Deck 16: The Cash Flow Statement

Question 1

The cash flow statement is an optional statement when preparing the financial statements of a company.

Answer 1

False

Question 2

A comparative balance sheet is required in order to prepare a cash flow statement.

Answer 2

True

Question 3

The information in the cash flow statement should help customers and employees evaluate the company's financial position.

Answer 3

True

Question 4

Cash equivalents include money market instruments that are due within one year.

Question 5

A comparative income statement is required in order to prepare a cash flow statement.

Question 6

Significant investing and financing activities that do not affect cash are NOT reported in the body of the cash flow statement.

Question 7

The cash flow statement is the only statement that shows the flow of cash in a company.

Question 8

Companies reporting under IFRS have a choice where to classify interest and investments.

Question 9

Accrual based accounting allows investors to better evaluate a company's ability to generate cash flow.

Question 10

Under ASPE, payment of interest to lenders of debt is considered an operating activity because the item is reported on the income statement where the results of operations are shown.

Question 11

Under ASPE, receipt of interest and dividends are classified as an operating activity.

Question 12

The use of cash to purchase cash equivalents would be reported on the cash flow statement as an investing activity.

Question 13

In order to determine whether a company is financially sound or not, it is essential to understand its cash flows.

Question 14

Financing activities include the purchasing and disposing of investments and long-lived assets and lending money and collecting the loans.

Question 15

The sustainability of a business is linked to its ability to generate cash.

Question 16

An issuance of debt to purchase long lived assets would be an investing activity.

Question 17

Under ASPE, dividends are classified as financing activities.

Question 18

The cash flow statement gives information on the operating, gross profit and investing activities of a company.

Question 19

Under IFRS, companies must report interest and dividends received as an operating activity.

Question 20

Operating activities of a company show the cash effects of revenues and expense transactions.

Question 21

The indirect method and direct method only apply when calculating the cash flow from investing activities.

Question 22

In the direct method, cash payments to employees would include the salary expense reported in the income statement plus any decrease during the period in salaries payable.

Question 23

In preparing the net cash provided by operating activities, profit must first be converted from a cash basis to an accrual basis.

Question 24

When accounts receivable increase during the year, revenues on an accrual basis are lower than revenues on a cash basis.

Question 25

In the direct method, cash payments for interest would include the interest expense minus a decrease in interest payable during the period.

Question 26

The first step in preparing the cash flow statement is to determine the net cash provided by operating activities.

Question 27

To calculate the net cash provided by operating activities under the indirect method, profit is adjusted for items which do not affect cash.

Question 28

Under the direct method, when accounts receivable increase during the period, it means that less cash was collected from customers than was recorded as revenue by the company.

Question 29

An increase in a current liability account will be deducted from the net cash provided by operating activities.

Question 30

In the indirect method of calculating cash flow from operations, depreciation, as a noncash expense, would be added back to profit.

Question 31

Showing a decrease in accounts receivable as an addition on the cash flow statement implies that a company can increase its cash by collecting its receivables.

Question 32

The amount of cash flow from operations will be the same under the indirect method or the direct method.

Question 33

All gains and losses from investing activities must be eliminated from profit in order to arrive at net cash from investing activities.

Question 34

When accounts receivable decrease during the year, more cash was collected during the period than was recorded as revenue.

Question 35

Using the indirect method, an increase in accounts payable during a period is deducted from profit in calculating cash provided by operating activities.

Question 36

If the balance of prepaid insurance increases during a period, it indicates more cash was expended for insurance than is reported in the income statement.

Question 37

When bonds are issued in exchange for land, the cash flow from investing activities would decrease.

Question 38

In the direct method, when prepaid expenses decrease from the previous period, then the cash paid for operating activities will be higher than the amount reported on the income statement.

Question 39

Regardless of whether the indirect or direct method is used to calculate operating activities, investing and financing activities are measured and reported in the same way.

Question 40

The direct method of calculating cash flows from operating activities converts total profit from an accrual basis to a cash basis.

Question 41

The cash flow statement covers the same period of time as the income statement and the statements of comprehensive income, retained earnings and changes in shareholders' equity.

Question 42

If a company is a start-up company, the expectation would be that there would be negative cash used by investing and operating activities and positive cash provided by financing activities.

Question 43

The payment of a cash dividend by a company reporting under ASPE will result in a reduction of the amount of cash provided by financing activities.

Question 44

When common shares are issued in exchange for land, this transaction is reported in both the financing and investing sections of the cash flows.

Question 45

Which of the following characteristics does NOT apply to cash equivalents?

A) short-term
B) highly-liquid
C) readily convertible into cash
D) highly sensitive to interest rate changes

Question 46

The purchase of a building for cash would be reporting in the financing section of the cash flow statement.

Question 47

The cash flow statement will NOT report the

A) amount of cheques outstanding at the end of the period.
B) sources of cash in the current period.
C) uses of cash in the current period.
D) change in the cash balance for the current period.

Question 48

The cash flow statement is used to

A) provide information about the investing and financing activities during a period.
B) prove that revenues exceed expenses if there is a profit.
C) provide information about the cash receipts and cash payments during a period.
D) facilitate banking relationships.

Question 49

Free cash flow is a measure of discretionary cash flow of a company.

Question 50

A company who has stable profit would expect to have a positive cash flow from investing activities and a negative cash flow from financing activities.

Question 51

A profitable company would always have a positive cash flow.

Question 52

A company with a stronger operating cash flow would be more favourable to an investor than one with a stronger cash flow from investments.

