Deck 12: Statement Cash Flows

Question 1

Amortization is added back to net income in a statement of cash flows prepared using the indirect method because it:

A)reduces income but not cash.
B)is a cash inflow.
C)is a revenue.
D)is a valuation concept.

Answer 1

reduces income but not cash.

Question 2

The supplies account decreases and accounts payable increases during an accounting period.When the indirect method is used,what does the company do with the changes in these accounts to calculate net cash flows from operating activities?

A)Both are added to net income.
B)The change in accounts payable is added to net income; the change in supplies is subtracted.
C)Both are subtracted from net income.
D)The change in supplies is added to net income; the change in accounts payable is subtracted.

Answer 2

Both are added to net income.

Question 3

Cash flows from financing activities:

A)are always negative because the company pays dividends as well as interest and principal on debt.
B)includes all cash inflows and outflows between a company and its shareholders.
C)includes all cash inflows and outflows associated with a company's lending activities.
D)are always positive unless the company is experiencing serious financial trouble.

Answer 3

includes all cash inflows and outflows between a company and its shareholders.

Question 4

Which of the following is not needed to prepare a statement of cash flows?

A)Statement of retained earnings.
B)Comparative balance sheet.
C)Additional information on financing and investing activities.
D)Income statement.

Question 5

Which of the following would be included in calculating net cash flows from financing activities?

A)Cash proceeds from sales.
B)Cash received from an issuance of bonds.
C)Dividends received from investments.
D)Cash used for purchases of equipment.

Question 6

Cinno Company reported net income of $20,000 for the year ended December 31,2007.During the year,inventories decreased by $7,000,accounts payable decreased by $8,000,amortization expense was $10,000,and accounts receivable increased by $6,500.Net cash provided by operations in 2007,computed using the indirect method,was:

A)$10,500.
B)$22,500.
C)$38,500.
D)$51,500.

Question 7

A change in a company's cash account is equal to the:

A)changes in liabilities and shareholders' equity minus the change in noncash assets.
B)changes in liabilities minus the changes in shareholders' equity and noncash assets.
C)sum of the changes in liabilities,shareholders' equity and noncash assets.
D)change in noncash assets minus the changes in liabilities and shareholders' equity.

Question 8

Which of the following is not provided by the statement of cash flows?

A)Company management of current assets and liabilities.
B)Expenditures on long-term assets.
C)Current profitability as measured by specific revenues and expenses.
D)Reliance on external financing.

Question 9

When the indirect method is used,if accounts receivable increases during the accounting period,the change in accounts receivable is:

A)added to the change in the cash account.
B)subtracted from net income.
C)added to net income.
D)subtracted from the change in the cash account.

Question 10

Which of the following adjusting journal entries would change the Net Cash Flows from Operating Activities line of the statement of cash flows?

A)Recording bad debts.
B)Recording amortization.
C)All of the above.
D)None of the above.

Question 11

What is the first step in identifying cash flows from operations when the indirect method is used?

A)Find net income from the balance sheet.
B)Calculate the net change in the cash account.
C)Add the change in accounts receivable to sales revenue.
D)Identify the balance sheet accounts that relate to operating activities.

Question 12

If inventory decreases and unearned revenue increase during an accounting period while the indirect method is used,what does the company do with the changes in these accounts to calculate net cash flows from operating activities?

A)Both are added to net income.
B)The change in inventory is added to net income; the change in unearned revenue is subtracted.
C)Both are subtracted from net income.
D)The change in unearned revenue is added to net income; the change in inventory is subtracted.

Question 13

Cash flows from investing activities include cash:

A)inflows and outflows reflecting revenues and expenses.
B)outflows from the sale of long-term investments.
C)inflows from the sale of long-term investments.
D)inflows from the sale of a company's own shares to its shareholders.

Question 14

Which of the following would be included in calculating net cash flows from operating activities?

A)Cash proceeds from sales.
B)Cash received from an issuance of bonds.
C)Dividends paid to shareholders.
D)Cash used for purchases of equipment.

Question 15

Suppose a company generally records revenues and expenses before receiving or making cash payments.Which of the following statements is then true?

A)If sales are falling,net losses could occur even though the company reports net cash inflows from operating activities.
B)If sales are rising,net profits could occur even though the company reports net cash outflows from operating activities.
C)Net income and cash flows will not always agree because revenues and expenses can be recorded in different time periods than their related cash flows.
D)All of the above.

Question 16

If the calculation of net cash flows from operating activities starts with net income,the company:

A)is using the net income method.
B)will then remove all noncash items included in the calculation of net income.
C)is using the direct method.
D)will then add all additional noncash items not included in the calculation of net income.

