Deck 6: The Cash Flow Statement

Question 1

1_The cash flow statement aids investors and creditors in assessing a business's ability to meet its debt obligations and its ability to pay cash dividends.

Answer 1

True

Question 2

6_All of the following are cash equivalents except:

A) money market investments
B) investments in Government of Canada Treasury Bills
C) accounts receivable
D) cash

Answer 2

C

Question 3

5_The cash flow statement:

A) is required by generally accepted accounting principles
B) is prepared at the option of management
C) may be combined with the shareholders' equity section of the balance sheet
D) does not have to be completed if a balance sheet is prepared

Answer 3

A

Question 4

11_Which of the following statements accurately describes the cash flow statement?

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.

Question 5

9_Highly liquid short-term investments that can be converted into cash with little delay are called:

A) notes receivable
B) trading securities
C) cash equivalents
D) prepaids

Question 6

3_One purpose of the cash flow statement is to show the relationship of net income to changes in the business's cash flow.

Question 7

10_The cash flow statement helps inform the reader about all of the following activities except:

A) the business's ability to generate cash to meet its past obligations
B) the business's ability to generate positive cash flows
C) stock splits and stock dividends
D) differences between net income and cash flows from operations

Question 8

15_Investors analyze the cash flow statement to determine:

A) total interest earned during the period
B) which companies are reporting unearned revenue
C) the debt-to-equity ratio
D) which businesses are expanding and which are cutting back on investments

Question 9

4_The financial statement that reports an entity's cash receipts and cash payments during the period is the:

A) cash flow statement
B) statement of financial position
C) statement of retained earnings
D) statement of income

Question 10

3_Increases and decreases in long-term liabilities and owners' equity are reported in the investing activities section of the cash flow statement.

Question 11

14_An example of the proper dating for the cash flow statement is:

A) December 31, 2015
B) For the Year Ended December 31, 2015
C) As at December 31, 2015
D) No dating is required.

Question 12

12_The term cash as used on the cash flow statement includes all of the following except:

A) account receivables
B) petty cash
C) Government of Canada treasury bills
D) money market funds

Question 13

13_Which of the following statements is TRUE?

A) The Cash Flow Statement is for a point in time.
B) The Cash Flow Statement is not required by generally accepted accounting principles.
C) The Cash Flow Statement reports why cash increased or decreased during the accounting period.
D) The Cash Flow Statement is a summary of all the transactions that affected Net Income.

Question 14

8_All of the following are true of negative cash flow from operations except:

A) Negative cash flow from operations, if sustained, will spell bankruptcy.
B) Negative cash flow from operations virtually always warrants investigation.
C) Negative cash flow from operations in a single year is not necessarily a danger signal.
D) Negative cash flow from operations: is normal for a profitable company.

Question 15

1_The cash flow statement is divided into operating,investing,and financing activities.

Question 16

2_Financing activities are generally more important than investing activities because how the company finances acquisitions is more important than what a company invests in.

Question 17

7_All of the following are purposes of the cash flow statement except to:

A) help predict future cash flows
B) evaluate management decisions concerning cash management
C) report the earnings per share
D) determine the ability to pay dividends to shareholders, and interest and principal to creditors

Question 18

17_What is the most important source of cash for most successful companies? Explain why.

Question 19

16_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.
a_Explain the most likely reason for the company's declaring bankruptcy.Could your best friend have seen it coming? How?
b_Discuss the four purposes of the cash flow statement.

Question 20

2_A company reporting net income will always show an increase in cash for the same period.

Question 21

6_Paying interest on money borrowed from the bank would be reported in the operating activities section of the cash flow statement.

Question 22

9_In the long run,operations must be the main source of a business's cash.

Question 23

19_The cash flow statement is divided into three major categories including:

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

Question 24

12_The payment of cash dividends is an operating activity on the cash flow statement.

Question 25

15_The acquisition of land through the issuance of common shares would be a noncash investing and financing activity not reported on the cash flow statement but would be reported in the notes.

Question 26

5_Borrowing money from the bank would be reported in the financing activities section of the cash flow statement.

