Deck 21: The Statement of Cash Flows

Question 1

Generating positive cash flows from operations is one of the most important cash flow activities of a company.

Answer 1

True

Question 2

In a statement of cash flows, which of the following events would not be classified as an operating activity?

A) purchase of a trading security
B) receipt of a cash dividend
C) payment of interest on a bond issue
D) proceeds from the sale, at a gain, of an available-for-sale security

Answer 2

D

Question 3

In a statement of cash flows, the payment of a cash dividend on common stock outstanding should be classified as cash outflows for

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

Answer 3

D

Question 4

Under IFRS a company is allowed to report dividends and interest received as either an operating or a financing cash inflow.

Question 5

The adjusted trial balance is used in the preparation of the statement of cash flows because it contains the balance sheet, income statement, and retained earnings statements for the current period.

Question 6

The visual inspection method does not provide supporting documentation for the statement of cash flows due to its simplistic nature.

Question 7

For reporting operating cash flows under the indirect method, a company adds an unrealized holding loss on trading securities to net income to help adjust net income from an accrual basis to a cash basis.

Question 8

In order to prepare the statement of cash flows under the direct method a company will need the adjusted trial balance from the previous period.

Question 9

The visual inspection method is used when a company has simple financial statements and when the relationships between the changes in account balances can be easily analyzed.

Question 10

GAAP allows the use of either the direct or indirect methods but prefers the direct method, but companies who use the indirect method must also include a separate schedule reconciling its net income to net cash flow provided by operating activities.

Question 11

What is the primary purpose of a company's statement of cash flows?

A) to provide information about the company's operations
B) to provide information about the company's dividend policy
C) to provide information about the company's financing and investing activities
D) to provide information about the company's cash receipts and cash payments during the period

Question 12

In a statement of cash flows, which of the following events would be classified as a financing activity?

A) purchase of a trading security
B) payment of interest on a loan
C) payment of cash dividends to stockholders
D) all of these

Question 13

Receipts of dividends from investments in equity securities would be reported in the financing activities section of the cash flow statement.

Question 14

Under the direct method a company computes the cash outflows for operating activities by adjusting the various expense accounts for changes in certain liability accounts and deferred revenues, and to eliminate certain "noncash" expenses or losses.

Question 15

The spreadsheet method is designed to determine changes in each income statement account and then reconstruct the implied effects of those changes on cash.

Question 16

Under the direct method a company deducts its operating cash outflows from its operating cash inflows to determine its net cash provided by (or used) in operating activities.

Question 17

When employees exercise the share options, the company records the gross proceeds received from the employees exercising options as a cash inflow in the investing section.

Question 18

In a statement of cash flows, increases or decreases in noncurrent assets are most closely associated with

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

Question 19

Which of the following events would be classified as an investing activity on a statement of cash flows?

A) payment of interest on a loan
B) receipt of cash dividends on an available-for-sale investment
C) issuance of common stock
D) sale of an office building at a gain

Question 20

A company uses a spreadsheet to account for the change in each asset, liability, and shareholder's equity account.

Question 21

Which of the following would be added to net income in computing cash flows from operating activities?

A) an increase in accounts receivable
B) an increase in inventories
C) a decrease in deferred taxes payable
D) a decrease in prepaid expenses

Question 22

In a statement of cash flows prepared by the indirect method, which of the following events would be deducted from net income?

A) increase in accrued pension cost
B) loss on the sale of an available-for-sale investment
C) proceeds from the sale of plant assets
D) amortization expense on a patent

Question 23

Selected accounting information regarding the Chime Corporation in 2014 follows:
In 2014, Chime should report a net increase in cash of

A) $1,100,000
B) $1,200,000
C) $1,600,000
D) $1,700,000

Question 24

Treatments of items in the cash flow statement that differ between IFRS and GAAP include all of the following except the allowed treatment of

A) any cash outflows for development costs that were capitalized as intangible assets
B) losses on the early retirement of bonds
C) bank overdrafts
D) income taxes related to financing and investing activities

Question 25

Which statement best defines a company's operating cash inflows?