Question 17

When the indirect method is used,if prepaid expenses decreases during the accounting period,the change in prepaid expenses is:

A)added to the change in the cash account.
B)subtracted from net income.
C)added to net income.
D)subtracted from the change in the cash account.

Question 18

Which of the following would be included in calculating net cash flows from investing activities?

A)Cash proceeds from sales.
B)Cash received from an issuance of bonds.
C)Dividends paid to shareholders.
D)Cash used for purchases of equipment.

Question 19

Cash and cash equivalents include:

A)assets that have stable long-term value.
B)assets that are short-term and highly liquid and have an original maturity of less than three months.
C)assets that consistently grow in value over the long run.
D)all of the above.

Question 20

When the indirect method is used,details from which of the following balance sheet accounts are used in calculating both operating and financing cash flows?

A)Bonds payable.
B)Taxes payable.
C)Retained earnings.
D)Contributed capital.

Question 21

Two years ago,your company bought $40,000 in bonds from another company.This month,it sold half of those bonds for $20,640 and lent $1,000 to an employee with a promissory note.On the statement of cash flows for this accounting period,your company would report a net cash:

A)outflow of $19,640 from investing activities.
B)inflow of $19,640 from investing activities.
C)inflow of $20,640 from investing activities.
D)outflow of $20,640 from investing activities.

Question 22

When the direct method is used to determine the net cash flow from operating activities,if accounts receivable increase over the accounting period,the change in accounts receivable is:

A)added to the change in the cash account to calculate cash collected from customers.
B)subtracted from sales revenue to calculate the cash collected from customers.
C)added to sales revenue to calculate the cash collected from customers.
D)subtracted from the change in the cash account to calculate cash collected from customers.

Question 23

Which of the following statements is true regarding cash flows from financing activities?

A)When companies borrow,cash outflows for financing activities have occurred.
B)When companies receive dividends,cash inflows from financing activities have occurred.
C)When companies repurchase their own stock,cash outflows for financing activities have occurred.
D)When companies pay dividends,cash inflows from financing activities have occurred.

Question 24

When the direct method is used to determine the net cash flow from operating activities,other operating expenses are converted into cash outflows for payments to suppliers of services by:

A)adding changes in prepaid expenses and accrued liabilities to other expenses.
B)subtracting increases in prepaid expenses and decreases in accrued liabilities from other expenses.
C)adding increases in prepaid expenses and decreases in accrued liabilities to other expenses.
D)subtracting changes in prepaid expenses and accrued liabilities from other expenses.

Question 25

The retained earnings account has a beginning balance of $321,975 and an ending balance of $356,413.Net income is $40,251.Which of the following statements is true?

A)$5,813 would be subtracted when determining cash flows from financing activities.
B)$40,251 would be added when determining cash flows from financing activities.
C)$34,438 would be added when determining cash flows from financing activities.
D)All of the above.

Question 26

Which of the following would be reported as a cash outflow from investing activities?

A)Donating an old piece of equipment to charity.
B)Repaying the bond principal.
C)Buying another company's bonds with cash.
D)Paying for an investment asset by issuing company shares.

Question 27

Your company owned equipment with a book value of $120,000 that was sold during this accounting period for $30,500 in cash,and purchased new equipment for $148,000.Your company would record:

A)a credit of $30,500 and a debit of $148,000 to the cash account for a net cash outflow of $117,500.
B)a debit of $148,000 and a credit of $89,500 to the cash account for a net cash outflow of $58,500.
C)a debit of $30,500 and a credit of $148,000 to the cash account for a net cash outflow of $117,500.
D)a debit of $89,500 and a credit of $148,000 to the cash account for a net cash outflow of $58,500.

Question 28

Which of the following are used to determine cash flows from financing activities?

A)Short-term debt,accrued liabilities,contributed capital,and notes payable.
B)Short-term debt,long-term debt,contributed capital,and retained earnings.
C)Short-term debt,accrued liabilities,retained earnings,and bonds payable.
D)Long-term debt,notes payable,interest expense,and bonds payable.

Question 29

When the direct method is used to determine the net cash flow from operating activities,the following adjustments must be made to interest expense to determine total interest payments:

A)add all changes in interest payable.
B)add decreases in interest payable and subtract increases in interest payable.
C)add increases in interest payable and subtract decreases in interest payable.
D)subtract all changes in interest payable.

Question 30

Additional Cash flows from operations leftover after paying for replacement of existing plant,property and equipment and dividends to shareholders are:

A)Cash flows from investing.
B)Free cash flows.
C)Cash flows from financing activities.
D)Cash flows from investing activities.

