Deck 17: Reporting and Analyzing Cash Flows

Question 1

The full disclosure principle requires that noncash investing and financing activities be disclosed in a separate schedule attached to the statement of cash flows,or in the accompanying notes.

Answer 1

True

Question 2

Under IFRS,the payment of cash dividends to shareholders can be classified as either a financing activity or operating activity.

Answer 2

True

Question 3

Internal users of the statement of cash flows use cash flow information to plan day-to-day operating activities and make long-term investments.

Answer 3

True

Question 4

A purchase of land in exchange for shares is disclosed in a separate schedule attached to the statement of cash flows or in a note to the statement.

Question 5

Cash outflows to repurchase shares is an example of a cash flow from a financing activity.

Question 6

Decisions on whether a company can pay its existing debts as they mature can be evaluated by looking at the company's statement of cash flows.

Question 7

The statement of cash flows explains the difference between the beginning and ending balances of cash and cash equivalents.

Question 8

Financing activities include (a)the purchase and sale of long-term assets,(b)the purchase and sale of trading investments,and (c)lending and collecting on loans.

Question 9

The statement of cash flows only measures outflows of cash during a period.

Question 10

Investments must be within 6 months of their maturity dates to be classified as cash equivalents.

Question 11

On the statement of cash flows,business operations are classified as operating,investing,or financing activities.

Question 12

Cash dividends and interest received can only be considered cash inflows from investing activities.

Question 13

Burton purchased equipment for $150,000 by paying $50,000 and signing a $100,000 note payable.The entire transaction is disclosed to users on the statement of cash flows.

Question 14

Conversion of preferred shares to common shares is disclosed in the financing section of the statement of cash flows.

Question 15

A noncash investing transaction should be disclosed as a note to the statement of cash flows.

Question 16

Bank overdrafts repayable on demand may be included in the cash and cash equivalent balance.

Question 17

The statement of cash flows helps financial statement users evaluate a company's earnings performance at a point in time.

Question 18

A noncash purchase of land is reported in the investing section of the statement of cash flows as a separate line item.

Question 19

The purpose of the statement of cash flows is to report the major items comprising cash receipts and cash payments during a period.

Question 20

Many business decisions are based on cash flow evaluations.

Question 21

The direct method of preparing the statement of cash flows separately lists each major item of operating cash receipts and each major item of operating cash payments.

Question 22

Under the indirect method,a decrease in accounts payable will be added to net income.

Question 23

The increase or decrease in cash equals the current period's cash balance minus the prior period's cash balance.

Question 24

The three-step process in determining net cash inflows (outflows)from investing activities are: (1)identify changes in investing-related accounts; (2)explain these changes using reconstruction analysis; (3)report cash flow effects.

Question 25

The direct method is required by IFRS because it provides greater detail regarding operating cash flows.

Question 26

The indirect method for preparation of the statement of cash flows calculates the net cash inflows (outflows)from operating activities by adjusting accrual net income to a cash basis.

Question 27

Both the direct and indirect methods yield the same net cash flow provided (used)by investing activities.

Question 28

Accounting standards require companies to include a statement of cash flows in a complete set of financial statements.

Question 29

The proceeds from the disposal of property,plant and equipment are reported on the statement of cash flows as cash used by investing activities.

Question 30

The direct method calculates the net cash inflows (outflows)from operating activities by adjusting accrual net income to a cash basis.

Question 31

Under the direct method,the gain or loss from retirement of debt is reported in the operating section of the statement of cash flows.

Question 32

Bad debts expense is an item that does not provide or use cash.

Question 33

Information to prepare the statement of cash flows usually comes from (a)comparative balance sheets,(b)current income statements,and (c)additional information.

Question 34

Firms have the option of using either the direct or indirect method to prepare the statement of cash flows.

Question 35

Most acquisitions of property,plant and equipment are reported on the statement of cash flows as cash used by investing activities.

Question 36

Under the indirect method,decreases in non-cash current assets are added to net income.

Question 37

The statement of cash flows explains how transactions and events impact the end-of-period cash balance to produce the end-of-period cash balance.

Question 38

Noncash financing activities are disclosed in a note in the financing section of the statement of cash flows.

Question 39

Under the indirect method,noncash operating expenses are added back to net income when preparing the investing section of the statement of cash flows.

Question 40

Under the indirect method,depreciation expense is subtracted from net income.

Question 41

Managers use cash flow predictions to:

A) Make decisions about acquiring new property,plant and equipment.
B) Insource or outsource production of a product.
C) Keep or eliminate a product line.
D) Maintain or downsize a department.
E) All of these answers are correct.

