Deck 15: The Statement of Cash Flows

Question 1

Noncash investing and financing transactions, such as the exchange of a long-term asset for a long-term liability, represent significant investing and financing activities and are reflected in a separate schedule as part of the statement of cash flows.

Answer 1

True

Question 2

The purchase of trading securities with cash is considered an investing activity.

Answer 2

False

Question 3

Cash flows to sales is a measure of free cash flow.

Answer 3

False

Question 4

Cash inflows and outflows are easier to manipulate than earnings.

Question 5

The acquisition of treasury stock with cash is shown as an investing activity on the statement of cash flows.

Question 6

The statement of cash flows discloses the effect on cash of the purchase and sale of both short- and long-term investments.

Question 7

The primary purpose of the statement of cash flows is to provide information about a company's cash receipts and cash payments during an accounting period.

Question 8

It is unethical, and considered a form of manipulation, to classify a cash flow as an investing or financing activity, when it really is an operating activity.

Question 9

Repayments of accounts payable or accrued liabilities are considered repayments of loans under financing activities.

Question 10

The statement of cash flows shows the effects on net income of a company's operating, investing, and financing activities for an accounting period.

Question 11

Interest received would be included in the investing activities category on the statement of cash flows.

Question 12

A U.S. Treasury bill with an original maturity of one year or less is considered a cash equivalent.

Question 13

Because noncash investing and financing transactions do not affect cash, they should be excluded from the statement of cash flows.

Question 14

For purposes of preparing the statement of cash flows, cash is defined as including both cash and cash equivalents.

Question 15

Management could use the statement of cash flows to determine whether short-term financing is necessary to pay current liabilities.

Question 16

Interest paid would be included in the operating activities category on the statement of cash flows.

Question 17

Cash equivalents include money market accounts, commercial paper, U.S. Treasury bills, and other short-term investments or marketable securities.

Question 18

The primary purpose of the statement of cash flows is to provide information about a company's investing and financing activities during an accounting period.

Question 19

The payment of taxes would be included in the operating activities section of the statement of cash flows.

Question 20

The statement of cash flows explains the difference between net income as shown on the income statement and the net cash flows generated from operations.

Question 21

Free cash flow is measured in terms of a percentage.

Question 22

Cash flows to assets is measured in "times."

Question 23

Cash inflows and outflows are not netted in the investing activities section of the statement of cash flows but are separately disclosed to give the reader full information.

Question 24

A decrease in plant assets shown in the investing activities section of the statement of cash flows would be presented based on the amount of the resulting gain or loss incurred.

Question 25

Determining net cash flows from operating activities using the indirect method reveals cash collected from customers.

Question 26

Even though investing activities center on the long-term assets shown on the balance sheet, they also include any short-term investments shown under current assets on the balance sheet

Question 27

Interest expense is one item added to net income as per the income statement to arrive at net cash flows from operating activities.

Question 28

Purchases and sales of long-term investments for the period should be netted for disclosure in the investing activities section of the statement of cash flows.

Question 29

The income statement indicates a business's success or failure in earning an income from its operating activities, but it does not reflect the inflow and outflow of cash from operating activities.

Question 30

A cash flow yield of 2.5 times is considered better than one of 2.0 times.

Question 31

Interest received is one item deducted from net income as per the income statement to arrive at net cash flows from operating activities.

Question 32

Under the indirect method, gains or losses from the sale of equipment used in operations would appear as adjustments in the cash flows from operating activities section of the statement of cash flows.

Question 33

Amortization expense is deducted from net income in the cash flows from operating activities section of the statement of cash flows.

Question 34

When presenting decreases in long-term investments in the investing activities section of the statement of cash flows, the amount reflected equals the amount of the gain(s) or loss(es) from the transaction(s).

Question 35

When preparing a statement of cash flows using the indirect method, an increase in accounts receivable is deducted from net income.

Question 36

A decrease in the balance of merchandise inventory is added to net income when calculating net cash flows from operating activities using the indirect method.

Question 37

When preparing a statement of cash flows using the indirect method, an increase in dividends payable is added to net income.

