Deck 16: The Statement of Cash Flows

Question 1

List and discuss three ways in which the statement of cash flows helps financial statement users.

Answer 1

1.Predict future cash flows-Past cash receipts and payments help predict future cash flows.
2.Evaluate management decisions-Wise investment decisions help the business prosper,while unwise decisions cause the business to have problems.Cash flow information can help investors and creditors to evaluate managers' decisions.
3.Predict ability to pay debts and dividends-Lenders want to know whether they will collect on their loans.Stockholders want dividends on their investments.The statement of cash flows helps make these predictions.

Question 2

The balance sheet shows why cash increased or decreased.

Answer 2

False

Question 3

The statement of cash flows explains why net income as reported on the income statement does not equal the change in the cash balance.

Answer 3

True

Question 4

The operating activities section of the statement of cash flows includes activities that create revenue or expenses for the entity's business.

Question 5

The three sections of the statement of cash flows report only activities that involve cash.

Question 6

A business's cash receipts and cash payments for a specific period are reported on a(n)________.

A)income statement
B)balance sheet
C)statement of cash flows
D)cash reconciliation statement

Question 7

The investing activities section of the statement of cash flows reports cash receipts and payments that increase or decrease long-term liabilities.

Question 8

The statement of cash flows helps users ________.

A)predict future net income
B)evaluate management decisions
C)evaluate the company's earnings per share
D)predict the growth of a company's assets

Question 9

The financing activities section of the statement of cash flows includes activities that affect current assets and current liabilities.

Question 10

One of the purposes of the statement of cash flows is to ________.

A)determine the operating income of a business
B)to calculate inventory turnover
C)evaluate the level of debt and leverage of a company
D)predict the ability of a company to pay debts and dividends

Question 11

A company purchased machinery by issuing a long-term note payable.This is an example of a non-cash investing and financing activity for the statement of cash flows.

Question 12

Which of the following is TRUE of the statement of cash flows?

A)It indicates when long-term debt will mature.
B)It reports on the qualitative behavior of the company's performance.
C)It covers a span of time and is dated the same as the income statement.
D)It shows how the profits or losses of the company were generated.

Question 13

The cash paid for the purchase of equipment will typically be shown in the investing activities section of the statement of cash flows.

Question 14

The statement of cash flows shows where cash came from and how cash was spent.

Question 15

The operating activities section of the statement of cash flows reflects the cash flows that affect current assets and current liabilities.

Question 16

Which of the following statements accurately describes the statement of cash flows?

A)It shows the relative proportion of debt and assets.
B)It is the link between the accrual-based income statement and the cash reported on the balance sheet.
C)It indicates when long-term debt will mature.
D)It is the link between net income and earnings per share.

Question 17

Investors and management use the statement of cash flows to evaluate a firm's profitability.

Question 18

The statement of cash flows is the link between the accrual-based income statement and the cash reported on the balance sheet.

Question 19

The statement of cash flows is dated the same as the balance sheet.

Question 20

The financing activities section of the statement of cash flows includes paying dividends and making payments on long-term liabilities.

Question 21

Which of the following describes the financing activities section of the statement of cash flows?

A)It includes increases and decreases in long-term assets.
B)It includes cash inflows and outflows related to long-term liabilities and equity.
C)It includes interest and dividend income and cash payments for interest expense.
D)It reports on activities that create revenue or expenses for the entity's business.

Question 22

Identify how each of the following items is shown on the statement of cash flows.Identify each as operating (O),investing (I),financing (F),or non-cash investing and financing (N).

Question 23

Identify how each of the following items is shown on the statement of cash flows.Identify each as operating (O),investing (I),financing (F),or non-cash investing and financing (N).

Question 24

The ________ section of the statement of cash flows includes increases and decreases in long-term assets.

A)investing activities
B)financing activities
C)operating activities
D)non-cash operating activities

Question 25

The contribution of equipment by a stockholder in exchange for common stock is an example of ________.

A)investing activity
B)financing activity
C)operating activity
D)non-cash investing and financing activity

Question 26

The direct method restates the income statement in terms of cash.