Question 42

Reporting of financing activities is the same under both the direct and the indirect methods.

Question 43

The statement of cash flows is:

A) Another name for the statement of financial position.
B) A financial statement that reports the cash inflows and outflows for an accounting period.
C) A financial statement that presents information about what happened to equity during a period.
D) A financial statement that lists the types and amounts of assets,liabilities,and equity of a business on a specific date.
E) A financial statement that lists the types and amounts of the revenues and expenses of a business.

Question 44

Reconstruction analysis is used to identify the types of purchases and disposals of property,plant and equipment by reproducing the entries that occurred in the year.

Question 45

The statement of cash flows helps analysts evaluate whether a company has enough cash to:

A) Make debt repayments.
B) Pay for future plant expansion.
C) Pay for unexpected law suits.
D) Finance investments.
E) All of these answers are correct.

Question 46

The statement of cash flows reports:

A) Operating activities.
B) Financing activities.
C) Investing activities.
D) Noncash financing and investing activities.
E) All of these answers are correct.

Question 47

Typical cash flows from investing activities include:

A) Payments to purchase property,plant and equipment or other productive assets (excluding merchandise inventory).
B) Proceeds from the sale (discounting)of loans made by the enterprise.
C) Proceeds from collecting the principal amount of loans.
D) Payments to acquire debt securities of other entities.
E) All of these answers are correct.

Question 48

Financing activities include receiving dividends from investments in other companies.

Question 49

Financing activities include receiving cash from issuing debt and receiving dividends from investments in other corporations.

Question 50

Under the indirect method,an increase in income taxes payable is added to net income when preparing the operating section of the statement of cash flows.

Question 51

Investing activities include: (a)the purchase and sale of long-term assets,(b)lending and collecting on notes receivable,(c)the purchase and sale of investments other than cash equivalents.

Question 52

The sale of equipment increases investing cash flows.

Question 53

An investment that must be readily convertible to known amounts of cash,that is subject to insignificant risk of changes in value,and normally qualifies only when it has a short maturity of three months or less from the date of acquisition is called a(n):

A) Trading security.
B) Cash equivalent.
C) Treasury bill,commercial paper,or equity security.
D) Operating activity.
E) Financing activity.

Question 54

Activities that involve the production or purchase of merchandise and the sale of goods and services to customers,including expenditures related to administering the business are:

A) Operating activities.
B) Investing activities.
C) Financing activities.
D) Direct activities.
E) Indirect activities.

Question 55

Transactions with the owners of a business or transactions with its creditors to borrow money or to repay the principal amounts of loans are called:

A) Operating activities.
B) Financing activities..
C) Investing activities
D) Direct activities.
E) Indirect activities.

Question 56

Which one of the following is representative of typical cash flows from operating activities?

A) Receipts of cash dividends.
B) Repayment of cash loans.
C) Proceeds from the issuance of bonds and notes payable.
D) Payments to acquire equity securities of other companies.
E) Proceeds from collecting the principal amount of loans.

Question 57

Equipment costing $100,000 with accumulated depreciation of $40,000 is sold at a loss of $10,000.The cash received from the sale was $40,000.

Question 58

A change in retained earnings can be due to payment of cash dividends

Question 59

A cash equivalent is an investment that:

A) Is readily convertible to a known amount of cash.
B) Is subject to an insignificant risk of changes in value.
C) Is within 3 months of its maturity date.
D) Is highly liquid.
E) All of these answers are correct.

Question 60

The statement of cash flows reports:

A) Assets,liabilities,and owners' equity.
B) Cash inflows and outflows for an accounting period.
C) Revenues,gains,expenses,and losses.
D) Owners' equity,net income,and dividends.
E) Cash inflows and outflows for an accounting period and owners' equity,net income,and dividends.

Question 61

The purchase of long-term assets by issuing a note payable is reported on the statement of cash flows in the:

A) Operating section.
B) Financing section.
C) Investing section.
D) Notes to the statement of cash flows.
E) Both financing and investing sections.

Question 62

The appropriate statement of cash flow activity category for the issuance of common shares for cash is:

A) Operating.
B) Financing.
C) Investing.
D) Schedule of noncash investing or financing activity.
E) Not reported on the statement of cash flows.

Question 63

The appropriate statement of cash flow activity category for the payment of wages is:

A) Operating.
B) Financing.
C) Investing.
D) Schedule of noncash investing or financing activity.
E) Not reported on the statement of cash flows.

