Deck 8: Reporting and Analyzing Cash Flows

Question 1

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

Answer 1

True

Question 2

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.

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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

Question 5

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.

Question 6

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

Question 7

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

Question 8

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

Question 9

Many business decisions are based on cash flow evaluations.

Question 10

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

Question 11

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

Question 12

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 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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 21

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

Question 22

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

Question 23

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

Question 24

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 25

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

Question 26

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

Question 27

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

Question 28

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 29

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

Question 30

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

Question 31

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

Question 32

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

Question 33

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 34

If accounts receivable have a positive effect on cash flow that is because accounts receivable increased during the year.

Question 35

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

Question 36

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

Question 37

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 38

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

Question 39

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

Question 40

Under the indirect method,depreciation expense is subtracted from profit.

Question 41

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 42

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

Question 43

A machine with a cost of $190,000 and accumulated depreciation of $95,000 was sold for $50,000 cash.The amount that should be reported as a source of cash under cash flows from investing activities is

A)$50,000
B)$80,000
C)$120,000
D)$35,000
E)$45,000

Question 44

Use the indirect method to calculate the net cash provided (or used)by operating activities based on the following information: $\begin{array}{|l|r|}\hline \text { Profit } & \$ 60,000 \\\hline \text { Depreciation expense } & 7,200 \\\hline \text { Gain on sale of land } & 14,000 \\\hline \text { Decrease in inventory } & 3,500 \\\hline \text { Increase in accounts payable } & 5,500 \\\hline \text { Cash from land sale } & 9,200 \\\hline\end{array}$

A)$62,200
B)$14,000
C)$21,200
D)$14,700
E)$9,200

Question 45

The Merchandise Inventory for Year 1 was $100,000 and for Year 2 was $94,000.The Accounts Payable account for Year 1 was $40,000 and for Year 2 was $42,000.Cost of goods sold for Year 2 was $460,000.What was the total amount for cash payments for merchandise for Year 2?

A)$448,000
B)$449,000
C)$452,000
D)$456,000
E)$84,000

Question 46

Use the information provided about the current year operations of Upper Down Company to calculate cash paid for merchandise.

A)$110,800
B)$111,200
C)$111,600
D)$112,800
E)$112,900

Question 47

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

Question 48

The sale of equipment increases investing cash flows.

Question 49

Financing activities include receiving dividends from investments in other companies.

Question 50

Amy Corporation's income statement showed the following: profit,$72,000; depreciation expense,$8,000; and gain on sale of plant assets,$6,000.An examination of the company's current assets and current liabilities showed the following changes as a result of operating activities: accounts receivable decreased $5,700; merchandise inventory increased $8,000; prepaid expenses decreased $2,100; accounts payable increased $1,700.Calculate the net cash provided (or used)by operating activities.

A)$68,800
B)$82,500
C)$66,500
D)$71,800
E)$75,500

Question 51

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 52

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

Question 53

Examine each of the following transactions (1)through (5).Determine where each should be reported on a statement of cash flows.The possible locations are identified by items (a)through (e).(1)Equity securities of another company were accepted in exchange for a copyright.(2)Received cash dividends.(3)Proceeds from the sale (discounting)of a loan made by the business.(4)Purchased treasury shares.(5)Received a settlement on a lawsuit.A - Operating activities.B - Investing activities.C - Financing activities.D - Schedule of noncash financing and investing activities.E - Not reported on the statement of cash flows.

A)1 = C; 2 = B; 3 = A; 4 = B; 5 = A
B)1 = B; 2 = A; 3 = C; 4 = B; 5 = E
C)1 = D; 2 = A; 3 = B; 4 = C; 5 = A
D)1 = C; 2 = C; 3 = B; 4 = C; 5 = E
E)1 = D; 2 = A; 3 = A; 4 = B; 5 = E

Question 54

Genesis reported that bonds with a face value of $100,000 and a carrying value of $67,000 are retired for $60,000 cash,resulting in a loss of $7,000.The amount to be reported in the financing section is

