Deck 24: The Statement of Cash Flows

Question 1

The payment of cash dividends to stockholders would be classified as a cash outflow resulting from a financing activity.

Answer 1

T RUE

Question 2

An increase or decrease in accounts payable during a fiscal period has no effect on the net cash provided by operating activities.

Answer 2

False

Question 3

If a firm's accounts receivable increased during the fiscal period, it is necessary to subtract the amount of the increase from the net income when computing the net cash provided by operating activities.

Answer 3

True

Question 4

The Financial Accounting Standards Board prefers the indirect method of preparing the statement of cash flows.

Question 5

In computing the cash flows from operating activities section, a loss on the sale of long-term assets must be deducted from net income.

Question 6

When the net income is adjusted to arrive at the net cash provided by operating activities, the amount of the bond premium amortized is added to the net income.

Question 7

The cash received from issuing common stock would not be reported on the statement of cash flows.

Question 8

Usually, there is a difference between the net income reported on the income statement and the net cash from operating activities shown on the statement of cash flows.

Question 9

The statement of cash flows provides information about cash flows from operating activities, investing activities, and financing activities.

Question 10

Decreases in current assets must be deducted from net income to arrive at cash flows from operations.

Question 11

Interest expense is treated as an outflow of cash from a financing activity.

Question 12

Current assets and current liabilities are often referred to as operating assets and liabilities.

Question 13

If the income statement reflects a net loss for the year, the loss is not reported under cash flows from operating activities in the statement of cash flows.

Question 14

When the net income is reconciled with the net cash provided by operating activities, depreciation expense is added to the net income.

Question 15

The starting point for analyzing cash flows from operating activities is the beginning balance of cash.

Question 16

A complete set of published financial statements for a corporation must include a statement of cash flow.

Question 17

If the indirect method of preparing the statement of cash flows is used, a note disclosing the amount of interest and income taxes paid during the period must accompany the statement.

Question 18

A sale of used equipment for cash produces a cash inflow from investing activities.

Question 19

The resale of treasury stock is classified as a cash inflow from financing activities.

Question 20

When a firm issues a long-term note payable, the amount that it receives for the note is considered a cash inflow from operating activities.

Question 21

The statement of cash flows assumes that the ____________________ basis of accounting is used when recording transactions and preparing the balance sheet and income statement.

Question 22

Cash flows from ____________________ activities are the result of routine business transactions such as buying and selling merchandise.

Question 23

If a corporation issued stock for $70,000 in cash, received $10,000 in cash from a long-term loan, and paid cash dividends totaling $20,000, the net cash provided by its financing activities would be ___________________.

Question 24

In the ____________________ activities section of the statement of cash flows, net income is adjusted for the amortization of the premium on bonds payable.

Question 25

A gain on the sale of equipment is reported in the ____________________ activities section of the statement of cash flows.

Question 26

Investing activities include

A) purchases of merchandise for cash.
B) purchases of plant and equipment for cash.
C) purchases of prepaid expense items such as supplies and insurance for cash.
D) increase in accounts receivable.

Question 27

On the statement of cash flows, it is necessary to reconcile the ____________________ with the net cash provided by operating activities.

Question 28

Cash and cash equivalents, as used on the statement of cash flows, consist of

A) only currency and bank accounts.
B) only bank accounts.
C) currency, bank accounts, and all investments.
D) currency, bank accounts and short-term, highly liquid investments.

Question 29

Purchases and sales of land, buildings, and equipment for cash are shown as ____________________ activities on the statement of cash flows.

Question 30

Interest expense is treated as an outflow of cash that results from a(n) ____________________ activity.

Question 31

The purpose of the statement of ____________________ is to report the cash balance at the beginning and end of the fiscal period and to show the sources and uses of cash during the period.

Question 32

An example of a financing activity is

A) the sale of merchandise for cash.
B) the issue of stock for cash.
C) the sale of used equipment for cash.
D) the purchase of a building.