A) collections from customers and stockholders
B) collections from customers and stockholders and earnings from investments
C) collections from customers and earnings from investments
D) collections from customers

Question 26

The following information relates to the Stork Company:



What is the net cash provided by financing activities?

A) $1,350
B) $1,850
C) $2,350
D) $5,850

Question 27

The following information relates to the Joshua, Inc:



What is the net cash provided by operating activities?

A) $2,100
B) $2,650
C) $3,200
D) $3,150

Question 28

In a statement of cash flows prepared by the indirect method, which of the following events would be added to net income?

A) receipt of dividends on an available-for-sale investment
B) equity-method income from an investment in excess of dividends
C) proceeds from the sale of an available-for-sale investment
D) loss on the sale of plant assets

Question 29

When preparing a statement of cash flows under the indirect method, an increase in ending accounts receivable over beginning accounts receivable will result in an adjustment to net income in the operating activities section because

A) cash was increased since accounts receivable is a current asset
B) the accounts receivable increase was a revenue included in net income, but it was not a source of cash
C) the net increase in accounts receivable decreases net sales and represents an assumed use of cash
D) all changes in noncash accounts must be disclosed on the cash flow statement

Question 30

A cash flow statement is one of the basic financial statements that is required under

A) I
B) II
C) III
D) IV

Question 31

Which of the following statements is true regarding GAAP and reporting operating activities on the statement of cash flows?

A) The direct method is required of large companies.
B) The GAAP prefers the indirect method.
C) The GAAP prefers the direct method.
D) The GAAP did not express a preference for either the direct or indirect method.

Question 32

The Roberts Company reported net income of $190,000 in 2014. Additional information follows:



Given just this information, what was the Roberts Company's net cash provided by operating activities in 2014?

A) $115,000
B) $169,000
C) $211,000
D) $162,000

Question 33

According to current GAAP, cash flow per share statistics

A) should be disclosed only if EPS information is disclosed
B) should not be disclosed
C) should not be disclosed if EPS information is disclosed
D) should be disclosed in all situations

Question 34

Which of the following items would be deducted from net income to determine the net cash provided by operating activities using the indirect method?

A) gain on sale of noncurrent assets and amortization of discount on investment in bonds
B) amortization of bonds payable premium and amortization of intangibles
C) loss on sale of noncurrent assets and amortization of discount on investment in bonds
D) gain on sale of noncurrent assets and amortization of premium on investment in bonds

Question 35

Unlike GAAP, IFRS encourage the disclosure of all of the following except

A) reconciliation of net income to operating cash flows when the direct method is used in the cash flow statement
B) undrawn borrowing capacity available for operating activities
C) separation of cash flows that increase operating capacity from those that maintain operating capacity
D) operating, investing, and financing activities by segment

Question 36

Which statement is false? Current GAAP

A) requires that the cash flows from extraordinary items be reported as investing or financing activities and not be included in net cash flow from operating activities
B) states that cash flow per share must not be reported in a company's financial statements
C) states that under the indirect method, a company must report its operating cash inflows separately from its operating cash outflows
D) requires that the cash inflows and cash outflows for related investing activities as well as related financing activities be shown separately and not netted against each other

Question 37

Which of the following events would not result in a cash inflow?

A) sale of preferred convertible stock
B) common stock issued as a stock dividend
C) reissuance of treasury stock
D) loss of building destroyed by hurricane but partially reimbursed by insurance

Question 38

A company sold equipment for $5,000. The equipment originally cost $16,000 and had accumulated depreciation of $12,000. Which of the following statements is correct regarding the statement of cash flows prepared using the indirect method to report operating activities?

A) $5,000 will be added to net income.
B) Investing activities will reflect proceeds of $4,000 from the sale.
C) $1,000 will be added to net income.
D) $1,000 will be deducted from net income.

Question 39

Which of the following events would be classified as an operating activity in a statement of cash flows?