A)$(3,000)
B)$57,000
C)$58,000
D)$60,000
E)This item is not reported

Question 55

Deena Inc.reported $32,000 of cash provided by operating activities and the following data: $\begin{array}{|l|r|}\hline \text { Depreciation Expense } & \$ 34,000 \\\hline \text { Increase in accounts payable } & 9,000 \\\hline \text { Increase in wages payable } & 18,000 \\\hline \text { Increase in accounts receivable } & 9,000 \\\hline \text { Decrease in dividends payable } & 2,000 \\\hline\end{array}$ Deena's profit/loss for the period was

A)$30,000 profit
B)$18,000 loss
C)$20,000 loss
D)$36,000 loss

Question 56

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 57

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 58

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

Question 59

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 60

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

Question 61

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 62

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 63

Dispositions of non-current assets

A)Have no impact on cash flows
B)Are investing activities and can involve cash inflows
C)Can involve cash inflows
D)Have no impact on cash flows and are investing activities
E)Are investing activities

Question 64

Which of the following is included in cash flows from financing activities?

A)Interest revenue
B)Sale of equipment
C)Interest expense
D)Purchase of treasury shares
E)Purchase of shares in another company

Question 65

In each of the following cases,use the information provided about the current year operations of Ivy Company to calculate the indicated cash flow item. $\begin{array}{|l|l|r|}\hline \text { Case A: } & \text { Calculate cash received from dividends } & ? \\\hline & \text { Dividend revenue } & 14,900 \\\hline & \text { Dividends receivable January 1 } & 1,400 \\\hline & \text { Dividends receivable December 31 } & 1,700 \\\hline\end{array}$

A)Case A = $14,600; Case B = $81,000
B)Case A = $14,900; Case B = $78,900
C)Case A = $15,300; Case B = $81,000
D)Case A = $14,600; Case B = $78,900
E)Case A = $14,900; Case B = $84,000

Question 66

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

Question 67

Which of the following items is reported in the body of the statement of cash flows?

A)Declaration of a cash dividend
B)Payment of a cash dividend
C)Declaration of a share dividend
D)Distribution of a share dividend
E)Share split

Question 68

A loss on the disposal of a non-current asset

A)Involves cash inflows
B)Involves cash outflows
C)Does not reflect any cash flow
D)Is the result of an investing activity
E)Does not reflect any cash flow and is the result of an investing activity

Question 69

Changes in notes payable,non-current liabilities,and equity accounts are usually used in calculating and reporting

A)Cash flows from investing activities
B)Cash flows from operating activities
C)Cash flows from financing activities
D)Non-cash financing activities
E)Non-cash balance sheet accounts

Question 70

The first item reported in the operating activities section for a statement of cash flows prepared according to the indirect method is

A)Cash
B)Cash received from customers
C)Increase (decrease)in accounts receivable
D)Profit
E)Adjustments to profit

Question 71

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 72

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

A)For income statement items involving operating activities that do not affect cash inflows or outflows
B)To eliminate gains and losses resulting from investing and financing activities
C)For changes in noncash current assets and current liabilities
D)For income statement items involving operating activities that do not affect cash inflows or outflows and for changes in noncash current assets and current liabilities
E)All of these

Question 73

Using the indirect method to calculate net cash provided (or used)by operating activities,which of the following is subtracted from profit?

A)Depreciation expense
B)Amortization of intangible assets
C)Decrease in income taxes payable
D)Bad debts expense
E)None of these

Question 74

If a company borrows money from a bank,the interest paid should be reported on the statement of cash flows as a(n):

A)Operating activity
B)Investing activity
C)Financing activity
D)Noncash investing and financing activity
E)Cannot be determined from the information given

Question 75

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 non-current investments

Question 76

Acquisitions of non-current assets

A)Have no impact on cash flows
B)Are investing activities
C)Can involve cash outflows
D)Are investing activities and can involve cash outflows
E)Have no impact on cash flows and are investing activities

Question 77

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 78

Using the indirect method to calculate the net cash provided (or used)by operating activities,profit is adjusted for

A)Gains and losses from investing and financing activities
B)Revenues and expenses that did not provide or use cash
C)Changes in noncash current assets and current liabilities related to operating activities
D)Gains and losses from investing and financing activities and revenues and expenses that did not provide or use cash
E)All of these

Question 79

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 80

A gain on the disposal of a non-current asset

A)Involves cash inflows
B)Involves cash outflows
C)Does not reflect any cash flow and is the result of an investing activity
D)Is the result of an investing activity
E)Does not reflect any cash flow