Question 64

The direct method for the preparation of the operating activities section of the statement of cash flows:

A) Separately lists each major item of operating cash receipts.
B) Separately lists each major item of operating cash payments.
C) Separately lists each major item of operating cash receipts and cash payments.
D) Reports net income and then adjusts it for items necessary to determine net cash provided or used by operating activities.
E) All of these answers are correct.

Question 65

Cash flows from selling long term investments are reported in the statement of cash flows as:

A) Operating activities.
B) Financing activities.
C) Investing activities.
D) Noncash activities.
E) Not reported.

Question 66

The usual statement of cash flow activity category for the receipt of cash dividends from share investments is:

A) Operating.
B) Financing.
C) Investing.
D) Schedule of noncash investing or financing activity.
E) Not reported on the statement of cash flows.

Question 67

The direct method of reporting operating cash flows:

A) Is recommended by IFRS.
B) Is recommended,but not required,by IFRS.
C) Is used by most companies.
D) Is not required by IFRS.
E) All of these answers are correct.

Question 68

The appropriate statement of cash flow activity category for the purchase of equipment for cash is:

A) Operating.
B) Financing.
C) Investing.
D) Schedule of noncash investing or financing activity.
E) Not reported on the statement of cash flows.

Question 69

The accounting principle which requires that noncash financing and investing activities are reported on the statement of cash flows is the principle of:

A) Full disclosure.
B) Materiality.
C) Historical cost.
D) Going concern.
E) Business entity.

Question 70

A transfer from retained earnings to common shares in a share dividend transaction should be reported in the statement of cash flows as:

A) An operating activity.
B) A note or separate schedule.
C) An investing activity.
D) A financing activity.
E) Should not be reported in the statement of cash flows.

Question 71

When using the direct method,which of the following should be reported as a source of cash from operating activities?

A) Credit sales.
B) Depreciation expense.
C) Collections from customers.
D) Sale of a building.
E) Sale of treasury shares.

Question 72

Cash flows from cash dividends and interest received are reported in the statement of cash flows as:

A) Operating activities.
B) Financing activities.
C) Investing activities.
D) Noncash activities.
E) Not reported.

Question 73

A statement of cash flows should reconcile the differences between the beginning and ending balances of:

A) Cash.
B) Cash equivalents.
C) Cash and cash equivalents.
D) Working capital.
E) Cash,cash equivalents,and long term investments.

Question 74

A calculation of the net cash provided or used by operating activities that lists the major classes of operating cash receipts,such as receipts from customers,and subtracts the major classes of operating cash disbursements,such as cash paid for merchandise,is the:

A) Cash basis of accounting.
B) Direct method of calculating net cash provided (or used)by operating activities.
C) Classified statement of cash flows.
D) Indirect method of calculating net cash provided (or used)by operating activities.
E) Net method of recording cash flows from operating activities.

Question 75

The appropriate statement of cash flows activity category for the purchase of land in exchange for common shares is:

A) Operating.
B) Financing.
C) Investing.
D) Schedule of noncash investing or financing activity.
E) Not reported on the statement of cash flows.

Question 76

Non-cash investing and financing activities may be disclosed:

A) In a note to the statement of cash flows.
B) In a separate schedule attached to the bottom of the statement of cash flows.
C) In the investing section of the statement of cash flows.
D) In the financing section of the statement of cash flows.
E) In a note to the statement of cash flows or in a separate schedule attached to the bottom of the statement of cash flows.

Question 77

Preparation of the statement of cash flows involves:

A) Calculation of the net increase or decrease in cash.
B) Calculation and reporting of net cash provided or used by operating activities.
C) Calculation and reporting of net cash provided or used by investing activities.
D) Calculation and reporting of net cash provided or used by financing activities.
E) All of these answers are correct.

Question 78

The indirect method for the preparation of the operating activities section of the statement of cash flows:

A) Separately lists each major item of operating cash receipts.
B) Separately lists each major item of operating cash payments.
C) Reports net income and then adjusts it for items necessary to determine net cash provided or used by operating activities.
D) Separately lists each major item of operating cash receipts and payments.
E) All of these answers are correct.

Question 79

James Manufacturing Company purchased plant assets that cost $100,000 by paying $20,000 in cash and financing the balance by issuing a note payable to the seller.This transaction is disclosed on a statement of cash flows as follows:

A)

B)

C)

D) As a note to the statement of cash flows
E)

Question 80

Examples of transactions that must be disclosed as noncash investing and financing activities include:

A) The conversion of debt securities to equity securities.
B) The purchase of long-term assets financed by a cash down payment and a note payable to the seller for the balance.
C) The leasing of assets in a transaction that qualifies as a finance lease.
D) The purchase of noncash assets in exchange for equity or debt securities.
E) All of these answers are correct.