A) receipt of cash dividend on an equity-method investment
B) sale of a long-term investment
C) issuing notes payable
D) payment of cash dividends

Question 40

In a statement of cash flows prepared by the indirect method, an increase in accounts receivable should be

A) deducted from net income in the operating activities section
B) added to net income in the operating activities section
C) reported as an inflow in the investing activities section
D) reported as an inflow in the financing activities section

Question 41

Bernard, Inc. prepares a statement of cash flows using the visual inspection method. In 2014, Bernard had net income of $54,000. In addition, the following information is available:



What net cash provided by operating activities should Bernard report in 2014?

A) $46,000
B) $72,000
C) $49,000
D) $50,000

Question 42

Exhibit 21-1 The Raymonds Corporation reported $11,000 of net income for the current year and also uses the visual inspection method for completing the statement of cash flows. The following additional information relates to Raymonds for the year:



-Refer to Exhibit 21-1. What is Raymond's net cash provided by operating activities?

A) $11,540
B) $12,210
C) $12,860
D) $14,800

Question 43

Mayberry's statement of cash flow is completed using the visual inspection method. Information regarding the Mayberry Company in 2014 appears below:



What was Mayberry's net increase in cash?

A) $190,000
B) $225,000
C) $245,000
D) $255,000

Question 44

Marty uses the visual inspection method for preparing the statement of cash flows. Selected information for Marty Company during 2014 follows:



If Marty reported net income of $320, what was the net cash provided by operating activities for 2014?

A) $329
B) $330
C) $332
D) $342

Question 45

The following information relates to the Davensmith Company:

What was the amount of cash payments for interest?

A) $820
B) $830
C) $850
D) $870

Question 46

Exhibit 21-2 In preparation for completing the statement of cash flows using the spreadsheet method, Williams Company provided the following information relating to patents for 2014:



-Refer to Exhibit 21-2. The Cash Flows from Operating Activities section prepared using the indirect method would include which of the following deductions or add-back amounts related to patents?

A) $(310)
B) $(290)
C) $ 290
D) $ 600

Question 47

Exhibit 21-3 The Travis Company uses the spreadsheet method for completing the statement of cash flows. The balance sheet accounts and other information related to those accounts are presented below for Travis Company: Additional information related to 2015 activities: Refer to Exhibit 21-3. Net cash provided (used) in the operating activities section of Travis's 2015 statement of cash flows was

A) $(40,000)
B) $ 50,000
C) $ 52,000
D) $ 56,000

Question 48

One area of difference between GAAP and IFRS cash flow reporting is the

A) treatment of losses on sale of equipment
B) general categories required for various types of cash flows
C) use of the direct or indirect method of reporting operating cash flows
D) allowed classifications of dividend and interest paid or received

Question 49

The IFRS categories of cash flows are

A) long-term changes and short-term changes
B) operating and other
C) operating, investing, and financing
D) operating and nonoperating

Question 50

The content of the statement of cash flows would not include which one of the following items?

A) stock dividends
B) purchase of capital stock
C) redemption of long-term debt
D) issuance of long-term debt

Question 51

Mavis Company's statement of cash flows showed net cash provided by operating activities of $47,000 in 2014. Mavis reported an increase in accounts payable of $6,000, an increase in inventory of $2,000, depreciation expense of $3,000, and dividends paid of $8,000. Mavis's net income for 2014 was

A) $48,000
B) $40,000
C) $39,000
D) $32,000

Question 52

The Red Blast Company uses the visual inspection method for completing the statement of cash flows. The following information relates to the Red Blast Company:
What is the net cash provided by operating activities?