Question 27

When preparing the statement of cash flows by the indirect method,it is necessary to adjust for non-cash expenses such as depreciation expense.

Question 28

Which of the following sections of the statement of cash flows is presented differently between the direct method and indirect method?

A)investing activities
B)financing activities
C)operating activities
D)non-cash investing and financing activities

Question 29

The cash flows from investing activities is completed by reviewing the long-term liabilities section of the balance sheet.

Question 30

The indirect and direct methods use different computations but produce the same amount of net cash provided by operating activities.

Question 31

Under IFRS,interest revenue and dividend income may be reported either as an operating activity or an investing activity.

Question 32

Identify how each of the following items is shown on the statement of cash flows.Identify each as operating (O),investing (I),financing (F),or non-cash investing and financing (N).

Question 33

The operating and financing activities of the statement of cash flows are presented differently between the indirect and direct methods.

Question 34

Regarding the direct and indirect methods of preparing the statement of cash flows,which of the following statements is TRUE?

A)The indirect method and the direct method will produce a different amount of net cash provided by investing activities.
B)The indirect method starts with net income and adjusts it to net cash provided by (used for)operating activities.
C)The direct and indirect methods include different types of cash flows in the investing activities section.
D)The indirect method includes all non-cash activities,whereas the direct method includes only the cash activities.

Question 35

Which of the following describes the operating activities section of the statement of cash flows?

A)It reports cash receipts and cash payments that increase or decrease long-term assets.
B)It includes cash inflows and outflows related to long-term liabilities and equity.
C)It reports on activities that create revenue or expenses for the entity's business.
D)It reports on how cash flows affect the total assets and total liabilities.

Question 36

IFRS requires the use of the indirect method for the operating activities section of the statement of cash flows.

Question 37

The purchase of equipment financed by a long-term notes payable is an example of ________.

A)investing activity
B)financing activity
C)operating activity
D)non-cash investing and financing activity

Question 38

The direct method starts with net income and adjusts it to net cash provided by operating activities.

Question 39

Which of the following statements is TRUE of the direct and indirect methods of preparing the statement of cash flows?

A)The indirect method and the direct method will produce the same amount of net cash provided by operating activities.
B)The investing activities section is the only section that differs between the direct and indirect methods.
C)The indirect method shows three types of cash flows,but the direct method does not.
D)There is no difference in the way the operating activities section is presented.

Question 40

The change in cash is the key reconciling figure for the statement of cash flows and must match the change in cash reported on the comparative income statements.

Question 41

Dependable Tires Company uses the indirect method to prepare the statement of cash flows.Refer to the following comparative balance sheet for Dependable Tires Company and complete the third column to show the increases or decreases.

Question 42

Which of the following sections of the statement of cash flows include activities that affect current assets and current liabilities on the balance sheet? (Assume the indirect method is used. )

A)the investing activities section
B)the financing activities section
C)the operating activities section
D)the non-cash investing and financing section

Question 43

Georgia Corp.uses the indirect method to prepare the statement of cash flows.Refer to the following section of the comparative balance sheet: How will the change in Accounts Receivable be shown on the statement of cash flows?

A)addition to net income under the operating activities section
B)subtraction from net income under the operating activities section
C)positive cash flow under the financing activities section
D)negative cash flow under the investing activities section

Question 44

While preparing a statement of cash flows using the indirect method,an increase in current assets is added to net income to arrive at net cash provided by operating activities.

Question 45

Which of the following is the typical order of the sections on a statement of cash flows?

A)operating,financing,investing
B)financing,investing,operating
C)investing,operating,financing
D)operating,investing,financing

Question 46

Which of the following sections of the statement of cash flows include activities that affect net income on the income statement?

A)the financing activities section
B)the operating activities section
C)the investing activities section
D)the non-cash investing and financing section

Question 47

Wesley,Inc.uses the indirect method to prepare the statement of cash flows.Refer to the following section of the comparative balance sheet:
The change in Merchandise Inventory is shown as a negative cash flow in the adjustments to net income.

