Deck 11: The Statement of Cash Flows

Question 1

The cash flow statement and Balance Sheet use accrual accounting.

Answer 1

False

Question 2

A comparative Balance Sheet details why the ending cash balance increased or decreased.

Answer 2

False

Question 3

For a business to remain successful, investing activities must be the main source of its cash over the long run.

Answer 3

False

Question 4

A comparative Balance Sheet reports at least two consecutive years of information that can be used to compile a Statement of Cash Flows.

Question 5

The three types of business activities on a Statement of Cash Flows are operating, investing, and management activities.

Question 6

The Statement of Cash Flows is divided into two categories - operations and investments.

Question 7

The Statement of Cash Flows reports the sources and uses of cash from all of the following EXCEPT:

A)managerial activities.
B)financing activities.
C)operating activities.
D)investing activities.

Question 8

Cash received from the sale of land would be included in financing activities.

Question 9

A Statement of Cash Flows shows the company's sources of cash, but does not detail how the cash was used by the company.

Question 10

The purpose of the Statement of Cash Flows is to show:

A)the revenue earned.
B)the profits that were earned.
C)the expenses that were paid.
D)how cash was received and used during the period.

Question 11

The Statement of Cash Flows is prepared to show why the cash amount changed from the beginning of the period to the end of the period.

Question 12

The cash flows from operations computed using the indirect method is different than that computed using the direct method.

Question 13

Cash received from issuing stock would be included in investing activities.

Question 14

The ________ is the financial statement associated with the operating, investing and financing activities of a corporation.

A)Income Statement
B)Statement of Stockholders' Equity
C)Statement of Cash Flows
D)Balance Sheet

Question 15

The direct method of formatting a Statement of Cash Flows starts with net income.

Question 16

The investing and financing sections of the Statement of Cash Flows are the same for the indirect and direct method.

Question 17

The difference between the direct and indirect methods is the format of the financing section.

Question 18

The cash flow statement is the communicating link between the:

A)Statement of Stockholders' Equity and the cash reported on the Balance Sheet.
B)Income Statement and the Statement of Stockholders' Equity.
C)cash reported on the Balance Sheet and the accrual based Income Statement.
D)cash reported on the Balance Sheet and the Statement of Stockholders' Equity.

Question 19

The accuracy of the Statement of Cash Flows can be verified by computing the change in the balance of the:

A)cash and cash equivalent accounts.
B)equity account.
C)revenue accounts.
D)asset and liability accounts.

Question 20

Operating activities reflect such things as acquiring equipment and machinery.

Question 21

As you approach graduation, you are evaluating your job offers from the following companies. Assuming that all other factors are equal (pay, benefits, location, job duties, industry, company size, company age etc.), for which of the following companies would you chose to work and why?

A)Company A, the company is generating cash from its daily operations, investing in long-term assets and generating cash from its' owners or borrowing a relatively small amount.
B)Company B, the company only generates cash from its daily operations and is not spending the cash for any other reason.
C)Company C, the company only generates cash from the owners.
D)All three companies offer the same opportunity for the future.

Question 22

Investing Cash Flows affect:

A)current assets and current liabilities.
B)long-term asset accounts.
C)equity accounts.
D)long-term liability accounts.

Question 23

Bach Company sold an asset with a book value of $54,000 for $90,000 cash. Which of the following is a TRUE statement?

A)Gain on sale equals $90,000 and Cash inflow equals $90,000.
B)Gain on sale equals $54,000 and Cash inflow equals $54,000.
C)Gain on sale equals $36,000 and Cash inflow equals $90,000.
D)Gain on sale equals $90,000 and Cash inflow equals $36,000.

Question 24

Which format is favored by companies for the operating activities section of the Statement of Cash Flows, and why?

A)The indirect method is used more often because it allows the user to more easily visualize the connection between the financial statements.
B)The indirect method is used more often because it allows for a restatement of each accrual based item to a cash basis.
C)The direct method is used more often because it allows the user to more easily visualize the connection between the financial statements.
D)The direct method is used more often because it allows for a restatement of each accrual based item to a cash basis.

Question 25

When comparing net cash provided by operations using the direct method versus indirect method, we find that:

A)net cash is higher using the indirect method.
B)net cash is lower using the indirect method.
C)there is no difference in the net cash between the two methods.
D)Depreciation Expense is used in the direct method.