Question 27

11_Payments to suppliers would appear as an investing activity on the cash flow statement.

Question 28

20_The operating activities section of the cash flow statement would include all of the following except :

A) payments to suppliers
B) payments for dividends
C) payments for operating expenses
D) collections from customers

Question 29

23_The cash received from the sale of office equipment for cash would appear in the:

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

Question 30

4_Lending cash to other companies would be reported in the financing activities section of the cash flow statement.

Question 31

22_The purchase of office equipment for cash would appear in the:

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

Question 32

14_The indirect and direct methods use different computations but produce the same amount of cash flows from operations.

Question 33

8_Increases and decreases in long-term liabilities and owners' equity are reported in the investing activities section of the cash flow statement.

Question 34

13_The Accounting Standards Board prefers the use of the indirect format of the cash flow statement.

Question 35

17_An exchange of a long-term note payable for equipment is presented on the financial statements as a disclosure note rather than as a source and use of cash on the cash flow statement.

Question 36

18_Discontinued operations are shown separately on the cash flow statement.

Question 37

16_An exchange of shares for land is presented on the cash flow statement as a financing activity and an investing activity.

Question 38

7_Paying principal on a bank loan would be reported in the operating activities section of the cash flow statement.

Question 39

21_Cash received on account from a customer would appear in the:

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

Question 40

10_Financing activities increase and decrease the long-term assets available to the business.

Question 41

37_Which of the following is considered a financing activity?

A) interest earned on short-term investments
B) sale of inventory
C) dividends received on investments in shares
D) dividends paid to shareholders

Question 42

43_Which of the following would be reported in the investing activities section of the cash flow statement?

A) issuing shares
B) borrowing money
C) payments of interest
D) making loans to others

Question 43

33_Cash paid to the landlord for rent would appear in the:

A) investing activities section
B) financing activities section
C) operating activities section
D) would not appear on the cash flow statement

Question 44

36_Which of the following is not considered an operating activity?

A) interest earned on short-term investments
B) sale of inventory
C) dividends received on investments in shares
D) dividends paid to shareholders

Question 45

24_Cash payments for dividends would appear in the:

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

Question 46

27_Cash received from the sale of a long-term investment would appear in the:

A) investing activities section
B) financing activities section
C) operating activities section
D) would not appear on the cash flow statement

Question 47

39_All of the following are considered investing activities except:

A) making loans to others
B) purchasing equipment
C) receipt of dividends
D) sale of land

Question 48

34_The purchase of common shares of another company would appear in the:

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

Question 49

42_Activities that obtain cash needed to launch and sustain the business are referred to as:

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

Question 50

25_Cash received from the issuance of shares would appear in the:

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

Question 51

30_Cash paid to the government for income taxes would appear in the:

A) investing activities section
B) financing activities section
C) operating activities section
D) would not appear on the cash flow statement

Question 52

28_Cash received from dividends on shares owned as a long-term investment would appear in the:

A) investing activities section
B) financing activities section
C) operating activities section
D) would not appear on the cash flow statement

Question 53

29_Cash paid to suppliers on account of purchases of inventory would appear in the:

A) investing activities section
B) financing activities section
C) operating activities section
D) would not appear on the cash flow statement

Question 54

41_Activities affecting long-term assets are referred to as:

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

Question 55

40_Activities that create revenues and expenses are referred to as:

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

Question 56

38_Which of the following items would be reported as an operating activity?

A) purchase of land
B) payment of interest
C) payment of dividends
D) sale of common shares

Question 57

26_Cash received from tenants for rentals would appear in the:

A) investing activities section
B) financing activities section
C) operating activities section
D) would not appear on the cash flow statement

Question 58

32_Cash paid to employees for wages would appear in the:

A) investing activities section
B) financing activities section
C) operating activities section
D) would not appear on the cash flow statement

Question 59

35_The distribution of a stock dividend would appear in the:

A) operating activities section
B) financing activities section
C) investing activities section
D) It would not appear on the cash flow statement.