Question 53

Cash equivalents are generally debt investments with maturities of

A) $1,000 or more.
B) three months or less.
C) at least six months.
D) one year.

Question 54

The information in a cash flow statement will help users assess all of the following EXCEPT

A) the company's ability to generate future cash flows.
B) the company's ability to pay dividends and meet obligations.
C) the company's ability to turn over its accounts receivable.
D) the reasons for the difference between profit and cash provided or used by operating activities.

Question 55

Free cash flow is the amount of cash provided by investing activities reduced by the amount of cash provided by operating activities.

Question 56

The investing activities are presented in the cash flow statement before the operating and financing activities.

Question 57

When accumulated depreciation is increased during the period, the amount of cash flow from investing activities would increase.

Question 58

By reporting cash receipts and cash payments, the direct method provides information that is useful to investors and creditors in predicting future cash flows that is NOT available under the indirect method.

Question 59

The cash flow statement must always balance to the change in the cash position of the company during the period.

Question 60

When a long-lived asset is sold, only the proceeds from the sale of the asset are reported in the investing activities.

Question 61

All of the following are examples of significant noncash activities EXCEPT

A) issue debt in exchange for assets.
B) issue common shares in exchange to purchase assets.
C) exchange of property, plant and equipment.
D) issuance of bonds for cash to purchase assets.

Question 62

Investing activities include

A) collecting cash on loans made.
B) obtaining cash from creditors.
C) issuing shares to investors.
D) repaying money previously borrowed.

Question 63

If a company has both an inflow and outflow of cash related to property, plant, and equipment, the

A) two cash effects can be netted and presented as one item in the investing activities section.
B) cash inflow and cash outflow should be reported separately in the investing activities section.
C) two cash effects can be netted and presented as one item in the financing activities section.
D) cash inflow and cash outflow should be reported separately in the financing activities section.

Question 64

On the cash flow statement, cash inflows from the sale of bonds is reported as a(n)

A) operating activity.
B) financing activity.
C) investing activity.
D) significant noncash investing activity.

Question 65

Cash outflows from operating activities of a private company reporting under ASPE include all of the following EXCEPT payments to

A) suppliers for inventory.
B) employees for services.
C) lenders for interest.
D) shareholders for dividends.

Question 66

Under IFRS, cash receipts from interest and dividends are classified as

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

Question 67

Under IFRS, companies have a choice on the classification of interest received. Which of the following outlines the choice?

A) Interest received must be included in operating activities.
B) Interest received must be included in either operating or financing activities.
C) Interest received must be included in either operating or investing activities.
D) Interest received must be included in investing activities.

Question 68

Sale of an asset at a loss will affect which activities?

A) Operating activity will have the loss added to profit; investing will increase for the proceeds on the sale.
B) Operating activity will have the loss subtracted from profit; investing activities will increase for the proceeds on the sale.
C) Operating activity will have the loss added to profit; financing activities will increase for the proceeds on the sale.
D) Operating activity will have the loss subtracted to profit; financing activities will increase for the proceeds on the sale.

Question 69

Significant noncash transactions would NOT include

A) conversion of bonds into common shares.
B) asset acquisition through issue of note payable.
C) reacquisition of common shares.
D) exchange of property, plant, and equipment.

Question 70

Typical cash payments classified under investing activities include all of the following payments EXCEPT

A) payments to purchase debt or equity investments.
B) payments to employees for services.
C) payments to purchase property, plant and equipment.
D) payments to make loans to other companies.

Question 71

For companies reporting under ASPE, typical cash payments classified under financing activities will include the following payment

A) to redeem long-term debt or reacquire shares.
B) to employees for services.
C) to lenders for interest.
D) to make loans to other companies.

Question 72

Typical cash payments classified under operating activities include all of the following payments EXCEPT

A) payments to suppliers for inventory.
B) payments to employees for services.
C) payments to lenders for interest.
D) payments to make loans to other companies.

Question 73

In preparing a cash flow statement, a conversion of bonds into common shares will be reported in

A) the financing section.
B) the investing section.
C) a separate schedule or note to the financial statements.
D) the shareholders' equity section.

Question 74

The acquisition of land by issuing common shares is

A) a noncash transaction which is not reported in the body of a cash flow statement.
B) a cash transaction and would be reported in the body of a cash flow statement.
C) a noncash transaction and would be reported in the body of a cash flow statement.
D) only reported if the cash flow statement is prepared using the direct method.

Question 75

The cash flow statement classifies cash receipts and cash payments into three types of activities. Which of the following is considered one of the activities reported in the cash flow statement?

A) revenue generating activities
B) promoting activities
C) financing activities
D) expansion activities

Question 76

The order of presentation of activities on the cash flow statement is

A) operating, investing, and financing.
B) operating, financing, and investing.
C) financing, operating, and investing.
D) financing, investing, and operating.

Question 77

Financing activities involve

A) lending money.
B) acquiring investments.
C) issuing debt.
D) acquiring long-lived assets.

Question 78

Which of the following would decrease net cash provided by operating activities?

A) increase in accounts payable.
B) depreciation expense.
C) increase in inventory.
D) loss on sale of equipment.

Question 79

Which of the following transactions does NOT affect cash during a period?

A) write-off of an uncollectible account
B) collection of an accounts receivable
C) issue of common shares
D) issue of notes payable

Question 80

All of the following are examples of significant noncash activities EXCEPT

A) the issue of common shares to purchase an asset.
B) the write-off of an uncollectible account receivable.
C) the issue of debt to purchase an asset.
D) the conversion of bonds into common shares.