Question 33

The purchase of treasury stock is treated as a cash outflow in the ____________________ activities section of the statement of cash flows.

Question 34

The net cash provided by operating activities is affected by

A) a change in merchandise inventory.
B) a purchase of land for cash.
C) the issue of bonds payable for cash.
D) proceeds of cash investments by stockholders.

Question 35

Issuing stock for cash and paying dividends in cash would be classified as ____________________ activities on the statement of cash flows.

Question 36

The payment of maturing bonds would be treated as a cash outflow in the ____________________ activities section of the statement of cash flows.

Question 37

Net income must be adjusted for changes in ____________________ assets and liabilities, such as accounts receivable and accounts payable, when determining the net cash provided by operating activities.

Question 38

When the ____________________ method of preparing the statement of cash flows is used, the interest and income taxes paid during the period are disclosed in notes accompanying the statement.

Question 39

On the statement of cash flows, cash and cash ____________________ consist of currency, bank accounts, and short-term, highly liquid investments.

Question 40

When the net cash provided by operating activities is determined, a gain on a sale of equipment should

A) be added to the net income.
B) be subtracted from the net income.
C) not be used in the calculation.
D) be reported in the cash flows from financing activities section.

Question 41

Chattel Company sold for $7,000 equipment that originally cost $40,000 and had depreciation in the amount of $34,000 taken. What amount is reported in the Cash Flows from Financing Activities section of the Statement of Cash Flows?

A) $6,000
B) $5,000
C) $0
D) $1,000

Question 42

A corporation received $80,000 in cash when it sold common stock and used the proceeds to pay $60,000 in bonds payable. As a result, the statement of cash flows would report

A) $20,000 as the net cash used in financing activities.
B) $20,000 as the net cash provided by investing activities.
C) $20,000 as the net cash used in investing activities.
D) $20,000 as the net cash provided by financing activities.

Question 43

Generally, if a short-term investment is to be classified as a cash equivalent, it must fall due within

A) 12 months from the date it was acquired.
B) 6 months from the date it was acquired.
C) 3 months from the date it was acquired.
D) 1 month from the date it was acquired.

Question 44

Transactions for the acquisition or disposal of long-term assets are

A) operating activities.
B) investing activities.
C) financing activities.
D) outflows or uses of cash.

Question 45

Polyglot Services, Inc. sold equipment that cost $45,600 for $12,450. Depreciation on the equipment from purchase to date of sale amounted to $35,000. What amount is reported in the Cash Flows from Investing Activities section of the Statement of Cash Flows?

A) $12,450
B) $0
C) $1,850
D) $10,600

Question 46

Chattel Company sold for $5,000 equipment that originally cost $40,000 and had depreciation in the amount of $34,000 taken. What amount is reported in the Cash Flows from Operating Activities section of the Statement of Cash Flows?

A) $7,000
B) $6,000
C) $5,000
D) $1,000

Question 47

When the net cash provided by operating activities is determined, the amortization of bond premium

A) should be added to the net income.
B) should be subtracted from the net income.
C) should not be used in the calculation.
D) should be subtracted from the net cash amount after other calculations have been made.

Question 48

On a statement of cash flows, an increase in a prepaid expense

A) is included in computing cash flows from operating activities.
B) is included in computing cash flows from investing activities.
C) is included in computing cash flows from financing activities.
D) is not used in computing cash flows.

Question 49

Cannon Manufacturing Co. sold equipment that cost $18,000 for $6,000. A loss on sale of $1,000 was recorded. How is the Cash Flows from Operating Activities affected?

A) The loss of $1,000 is added to Net Income.
B) The loss of $6,000 is added to Net Income.
C) The gain of $6,000 is deducted from Net Income.
D) The loss of $1,000 is deducted from Net Income.

Question 50

A corporation received $80,000 in cash when it sold a building and paid $50,000 in cash when it purchased some new machinery. As a result, the statement of cash flows would report

A) $30,000 as the net cash used in financing activities.
B) $30,000 as the net cash provided by investing activities.
C) $30,000 as the net cash used in investing activities.
D) $30,000 as the net cash provided by financing activities.