Question 60

31_Cash paid to a municipality for property taxes would appear in the:

A) investing activities section
B) financing activities section
C) operating activities section
D) would not appear on the cash flow statement

Question 61

1_Cash collections from customers,cash receipts of interest,and cash receipts of dividends would all be included on a direct-method cash flow statements since they have an effect on cash.

Question 62

45_Which of the following describes the operating activities as shown in the cash flow statement?

A) includes increases and decreases in long-term assets
B) includes transactions affecting the capitalization of the business
C) includes transactions that primarily impact current assets and current liabilities
D) shows the beginning and ending balance of cash

Question 63

70_Identify each of the following transactions as an operating activity (O),an investing activity (I),a financing activity (F),a noncash investing and financing activity (NIF),or a transaction that is not reported on the cash flow statement (N).In addition,indicate the effect that each of the following transactions has on the cash balance.Use + for increase,- for decrease,and 0 for no change.

Question 64

73_Answer each of the following questions.Your answers should be brief and concise.
a_Identify and describe the three types of activities that are reported on the cash flow statement.
b_Which of the three activities is least likely to show a positive cash flow for a successful growing business? Explain.
c_Explain how a company may generate cash yet have low profits and sales.

Question 65

3_Gains and losses on the sale of assets are listed on a direct-method cash flow statement as these items have an effect on cash.

Question 66

7_Which of the following would appear on the direct method cash flow statement?

A) loss on sale of equipment
B) amortization of patents
C) amortization on equipment
D) cash payments for salaries

Question 67

71_State whether each event below should be classified as an operating activity,investing activity,financing activity,shown in a separate schedule or note of noncash investing and financing activities,or not disclosed on the cash flow statement.

Question 68

48_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 are included in the operating activities section.
B) Activities that create revenue or expenses in the entity's major line of business are included in the operating activities section.
C) Activities that increase or decrease long-term assets are included in the operating activities section.
D) Activities that pertain to construction of new facilities are included in the operating activities section.

Question 69

69_Identify each of the following transactions as an operating activity (O),an investing activity (I),a financing activity (F),a noncash investing and financing activity (NIF),or a transaction that is not reported on the cash flow statement (N).In addition,indicate the effect that each of the following transactions has on the cash balance.Use + for increase,- for decrease,and 0 for no change.Assume the direct method is used to report cash flows from operating activities.

Question 70

Question 71

46_Which of the following describes the financing activities as shown in the cash flow statement?

A) includes increases and decreases in long-term assets
B) includes transactions affecting the capitalization of the business
C) includes transactions that primarily impact current assets and current liabilities
D) shows the beginning and ending balance of cash

Question 72

49_If an investor wants to know how much cash a company can free up for new opportunities,such as expanding into a new sales region,they would most likely look at:

A) free cash flow
B) cash flow from investing activities
C) acid ratio
D) earnings per share

Question 73

4_The payment of cash dividends,not the declaration,appears as a cash outflow on the cash flow statement.

Question 74

6_The direct method and the indirect method of preparing the cash flow statement differ only in the investing section.

Question 75

47_Which of the following describes the investing activities as shown in the cash flow statement?

A) includes increases and decreases in long-term assets
B) includes transactions affecting the capitalization of the business
C) includes transactions that primarily impact current assets and current liabilities
D) shows the beginning and ending balance of cash

Question 76

44_Free cash flow is:

A) cash available from operations
B) cash available from investing activities
C) cash available from operations after paying for planned investments in long-term assets
D) cash available from operations after paying dividends to common shareholders

Question 77

5_Under the direct method,the operating activities section begins with net income,which is converted into net cash inflow or net cash outflow.

Question 78

50_All of the following would be reported in the financing activities section of the direct-method cash flow statement except:

A) issuing a stock dividend
B) issuing shares
C) issuing bonds at par
D) paying a cash dividend

Question 79

72_Describe how the issuance of common shares to purchase land should be reported in the financial statements.Identify two other transactions that would receive similar treatment.

Question 80

2_Amortization expense is not listed on a direct-method cash flow statement since this item has no effect on cash.