Question 31

Cash transactions relating to the purchase and sale of which types of assets affect a company's cash flows from investing activities?

A)All of a company's assets.
B)All of a company's assets except inventory.
C)All of a company's non-current assets.
D)Only property,plant,and equipment.

Question 32

Brighton,Inc.,uses the indirect method to determine its net cash flow from operating activities.During the course of the year,Brighton,Inc.'s accounts receivable increased by $10,000 and its accounts payable decreased by $5,000.As a result of these two items,the calculation of cash flow from operations will be:

A)increased by $5,000.
B)decreased by $5,000.
C)increased by $15,000.
D)decreased by $15,000.

Question 33

The company would report a net cash inflow (outflow)from financing activities of:

A)$7,000
B)$2,000
C)$5,000
D)$6,000

Question 34

Consider the following information: The company would report a net cash inflow from operating activities of:

A)$17,500.
B)$18,500.
C)$21,500.
D)$23,300.

Question 35

The company would report a net cash inflow (outflow)from investing activities of:

A)$1,000
B)$2,000
C)$5,000
D)$7,000

Question 36

Buffers,Inc.,uses cash when buying and selling all of its investment assets.Consider the following statements: i.When investment asset accounts increase,net cash inflows have occurred.
Ii)When investment asset accounts increase,net cash outflows have occurred.
Iii)When the investment asset accounts decreased,net cash inflows have occurred.
Iv)When the investment asset accounts decrease,net cash outflows have occurred.
Which of the following combination is true?

A)i and iii
B)ii and iv
C)i and iv
D)ii and iii

Question 37

When a company uses the direct method to determine the net cash flow from operating activities,cash flows from operating activities will:

A)be identical to the amount reported using the indirect method.
B)be larger if there is a net cash inflow and smaller if there is a net cash outflow compared to the amount reported using the indirect method.
C)always be larger than the amount reported using the indirect method.
D)be larger if there is a net cash outflow and smaller if there is a net cash inflow compared to the amount reported using the indirect method.

Question 38

Sales revenue was $171,356 and cash collected from customers was $167,803.Which of the following would be consistent with this difference?

A)Accounts receivable could have decreased.
B)Cash payments could have been larger than the expense accounts.
C)Accounts receivable could have increased.
D)Cash payments could have been smaller than the expense accounts.

Question 39

Inventory and accounts payable increase during the accounting period.What is done with these changes to determine the net cash flow from operating activities when the direct method is used?

A)The changes in each account are both added to net income.
B)The change in inventory is subtracted from cost of goods sold and the change in accounts payable is added to cost of goods sold to find the cash paid to suppliers.
C)The changes in each account are both subtracted from net income.
D)The change in inventory is added to cost of goods sold and the change in accounts payable is subtracted from cost of goods sold to find the cash paid to suppliers.

Question 40

When the direct method is used to determine the net cash flow from operating activities,the following adjustments must be made to income tax expense to determine total income tax payments:

A)add all changes in income taxes and income taxes payable.
B)add decreases in income taxes payable and subtract increases in income taxes payable.
C)add increases in income taxes payable and subtract decreases in income taxes payable.
D)subtract all changes in income taxes payable.

Question 41

Corporation X has no short-term investments,carries only a minimal amount of cash,and has a capital acquisitions ratio of 0.7.Which of the following is suggested by these facts?

A)The corporation probably needed external financing to fund property,plant,and equipment replacement this period.
B)The corporation is efficient at managing debt; each $.70 of debt generates $1 of asset value.
C)The corporation is efficient at generating cash; each $1 of assets acquired generates $.70 of cash.
D)The corporation is likely to need to replace equipment at a rate of 70% of its net income.

Question 42

If an analyst wishes to analyze the ability of a company's operating activities to fund its level of investment in property,plant,and equipment,a good measure would be the:

A)quality of income ratio.
B)cash coverage ratio.
C)times interest earned ratio.
D)capital acquisitions ratio.

Question 43

Which of the following ratios should you use if you want to assess whether a company's operating cash flows are sufficient to pay for PPE purchases?

A)Capital acquisitions ratio.
B)Debt-to-assets ratio.
C)Quality of income ratio.
D)Cash coverage ratio.

Question 44

A company issues $1 million of new shares and pays $200,000 in cash dividends during the year.In addition,the company took advantage of falling interest rates to borrow $1.5 million in a new bond issue and paid off existing bonds with a face value of $2 million.The company bought 500 of another company's $1,000 bonds at a $100,000 premium.The net cash flow from financing activities is:

A)An inflow of $500,000.
B)An outflow of $200,000.
C)An outflow of $100,000.
D)An inflow of $300,000.