A) $ 9,065
B) $11,415
C) $11,935
D) $12,415

Question 53

Exhibit 21-3 The Travis Company uses the spreadsheet method for completing the statement of cash flows. The balance sheet accounts and other information related to those accounts are presented below for Travis Company: Additional information related to 2015 activities: Refer to Exhibit 21-3. Net cash provided (used) in the investing activities section of Travis's 2015 statement of cash flows was

A) $ 0
B) $(150,000)
C) $ (50,000)
D) $ 150,000

Question 54

Exhibit 21-3 The Travis Company uses the spreadsheet method for completing the statement of cash flows. The balance sheet accounts and other information related to those accounts are presented below for Travis Company:

Additional information related to 2015 activities:
1.Net loss for 2015 was $40,000.
2.Cash dividends of $12,000 were declared and paid in 2015.
3.4,000 shares of common stock were issued to bondholders converting bonds payable into common stock.
4.A long-term investment was sold for $100,000 cash.
5.Equipment costing $100,000 and having accumulated depreciation of $30,000 was sold for $50,000 cash.

-Refer to Exhibit 21-3. Net cash provided (used) in the financing activities section of Travis's 2015 statement of cash flows was

A) $ 0
B) $(12,000)
C) $(52,000)
D) $(32,000)

Question 55

Exhibit 21-1 The Raymonds Corporation reported $11,000 of net income for the current year and also uses the visual inspection method for completing the statement of cash flows. The following additional information relates to Raymonds for the year: Refer to Exhibit 21-1. What is Raymonds' net cash used by financing activities?

A) $(1,240)
B) $(1,650)
C) $(1,860)
D) $(2,150)

Question 56

Angel Heating Co. reported $27,000 of net income. The company uses the visual inspection method to complete the statement of cash flows. Additional information is listed below:



The net cash provided by operating activities was

A) $27,150
B) $27,100
C) $26,900
D) $26,850

Question 57

When preparing a statement of cash flows using a spreadsheet, it is best to begin the spreadsheet with

A) a trial balance
B) an adjusted trial balance
C) a balance sheet
D) a balance sheet and an income statement

Question 58

Exhibit 21-1 The Raymonds Corporation reported $11,000 of net income for the current year and also uses the visual inspection method for completing the statement of cash flows. The following additional information relates to Raymonds for the year: Refer to Exhibit 21-1. What is Raymonds' net cash provided by investing activities?

A) $ 250
B) $ 900
C) $2,170
D) $3,370

Question 59

Exhibit 21-2 In preparation for completing the statement of cash flows using the spreadsheet method, Williams Company provided the following information relating to patents for 2014: Refer to Exhibit 21-2. The Cash Flows from Investing Activities section would include a net change related to patents of

A) $(600)
B) $(310)
C) $ 310
D) $ 600

Question 60

Which of the following should be presented in a statement of cash flows?

A) I
B) II
C) III
D) IV

Question 61

Which of the following items would be deducted from net income to determine net cash provided by operating activities using the direct method?

A) loss on sale of plant assets and amortization of bond payable discount
B) amortization of bond payable premium and gain on sale of equipment
C) amortization expense and gain on sale of equipment
D) None of these choices

Question 62

On the statement of cash flows prepared using the direct method, cash from customers would be sales plus

A) an increase in accounts receivable
B) an increase in accounts payable
C) a decrease in accounts receivable
D) a decrease in accounts payable

Question 63

When reading the Cash Inflows from Operating Activities portion of the statement of cash flows using the direct method, you would expect to find which of the following?

A) I
B) I and IV
C) I, II, and III
D) I, II, III, and IV

Question 64

Selected accounting information for the Zebra Company for 2014 follows:
Required:
Prepare the 2014 Net Cash Flow from Operating Activities section of Zebra's statement of cash flows, using the indirect method.

Question 65

The information below was taken from the records of the Piper Company for the year ended December 31, 2014:
Required:
Prepare Piper's statement of cash flows for 2014, using the indirect method.

Question 66

A company had an increase in interest payable during the year and also amortized discount on bonds payable. Under the direct method, the amount of interest paid during the year to be reflected in the statement of cash flows is

A) interest expense plus the increase in interest payable minus the discount amortization
B) interest expense plus the increase in interest payable plus the discount amortization
C) interest expense minus the increase in interest payable minus the discount amortization
D) interest expense minus the increase in interest payable plus the discount amortization

Question 67

When reading the Cash Outflows from Operating Activities portion of the statement of cash flows, you would expect to find which of the following?