Question 38

Net cash flows from operating activities would be needed to calculate cash flow yield, cash flows to assets, and cash flows to sales.

Question 39

A negative free cash flow indicates that the company has met all its planned cash commitments and has cash available to reduce debt or to expand.

Question 40

When preparing a statement of cash flows using the indirect method, an increase in accounts payable is added to net income.

Question 41

A schedule of noncash investing and financing activities is not required when a statement of cash flows is prepared using the indirect method.

Question 42

The financing activities section of the statement of cash flows does not include any transactions or activities from the income statement but does take into account stockholders' equity.

Question 43

Repayment of bonds payable would be reflected as a cash outflow in the investing activities section of the statement of cash flows.

Question 44

Investors and creditors would find the statement of cash flows least useful in assessing

A) financial position at a point in time.
B) need for additional financing.
C) ability to pay dividends and liabilities.
D) ability to generate positive future cash flows.

Question 45

How are cash equivalents treated on a statement of cash flows?

A) They are disclosed in the operating activities section.
B) They are combined with the Cash account.
C) They are disclosed in the investing activities section.
D) They are disclosed in the financing activities section.

Question 46

Royer Corporation engaged in this transaction: Declared and issued a stock dividend.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.

A) Financing activities section
B) Operating activities section
C) Does not represent a cash flow
D) Investing activities section

Question 47

Management would not use the statement of cash flows to

A) assess the liquidity of the business.
B) determine dividend policy.
C) evaluate the effects of major policy decisions involving investments and financing.
D) determine the financial position of the company.

Question 48

Elkwood Corporation acquired a land site with a building by issuing a 30-year mortgage payable. In Elkwood's statement of cash flows, this transaction should be shown

A) only as a cash flow from investing activity for the purchase of the land and building.
B) only as a cash flow from financing activity for the issuance of the mortgage payable.
C) in the schedule of noncash investing and financing transactions.
D) as both a cash flow from investing activity and a cash flow from financing activity.

Question 49

The activity on the balance sheet to be presented in the financing activities section of the statement of cash flows is based on an analysis of stockholders' equity only.

Question 50

Dividends paid are reflected in the financing activities section of the statement of cash flows.

Question 51

Cash equivalents do not include

A) U.S. Treasury bills.
B) money market accounts.
C) marketable securities.
D) commercial paper.

Question 52

The net income for the period would appear in the cash flows from financing activities section of a statement of cash flows prepared using the indirect method.

Question 53

Royer Corporation engaged in this transaction: Purchased inventory with cash.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.

A) Does not represent a cash flow
B) Investing activities section
C) Operating activities section
D) Financing activities section

Question 54

Noncash investing and financing transactions

A) appear as a separate schedule on the statement of cash flows.
B) appear in either the investing or financing activities section, but not both.
C) are excluded from the statement of cash flows.
D) appear in both the investing and financing activities sections.

Question 55

The most future-directed of the basic financial statements is the

A) statement of stockholders' equity.
B) statement of cash flows.
C) income statement.
D) balance sheet.

Question 56

Issuance of notes, either long- or short-term, would be reflected in the financing activities section of the statement of cash flows.

Question 57

The primary purpose of the statement of cash flows is to provide information

A) about a company's cash receipts and cash payments during an accounting period.
B) about a company's investing and financing activities during an accounting period.
C) regarding a company's financial position at the end of an accounting period.
D) regarding the results of operations for a period of time.

Question 58

How are transfers between cash and cash equivalents treated on a statement of cash flows?

A) They are disclosed as an investing activity.
B) They are not shown as any type of cash flow.
C) They are disclosed as a financing activity.
D) They are disclosed as an operating activity.

Question 59

Which of the following is reported as a noncash investing and financing transaction on the statement of cash flows?

A) Conversion of bonds payable to stock
B) Purchase of treasury stock
C) Payment of long-term debt
D) Sale of preferred stock

Question 60

Royer Corporation engaged in this transaction: Collected accounts receivable.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.