Question 45

Which of the following represent cash inflows from financing activities?

A)Issuing shares in exchange for another company's shares.
B)Paying a bond's face value at maturity.
C)Issuing long-term bonds at a discount.
D)Receiving interest on promissory notes.

Question 46

The quality of income ratio measures:

A)how much of net income came from financing activities.
B)the proportion of net income that is likely to be collected over time.
C)how much of gross income the company was able to shield from taxes.
D)the portion of net income that is generated by cash from operating activities.

Question 47

A company buys a building by issuing bonds.How would it record the purchase of building?

A)It would be an increase to investing activities only.
B)It would be an increase to financing activities only.
C)It would be a noncash transaction listed in supplementary schedule.
D)It would be a noncash transaction not needing any disclosure.

Question 48

A toy store with a calendar year-end is likely to have:

A)unpredictable fluctuations in cash flow from quarter to quarter.
B)the largest cash inflow from operations in the second and third quarters (April - September).
C)a fairly stable cash flow across all four quarters.
D)the largest cash inflow from operations in the fourth and first quarters (October - March).

Question 49

A company purchases a $300,000 building,paying $200,000 in cash and signing a $100,000 promissory note.What will be reported on the statement of cash flows as a result of this transaction?

A)A $300,000 cash outflow for investing activities.
B)A $200,000 cash outflow for investing activities and a $100,000 cash inflow is recorded for financing activities.
C)A $200,000 cash outflow for investing activities.
D)A $300,000 cash outflow for investing activities and a $100,000 cash inflow is recorded for financing activities.

Question 50

Free cash flow is a positive cash flow:

A)beyond what is needed to replace current property,plant,and equipment and pay dividends.
B)across all three activity components of the statement of cash flows.
C)beyond what has been allotted for future property,plant,and equipment replacement and expansion.
D)across both financing and investing activities.

Question 51

An outdoor water park in Quebec with a calendar year-end is likely to have:

A)unpredictable fluctuations in cash flow from quarter to quarter.
B)the largest cash inflow from operations in the second and third quarters (April - September).
C)a fairly stable cash flow across all four quarters.
D)the largest cash inflow from operations in the fourth and first quarters (October - March).

Question 52

The capital acquisitions ratio is often calculated as a multi-year average because of the volatility of:

A)cash flow from year to year.
B)property,plant,and equipment expenditures from year to year.
C)net income from year to year.
D)all of the above.

Question 53

Company X paid Company Y $1.35 million for a new plant.During the same accounting period,Company X experienced the following changes in its balance sheet: cash fell $350,000,accounts receivable rose $321,300,inventory rose $275,800,property,plant,and equipment rose $752,900,and bonds payable rose $1 million.The net cash flow from financing activities is:

A)An inflow of $1.35 million.
B)An outflow of $350,000.
C)An inflow of $1 million.
D)An inflow of $752,900.

Question 54

If accounts receivable are rising faster than net income,other things being equal,net cash flow from operating activities is:

A)rising,so the Quality of Income Ratio is falling.
B)falling,so the Quality of Income Ratio is falling.
C)rising,so the Quality of Income Ratio is rising.
D)falling,so the Quality of Income Ratio is rising.

Question 55

Which of the following represent cash outflows from financing activities?

A)Distributing a stock dividend.
B)Paying a bond's face value at maturity.
C)Issuing long-term bonds at a discount.
D)Paying interest on promissory notes.

Question 56

Company X has a capital acquisitions ratio of 1.42 while Company Y has a capital acquisitions ratio of 7.28.Which of the following could be true?

A)If Company X and Y are in different industries,these ratios may reflect the different production needs of the industry.The ratio cannot really be compared across industries.
B)Company Y may be more efficient at managing cash flows.
C)Company Y may be lagging in adopting new technology which could hurt future sales.
D)All of the above.

Question 57

Which of the following would be used to determine the ability of a company to pay dividends and interest on borrowings?

A)the income statement.
B)the statement of cash flows.
C)the balance sheet.
D)management discussion and Analysis.

Question 58

A company's amortization expense is $15,000.Its beginning inventory balance is $134,000 and ending balance for the year is $145,000 respectively.What is the cash paid for depreciation:

A)$0
B)$15,000
C)$11,000
D)$26,000

Question 59

The net cash flow from operating activities is an inflow of $37,042,the net cash flow from investing activities is an outflow of $16,831,and the net cash flow from financing activities is an outflow of $26,397.If the beginning cash account balance is $11,283,what is the ending cash account balance?