A) I, II, III, and V
B) I, III, IV, and VI
C) I, II, III, IV, V, and VI
D) I, III, IV, VI, and V

Question 68

Several items to be considered in converting net income to the net cash flow from operating activities under the indirect method are listed below:

Required:
Fill in the blanks by using a plus sign (+) or a minus sign (-) to indicate whether each item should be added to or subtracted from net income to arrive at the net cash flow from operating activities.

Question 69

Under the direct method, which one of the following would represent cash paid?

A) gains on sales of plant assets
B) losses on sales of plant assets
C) depreciation expense, adjusted for changes in depreciation methods
D) interest expense, adjusted for changes in interest payable and amortization of bond premium or discount

Question 70

On its January 1, 2014, balance sheet, Calvin Company reported equipment of $60,000 and accumulated depreciation of $20,000. During 2014, Calvin sold equipment with an original cost of $5,000. Selected information from Calvin's 2014 statement of cash flows follows: Required:
Compute the amount of equipment and accumulated depreciation that should appear on Calvin's December 31, 2014, balance sheet.

Question 71

The following information relates to the Maxwell Company for 2014:
Required:
Compute net cash provided by operating activities for the Maxwell Company for 2014.

Question 72

The following information relates to the Fowler Company for 2014:

What was the amount of cash sales?

A) $61,200
B) $59,800
C) $63,800
D) $65,200

Question 73

Which statement is false?

A) Salaries expense + Decrease in salaries payable = Cash payments to employees
B) Other revenues + Increase in unearned revenues - Gains on disposal of assets - Equity investment income = Other operating cash receipts
C) Sales revenue - Increase in accounts receivable = Cash collections from customers
D) Other expenses + Decrease in prepaid expenses - Depreciation expense + Losses on disposal of assets - Equity investment loss = Other operating cash payments

Question 74

A statement of cash flows contains the following sections:

A list of items that appear on the statement is provided below:



Required:
In the space provided, using the letters (a-d), indicate in which section(s) of the statement of cash flows (or accompanying schedule) the preceding items would most likely be classified. After each item affecting cash, indicate with a plus sign (+) or a minus sign (-) whether the item would be reported as an increase (inflow) or a decrease (outflow).

Question 75

Which of the following is true concerning the direct method of calculating operating cash flows?

A) does not tie the net income reported on a company's income statement to the net cash provided from operating activities
B) does not show how the changes in the elements of a company's operating cycle affected its operating cash flows
C) reports a company's operating cash inflows separately from its operating cash outflows
D) All of these choices

Question 76

An abbreviated set of financial statements for Caraba's Company for 2015 and 2014 is shown below: Required:
Prepare the cash flows from investing and financing activities sections of the 2015 statement of cash flows.

Question 77

On the statement of cash flows prepared using the direct method, cash paid for income taxes would be income tax expense minus

A) an increase in income taxes payable
B) a decrease in income taxes payable
C) beginning income taxes payable
D) ending income taxes payable

Question 78

A company's unearned rental revenue account increases from the beginning to the end of the year. In the statement of cash flows using the direct method, the cash collected from tenants would be

A) rent revenue plus unearned rent revenue at the beginning of the year
B) rent revenue plus the increase in unearned rent revenue during the year
C) rent revenue minus the increase in unearned rent revenue during the year
D) equal to rental revenue on the income statement

Question 79

The following are totals from selected financial statements of Macy May Company for the years ended December 31, 2013, 2014 and 2015:


Required:
1) Compute the operating cash flow ratio for the year ended 2014 and 2015.
2) Compute the operating cash flow to total liabilities ration for the year ended 2014, and 2015.

Question 80

The Fancy Company's comparative balance sheets for 2014 and 2015, and additional information, are presented below.
Required:
Prepare Fancy Company's 2015 statement of cash flows using the indirect method.