Question 48

When preparing the statement of cash flows using the indirect method,a decrease in current liabilities is added to the net income to arrive at net cash provided by operating activities.

Question 49

The activities that are included in the operating activities section of the statement of cash flows are ________.

A)activities that involve stockholders' equity
B)activities that create revenue or expenses
C)activities that increase or decrease long-term assets
D)activities that pertain to construction of new facilities

Question 50

Which of the following sections of the statement of cash flows include activities that create revenue and expenses of the business?

A)the investing activities section
B)the financing activities section
C)the operating activities section
D)the non-cash investing and financing section

Question 51

Shell,Inc.uses the indirect method to prepare the statement of cash flows.Refer to the following section of the comparative balance sheet:
The change in Accounts Receivable is shown as a negative cash flow in the adjustments to net income.

Question 52

The three major categories included on the statement of cash flows are ________.

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

Question 53

California Corp.uses the indirect method to prepare the statement of cash flows.Refer to the following section of the comparative balance sheet:
The change in Accrued Liabilities is shown as a negative cash flow in the adjustments to net income.

Question 54

When preparing the statement of cash flows using the indirect method,depreciation expense is subtracted from net income under operating activities.

Question 55

Virginia Company uses the indirect method to prepare the statement of cash flows.Refer to the following section of the comparative balance sheet: How will the change in Accounts Payable be shown on the statement of cash flows?

A)as an addition to Net Income
B)as a deduction from Net Income
C)as a deduction from investing cash flows
D)as an addition to operating cash flows

Question 56

Texas Corp.uses the indirect method to prepare the statement of cash flows.Refer to the following section of the comparative balance sheet:
The change in Accounts Payable is reported as a negative cash flow in the adjustments to net income.

Question 57

When preparing the statement of cash flows using the indirect method,a loss on the sale of plant assets must be shown as a subtraction from the investing activities section.

Question 58

Which of the following will be shown under the investing activities section of the statement of cash flows?

A)purchased treasury stock for cash
B)issued notes payable to purchase equipment
C)paid cash dividends to stockholders
D)loaned money to a third party

Question 59

Utah Corp.uses the indirect method to prepare the statement of cash flows.Refer to the following section of the comparative balance sheet: How will the change in Merchandise Inventory be shown on the statement of cash flows?

A)addition to net income under the operating activities section
B)subtraction from net income under the operating activities section
C)positive cash flow under the financing activities section
D)negative cash flow under the investing activities section

Question 60

List (in the correct order)and briefly discuss the five steps that are followed when preparing the statement of cash flows by the indirect method.

Question 61

Arkansas Corp.is preparing its statement of cash flows using the indirect method.It provides the following information about transactions for the year: Plant assets,net-beginning balance: $111,000
Plant assets,net-ending balance: $148,000
Equipment was purchased for $65,000 with cash.
Equipment with a net asset value of $12,000 was sold for $18,000.
Depreciation Expense of $16,000 was recorded during the year.
What was the amount of net cash provided by (used for)investing activities?

A)$(47,000)
B)$47,000
C)$(63,000)
D)$(39,000)

Question 62

On the statement of cash flows,the investing activities section is shown after the financing activities section.

Question 63

Atlanta Company sold equipment for cash.The income statement shows a gain on the sale of $1020.The net book value of the asset was $3810.Which of the following statements describes the cash effect of the transaction?

A)negative cash flow of $4830 for financing activities
B)negative cash flow of $2790 for operating activities
C)positive cash flow of $4830 from investing activities
D)positive cash flow of $2790 from investing activities

Question 64

Maryland Services purchased 10 delivery vehicles by issuing a 10-year installment note payable for $320,000.This transaction is shown in the investing activities section of the statement of cash flows.

Question 65

Which of the following sections of the statement of cash flows include purchases and sales of long-term assets?

A)the financing activities section
B)the operating activities section
C)the investing activities section
D)the non-cash investing and financing section

Question 66

Wisconsin Farm Equipment Company sold equipment for cash.The income statement shows a loss on the sale of $7000.The net book value of the asset was $28,900.Which of the following statements describes the cash effect of the transaction?

