cost of the equipment was:

A) $69,000
B) $71,000
C) $134,000
D) $122,000

Question 54

Which of the following transactions would not be shown on a statement of cash flows?

A) purchase of inventory for cash
B) a stock split
C) sale of equipment accepting 30% cash and a note receivable for the balance
D) purchase of land by making a 25% down payment and issuing a note payable for the balance

Question 55

Beyond the Boardroom Corporation sold used equipment with a book value of $25,000 for $29,000. The indirect method statement of cash flows will reflect:

A) an addition of $29,000 in the investing activities section and an addition of $4,000 in the operating activities section
B) an addition of $25,000 in the investing activities section and an addition of $4,000 in the operating activities section
C) an addition of $29,000 in the investing activities section and a deduction of $4,000 in the operating activities section
D) an addition of $25,000 in the investing activities section and a deduction of $4,000 in the operating activities section

Question 56

Using the indirect method of preparing a statement of cash flows, a loss on the sale of a capital asset is:

A) ignored
B) added in the operating activities section
C) added in the investing activities section
D) subtracted in the operating activities section

Question 57

Using the indirect method of preparing a statement of cash flows, depreciation expense for the current year is:

A) added in the operating activities section
B) added in the investing activities section
C) added in the financing activities section
D) subtracted in the operating activities section

Question 58

The sale of repurchased shares is a(n) ________ on a statement of cash flows.

A) operating activity
B) investing activity
C) financing activity
D) financing activity or an investing activity

Question 59

The purchase of land for cash and the sale of a capital asset are viewed as:

A) a negative and positive item on the statement of cash flows
B) a positive and negative item on the statement of cash flows
C) both positive items on the statement of cash flows
D) neither positive nor negative items on the statement of cash flows

Question 60

Under ASPE interest paid on debt would be reported on a statement of cash flows under the:

A) investing activities
B) operating activities
C) financing activities
D) interest paid on debt would not be reported on a statement of cash flows

Question 61

Under the indirect method of preparing a statement of cash flows, a decrease in the balance in the Accounts Receivable account during the year is:

A) added in the operating activities section
B) added in the investing activities section
C) subtracted in the operating activities section
D) subtracted in the financing activities section

Question 62

When calculating cash flow from operations, an increase in prepaid expenses would be added in to the cash flow.

Question 63

Under ASPE interest payments on debt are considered financing activities on a statement of cash flows.

Question 64

Non cash activities such as an exchange of shares for a piece of equipment do not need to be disclosed.

Question 65

The majority of organizations use the indirect method when preparing their statement of cash flows.

Question 66

Match these sections off of the balance sheet with their typical cash flow activity category.
Use O for operating, I for investing and F for financing.
Owners' Equity
Current Assets
Non-current Liabilities
Current Liabilities
Non-current Assets

Question 67

Identify where each of the following items would appear on a cash flow statement under ASPE. Use (O) for the operating activities section, (I) for the investing activities section, (F) for the financing activities section, (NIF) for the schedule of noncash investing and financing activities, and (N) if the item does not appear anywhere on the cash flow statement. Assume the statement is prepared using the indirect method.

Question 68

Under the indirect method, depreciation expense must be added back to net income under the operating activities.

Question 69

An increase in common shares would be added into the cash flow from investing activities section of the Statement of Cash Flows.

Question 70

As the accountant for Genetic Incorporated, you are responsible for preparing the cash flow statement. You have decided to prepare the statement using the indirect method and have gathered together the following data from the accounting records:
Prepare the cash flow statement for the year ended December 31, 2014 under ASPE, using the indirect method and including a schedule of noncash investing and financing activities, if necessary.

Question 71

A gain on sale of capital assets is added to net income when preparing the operating activities section of a statement of cash flows under the indirect method.

Question 72

On an indirect method statement of cash flows, a decrease in inventory would be:

A) netted against any decreases in accounts payable
B) deducted from net income
C) reflected in the investing activities section
D) added to net income

Question 73

Non cash activities such as an exchange of shares for a piece of equipment need to be disclosed either on a separate schedule at the bottom of the statement of cash flows or in a note to the financial statements.

Question 74

Under ASPE on an indirect method statement of cash flows, dividends paid during the year are:

A) added to net income
B) deducted from net income
C) reflected in the financing activities section
D) reflected in the investing activities section

Question 75

Free cash flow is calculated by taking net cash flow for the year less planned investments in property, plant, equipment and other non-current assets.

Question 76

Classify each of the following as an operating, investing, or financing activity under ASPE:
a. Loaning money
b. Receiving cash from customers
c. Receiving interest revenue
d. Payments for inventory
e. Payments for interest
f. Receipt of cash from issuance of bonds payable
g. Receipt of cash from sale of equipment
h. Payments for acquisition of land
i. Receipt of cash from issuance of stock
j. Receipt of dividend income
k. Dividends paid to shareholders
l. Payment of salaries to employees
m. Payment of taxes

Question 77

The Corn Crop Corporation gathered the following data from its accounting records for the year ended September 30, 2014:
Acquisition of machinery by issuing
Prepare the operating activities section of the cash flow statement for the Corn Crop Corporation using the indirect method under ASPE.

Question 78

Free cash flow is calculated by taking net cash flow provided by operations less cash flow marked for investment in property, plant, equipment and other non-current assets.

Question 79

The following selected data for the Food Factory Corporation were gathered by the accountants for the year ended December 31, 2013, who are responsible for preparing the financial statements:
The cash account began the year with a balance of $32,500 and ended the year with a balance of $191,500.
Other relevant data gathered by the accountants:
Prepare the cash flow statement for the year ended December 31, 2013 under ASPE, using the indirect method and including a schedule of noncash investing and financing activities, if necessary.

Question 80

On an indirect method statement of cash flows, an increase in accounts payable would be:

A) reflected in the investing activities section
B) netted against any decreases in accounts receivable
C) added to net income
D) deducted from net income