A)$5,097
B)($6,186)
C)$38,759
D)$27,476

Question 60

A company has net income of $43,560 with a net cash flow from operations of $91,476 and a net change in cash of $84,942.The company spent $72,600 on property,plant,and equipment during the year.The company's capital acquisitions ratio is: approximately:

A)0.60.
B)1.17.
C)1.26.
D)1.67.

Question 61

When the indirect method is used,Amortization expense is added to net income in order to calculate net cash flow from operating activities.
BT: Knowledge

Question 62

Cash flows from investing activities are calculated by making adjustments to net income.
BT: Comprehension

Question 63

Although Canadian Generally Accepted Accounting Principles prefer the direct method of accounting for cash flows from operations,most Canadian companies use the indirect method.
BT: Knowledge

Question 64

Compared with the other major financial statements,the Statement of Cash Flows has become required relatively recently.
BT: Knowledge

Question 65

At certain times of the year,many retail companies experience a rapid rise in inventory as they prepare for a period of high sales.All other things equal,this would cause:

A)the quality of income,and the capital acquisitions ratios to fall.
B)the quality of income ratios to fall while the capital acquisitions ratio remains the same.
C)the quality of income ratio to fall while the capital acquisitions ratios remain the same.
D)the quality of income,and the capital acquisitions ratios to rise.

Question 66

When using the spreadsheet approach for the indirect method to calculate net cash flows from operating activities,net income would be found as:

A)a debit to the Retained Earnings account.
B)the difference between revenues and expenses.
C)a credit to the Retained Earnings account.
D)the difference between gains and losses.

Question 67

Noncash revenues and expenses must be included in net cash flow from operating activities when preparing a Statement of Cash Flows using the direct method.
BT: Comprehension

Question 68

A negative cash flow is referred to as a cash outflow.
BT: Comprehension

Question 69

Changes in all current assets are used in determining net cash flows from operating activities.
BT: Comprehension

Question 70

If net cash flow from operating activities is unchanged,but net income is rising,the quality of income ratio is:

A)rising,which may signal that revenue is being recorded later and/or expenses earlier than in the past.
B)falling,which may signal that revenue is being recorded later and/or expenses earlier than in the past.
C)falling,which may signal that revenue is being recorded earlier and/or expenses later than in the past.
D)rising,which may signal that revenue is being recorded earlier and/or expenses later than in the past.

Question 71

A company bought $250,000 of equipment with an expected life of ten years and no salvage value.After six years the company sold the equipment for $94,000.If it uses straight-line amortization and the indirect method is used to determine net cash flows from operating activities,which of the following reflects the way the sale of the equipment would be reported in the statement of cash flows?

A)$94,000 is recorded as a cash inflow from investing activities and no other sections of the statement are affected.
B)$94,000 is recorded as a cash inflow from investing activities and $6,000 is added to convert net income to net cash flow from operating activities.
C)$94,000 is recorded as a cash inflow from investing activities and $6,000 is subtracted to convert net income to net cash flow from operating activities.
D)$94,000 is recorded as a cash inflow from operating activities.

Question 72

Purchase of equipment is an financing activity.
BT: Knowledge

Question 73

While dividends paid to a company's shareholders are reported as cash flows from financing activities,dividends received from investments in the shares of other companies are reported as cash flows from investing activities.
BT: Comprehension

Question 74

When the direct method is used,each revenue and expense account on the income statement is individually adjusted to calculate net cash flow from operating activities.
BT: Comprehension

Question 75

The proceeds from sales of investments are reported as cash flows from investing activities.
BT: Knowledge

Question 76

Cash equivalents are assets that are easily converted to cash regardless of their time to maturity.
BT: Knowledge

Question 77

A company has net income of $43,560 with a net cash flow from operations of $91,476 and a net increase in cash of $84,942.The company paid $33,524 for income taxes and $25,000 for interest during the year.The company's quality of income ratio is approximately:

A)6.0.
B)4.1.
C)3.7.
D)2.1.

Question 78

Interest and dividends from investments held by a company are reported as cash inflows from investing activities on the statement of cash flows.
BT: Comprehension

Question 79

If a company uses the indirect method to determine net cash flows from operating activities:

A)gains on the disposal of equipment must be added to net income and losses subtracted from net income.
B)gains on the disposal of equipment must be added to net income but losses are adjusted against the original asset account.
C)gains on the disposal of equipment must be subtracted from net income and losses added to net income.
D)there is no entry for a gain or loss on the disposal of equipment as this is only an Investing activity.

Question 80

When the indirect method is used,changes in current liabilities are subtracted while changes in current assets are added to convert net income to net cash flow from operating activities.
BT: Comprehension