A)positive cash flow of $35,900 from financing activities
B)negative cash flow of $21,900 for operating activities
C)negative cash flow of $21,900 for financing activities
D)positive cash flow of $21,900 from investing activities

Question 67

Colorado Company uses the indirect method to prepare the statement of cash flows.Refer to the following section of the comparative balance sheet: How will the change in Accrued Liabilities be shown on the statement of cash flows?

A)as an addition to Net Income
B)as a deduction from Net Income
C)as a deduction from operating cash flows
D)as an addition to investing cash flows

Question 68

Nebraska Auto Parts Company uses the indirect method to prepare the statement of cash flows.Refer to the following income statement:
Additional information provided by the company includes the following:
Current assets other than cash increase by $36,000.
Current liabilities decrease by $1,500.
Prepare the operating activities section of the statement of cash flows.

Question 69

Connecticut,Inc.uses the indirect method to prepare its statement of cash flows.Refer to the following portion of the comparative balance sheet: Additional information provided by the company includes the following:
1)Equipment was purchased for $69,000 with cash.
2)Equipment with a cost of $33,000 and accumulated depreciation of $7300 was sold for $46,000.
What was the amount of net cash provided by (used for)investing activities?

A)$188,000
B)$23,000
C)$(188,000)
D)$(23,000)

Question 70

Ohio,Inc.uses the indirect method to prepare the statement of cash flows.Refer to the following income statement: Additional information provided by the company includes the following:
Current assets,other than cash,decreased by $5500.
Current liabilities increased by $2500.
Compute the net cash provided by (used for)operating activities.

A)$(33,500)
B)$(61,900)
C)$10,700
D)$38,700

Question 71

Which of the following sections of the statement of cash flows include activities that increase and decrease long-term assets?

A)the financing activities section
B)the operating activities section
C)the investing activities section
D)the non-cash investing and financing section

Question 72

Which of the following will be listed in the operating section of the statement of cash flows that is prepared using the indirect method?

A)collections from customers
B)payments to suppliers
C)interest received
D)increases/decreases in current liabilities

Question 73

Kentucky Company uses the indirect method to prepare the statement of cash flows.Refer to the following income statement: Additional information provided by the company includes the following:
1)Current assets,other than cash,increased by $20,000.
2)Current liabilities decreased by $1500.
Compute the net cash provided by (used for)operating activities.

A)$26,700
B)$40,700
C)$35,600
D)$11,700

Question 74

Illinois Woodworking Company is preparing its statement of cash flows using the indirect method.During the year,Illinois Woodworking sold equipment for $5990 cash.The net book value of the asset was $4970.Which of the following statements is TRUE?

A)The gain on sale of $1020 is added back to net income in the operating activities section.
B)The book value of the asset sold is shown as a negative cash flow in the investing activities section.
C)The cash receipt of $5990 is shown as a positive cash flow in the investing activities section.
D)The gain on sale of $1020 is shown as a positive cash flow in the financing activities section.

Question 75

In preparing a statement of cash flows using the indirect method,the Depreciation Expense ________.

A)is added back as an adjustment to Net Income in the operating activities section
B)is shown as a negative cash flow in the investing activities section
C)is added back to Purchases of Plant Assets under investing activities
D)is shown as a negative cash flow under operating activities

Question 76

Dakota Telescopes Company uses the indirect method to prepare the statement of cash flows.Refer to the following income statement:
Additional information provided by the company includes the following:
Current assets other than cash decreased by $25,000.
Current liabilities increased by $3,000.
Prepare the operating activities section of the statement of cash flows.

Question 77

For each of the following items,relating to the adjustments made to reconcile net income to net cash provided by operating activities section,state whether the adjustment is an increase or decrease to net income.

Question 78

For each of the following items,relating to the adjustments made to reconcile net income to net cash provided by operating activities section,state whether the adjustment is an increase or decrease to net income.

Question 79

Selling property,plant,and equipment for $10,000 cash is considered a cash inflow from investing activities on the statement of cash flows.

Question 80

When computing investing cash flows,it is helpful to evaluate the T-accounts for each long-term liability.