Question 51

On a statement of cash flows, depreciation expense is

A) subtracted from net income in the computation of the net cash provided by operating activities.
B) added to net income in the computation of the net cash provided by operating activities.
C) treated as a cash outflow in the computation of the net cash used in investing activities.
D) treated as a cash inflow in the computation of the net cash used in investing activities.

Question 52

The payment of interest is considered to be

A) an outflow of cash that results from a financing activity.
B) an outflow of cash that results from an investing activity.
C) an outflow of cash that results from an operating activity.
D) an activity that is not reported on the statement of cash flows.

Question 53

The method used by most corporations to prepare the statement of cash flows is the

A) accrual method.
B) direct method.
C) deferral method.
D) indirect method.

Question 54

A corporation received $50,000 in cash when it sold a building and paid $90,000 in cash when it purchased some new machinery. As a result, the statement of cash flows would report

A) $40,000 as the net cash used in financing activities.
B) $40,000 as the net cash provided by investing activities.
C) $40,000 as the net cash used in investing activities.
D) $40,000 as the net cash provided by financing activities.

Question 55

Transactions that provide cash to the business to carry on its activities are

A) operating activities.
B) investing activities.
C) financing activities.
D) outflows or uses of cash.

Question 56

An increase in accounts payable is

A) added to the net income when determining the net cash provided by operating activities.
B) subtracted from the net income when determining the net cash provided by operating activities.
C) added to the cash flows from investing activities.
D) not used to calculate the net cash provided by operating activities.

Question 57

Chattel Company sold for $7,000 equipment that originally cost $40,000 and had depreciation in the amount of $34,000 taken. What amount is reported in the Cash Flows from Investing Activities section of the Statement of Cash Flows?

A) $7,000
B) $6,000
C) $5,000
D) $1,000

Question 58

Doff Manufacturing Co. sold equipment that cost $12,000 for $3,000. Depreciation of $10,000 had been taken on the equipment. How is the Cash Flows from Operating Activities affected?

A) The loss of $1,000 is added to Net Income
B) The gain of $1,000 is added to Net Income
C) The gain of $1,000 is deducted from Net Income
D) The loss of $1,000 is deducted from Net Income

Question 59

An example of an investing activity is

A) the issue of preferred stock.
B) the resale of treasury stock.
C) the issue of bonds and notes payable.
D) the purchase of property, plant, or equipment for cash.

Question 60

When the net cash provided by operating activities is determined, an increase in income taxes payable should

A) be subtracted from the net cash amount after other calculations have been made.
B) be subtracted from the net income.
C) not be used in the calculation.
D) be added to the net income.

Question 61

The following transactions occurred at the Lionel Corporation in 2013. Use this information to prepare Lionel's schedule of cash flows from financing activities.

A) The company issued 300 shares of its $50 par value common stock.
B) Cash dividends of $25,000 were paid on common stock during the year.

Question 62

The Natural Company's balance sheet would report the balance of Cash on December 31, 2013

A) $311,000.
B) $410,000.
C) $426,000.
D) $461,000.

Question 63

Additional information:
Plant assets that originally cost $67,200 were sold for $56,000, resulting in a gain of $8,200.
Dividends of $35,815 were declared and paid. There were no dividends declared in 2013.
Using the information provided, prepare the cash flows from operating activities for The Kerfuffle Company using the indirect method.

Question 64

Eleemosynary Organization acquired land valued at $56,000 for 4,200 shares of its stock. Where on the Statement of Cash flows does this transaction activity appear?

A) Operating Activities
B) Investing Activities
C) Financing Activities
D) Disclosures

Question 65

The following information is taken from the accounting records of the Gilford Corporation. Use this information to prepare Gilford's statement of cash flows for the year ended December 31, 2014. Additional information:
(a) Plant construction costing $40,000 in cash was completed.
(b) Equipment was purchased for $20,000 in cash.
(c) Common stock was sold for $50,000 in cash.
(d) Bonds were issued for $15,000 in cash.
(e) Common stock dividends of $20,000 were paid in cash.
(f) Net income after income taxes was $35,000.