A) Does not represent a cash flow
B) Operating activities section
C) Financing activities section
D) Investing activities section

Question 61

Royer Corporation engaged in this transaction: Purchased land for cash.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.

A) Operating activities section
B) Investing activities section
C) Financing activities section
D) Does not represent a cash flow

Question 62

Royer Corporation engaged in this transaction: Repaid ten-year note payable.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.

A) Financing activities section
B) Schedule of noncash investing and financing transactions
C) Investing activities section
D) Operating activities section

Question 63

Royer Corporation engaged in this transaction: Issued long-term note for plant assets.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.

A) Schedule of noncash investing and financing transactions
B) Financing activities section
C) Operating activities section
D) Investing activities section

Question 64

Royer Corporation engaged in this transaction: Issued common stock for cash.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.

A) Operating activities section
B) Does not represent a cash flow
C) Investing activities section
D) Financing activities section

Question 65

Royer Corporation engaged in this transaction: Acquired long-term investment by issuance of long-term debt.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.

A) Investing activities section
B) Operating activities section
C) Schedule of noncash investing and financing transactions
D) Financing activities section

Question 66

Royer Corporation engaged in this transaction: Received dividends on securities held.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.

A) Schedule of noncash investing and financing transactions
B) Operating activities section
C) Financing activities section
D) Investing activities section

Question 67

Royer Corporation engaged in this transaction: Transferred cash to money market account.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.

A) Does not represent a cash flow
B) Operating activities section
C) Investing activities section
D) Financing activities section

Question 68

Royer Corporation engaged in this transaction: Retired long-term debt with cash.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.

A) Operating activities section
B) Does not represent a cash flow
C) Investing activities section
D) Financing activities section

Question 69

Royer Corporation engaged in this transaction: Converted loans payable to stock.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.

A) Financing activities section
B) Schedule of noncash investing and financing transactions
C) Investing activities section
D) Operating activities section

Question 70

Royer Corporation engaged in this transaction: Abandoned fully depreciated equipment.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.

A) Investing activities section
B) Operating activities section
C) Does not represent a cash flow
D) Financing activities section

Question 71

Royer Corporation engaged in this transaction: Purchased 30-day U.S. Treasury bill.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.

A) Does not represent a cash flow
B) Operating activities section
C) Investing activities section
D) Financing activities section

Question 72

Royer Corporation engaged in this transaction: Paid interest on note.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.

A) Financing activities section
B) Schedule of noncash investing and financing transactions
C) Investing activities section
D) Operating activities section

Question 73

Royer Corporation engaged in this transaction: Purchased one-year insurance policy for cash.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.

A) Financing activities section
B) Does not represent a cash flow
C) Investing activities section
D) Operating activities section

Question 74

Royer Corporation engaged in this transaction: Purchased land and building with a mortgage.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.

A) Financing activities section
B) Operating activities section
C) Investing activities section
D) Schedule of noncash investing and financing transactions

Question 75

Royer Corporation engaged in this transaction: Repaid 190-day note payable.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.

A) Financing activities section
B) Schedule of noncash investing and financing transactions
C) Operating activities section
D) Investing activities section

Question 76

Royer Corporation engaged in this transaction: Issued stock for equipment.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.

A) Financing activities section
B) Operating activities section
C) Investing activities section
D) Schedule of noncash investing and financing transactions

Question 77

Royer Corporation engaged in this transaction: Received interest on an investment in a long-term note.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.

A) Financing activities section
B) Does not represent a cash flow
C) Operating activities section
D) Investing activities section

Question 78

Royer Corporation engaged in this transaction: Paid income taxes.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.

A) Schedule of noncash investing and financing transactions
B) Investing activities section
C) Operating activities section
D) Financing activities section

Question 79

Royer Corporation engaged in this transaction: Sold long-term investment.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.

A) Financing activities section
B) Schedule of noncash investing and financing transactions
C) Operating activities section
D) Investing activities section

Question 80

Royer Corporation engaged in this transaction: Paid employee wages.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.

A) Financing activities section
B) Investing activities section
C) Does not represent a cash flow
D) Operating activities section