Question 66

The following transactions occurred at the Lionel Corporation in 2013. Use this information to prepare Lionel's schedule of cash flows from investing activities.

A) The company sold a used truck for $4,000 in cash. The original cost of the truck was $19,000. Depreciation of $14,000 had been deducted.
B) The company purchased some new equipment for $25,000.

Question 67

The Natural Company's Statement of Cash Flows would report Cash Flows from Financing Activities totaling:

A) $500,000.
B) $300,000.
C) $275,000.
D) $250,000.

Question 68

The purchase or resale of treasury stock is reported in which of the following categories?

A) Operating Activities
B) Investing Activities
C) Financing Activities
D) Disclosures

Question 69

Define cash equivalents and list three examples other than coin, currency, and bank accounts.

Question 70

The Natural Company's Statement of Cash Flows would report Cash Flows from Operating Activities totaling:

A) $252,000.
B) $286,000.
C) $368,000.
D) $470,000.

Question 71

Cannon Manufacturing Co. sold equipment that cost $18,000 for $6,000. A loss on sale of $1,000 was recorded. How is the Cash Flows from Investing Activities affected?

A) A cash inflow of $5,000 is recorded.
B) A cash inflow of $6,000 is recorded.
C) A cash inflow of $11,000 is recorded.
D) A cash inflow of $12,000 is recorded.

Question 72

The Natural Company's Statement of Cash Flows would report Cash Flows from Investing Activities totaling:

A) $50,000.
B) $84,000.
C) $(284,000).
D) $(250,000).

Question 73

The current assets and liabilities of the Lionel Corporation on December 31, 2014 and 2013, are listed below. Lionel's net income for 2014 was $75,000. Included in its expenses was depreciation of $17,000. Prepare a schedule of cash flows from operating activities for 2014.

Question 74

The Other Income and Other Expense sections of an Income Statement are shown below. In preparing the Cash Flows from Operating Activities section of the statement of Cash Flows using the indirect method, indicate how each item would be handled. (Assume all line items involved cash.)

Question 75

Why are depreciation expense and amortization expense added to Net Income under the indirect method?

Question 76

For each of the following operating activities, indicate whether it is a source of cash, a use of cash, or neither under the indirect method.
________ (a) increase in Accounts Receivable
________ (b) increase in Prepaid Expense
________ (c) increase in Inventory
________ (d) increase in Accounts Payable
________ (e) decrease in Supplies
________ (f) bond discount amortization

Question 77

Bastion Corporation paid $15,600 on its mortgage loan. The principal portion was $5,000 and the interest was $10,600. The $5,000 constitutes what on the Statement of Cash Flows?

A) an outflow of cash under the financing activities section
B) an outflow of cash under the operating activities section
C) an outflow of cash under the investing activities section
D) a disclosure of the interest paid

Question 78

A list of sources and uses of cash are given below. Indicate on the line provided whether each is an operating, investing, or financing activity.
________ (a) purchase of land
________ (b) repayment of bond indebtedness
________ (c) sale of merchandise
________ (d) pay salaries and wages
________ (e) pay interest expense
________ (f) sale of office equipment
________ (g) dividends paid
________ (h) resale of Treasury Stock
________ (i) borrowing through a note payable
________ (j) dividend income

Question 79

The retirement of bonds with cash by a company is reported under which of the following?

A) Operating Activities
B) Investing Activities
C) Financing Activities
D) Disclosures

Question 80

Corporations do not commonly use the direct method for the Statement of Cash Flows because

A) they do not have easy access to the necessary information.
B) FASB prefers the indirect method.
C) the direct method does not follow GAAP.
D) there are fewer disclosures required under the indirect method.