Question 26

Which of the following is NOT a part of operating activities?

A)Paying dividends
B)Paying payables
C)Net income
D)Paying utilities

Question 27

Kringle Co. issued bonds during the year. This would be considered a _______ of cash, and would be reported in the _______ section of the Statement of Cash Flows.

A)source, financing
B)use, investing
C)source, investing
D)use, financing

Question 28

Most businesses prefer to use the indirect method of formatting a Statement of Cash Flows.

Question 29

Aspen Corp. sold an asset with a book value of $58,000 for $31,000 cash. Which of the following is a TRUE statement?

A)Loss on sale equals $31,000 and Cash inflow equals $31,000.
B)Loss on sale equals $58,000 and Cash inflow equals $58,000.
C)Loss on sale equals $27,000 and Cash inflow equals $31,000.
D)Loss on sale equals $31,000 and Cash inflow equals $27,000.

Question 30

Operating Cash Flows affect:

A)current assets and current liabilities.
B)long-term asset accounts.
C)equity accounts.
D)long-term liability accounts.

Question 31

Financing activities affect:

A)current and long-term assets.
B)current and long-term liabilities.
C)current assets and current liabilities.
D)long-term liabilities and equity accounts.

Question 32

Are all increases to cash from financing activities the result of a favorable situation?

A)Yes, an increase to cash is always good.
B)No, cash could increase in this category as a result of replacing long-term assets.
C)Yes, this increase would reflect the results of the company's daily activities.
D)No, an increase in long-term debt might be the result of an unfavorable situation.

Question 33

Which of the following is NOT a part of financing activities?

A)Paying dividends
B)Issuing stock
C)Paying off loans
D)Buying land

Question 34

Are all decreases to cash the result of an unfavorable situation?

A)Yes, decreases to cash are always bad.
B)No, cash could decrease as a result of acquiring long-term assets which the company needs to expand or stay competitive.
C)Yes, cash could decrease as a result of paying off long-term debt which is an unfavorable action to take.
D)No, cash could decrease because the company issued more stock.

Question 35

Which of the following is NOT a part of investing activities?

A)Buying a building
B)Collecting on a loan receivable
C)Borrowing money
D)Selling off equipment

Question 36

Operating Cash Flows under the indirect method starts with the net income for the period from the Income Statement.

Question 37

In which section of the Statement of Cash Flows would you add or subtract a change in Accounts Payable, and why?

A)The financing section, in order to recognize amounts paid through third party financing.
B)The operating section, in order to make things balance and provide up-to-date information for investors.
C)The operating section, in order to recognize that not all expenses are cash expenses.
D)The financing section, in order to correctly compute the amount that the company has re-invested through purchases.

Question 38

In order to prepare a Statement of Cash Flows using the indirect method, you only need the Income Statement.

Question 39

Which of the following activities is computed differently using the two methods of formatting a Statement of Cash Flows?

A)Operating activities
B)Financing activities
C)Investing activities
D)Both operating activities and investing activities

Question 40

Operating activities are transactions and events associated with selling a product or providing a service related to the:

A)revenues and expenses reported on the Income Statement.
B)assets and liabilities reported on the Balance Sheet.
C)net income reported on the Statement of Retained Earnings.
D)Retained Earnings reported on the Balance Sheet.

Question 41

Acquisitions and sales of long-term assets belong in the financing section of a cash flow statement using the indirect method.

Question 42

Which would be added back to net income in the operating section of an indirect cash flow statement?

A)A decrease in Accounts Payable
B)Depreciation
C)An increase in Accounts Receivable
D)An increase in inventory

Question 43

Which would NOT be subtracted from net income in the operating section of an indirect cash flow statement?

A)An increase in Prepaid Rent
B)An increase in Accounts Payable
C)A decrease in Salary Payable
D)An increase in Accounts Receivable

Question 44

The cost of purchasing long-term assets, such as buildings and land, are:

A)added to operating activities.
B)subtracted from operating activities.
C)added to investing activities.
D)subtracted from investing activities.

Question 45

The sum of the net increases/decreases in the operating, investing and financing sections of the cash flow statement is equal to the change in cash over the period.

Question 46

The purchase of treasury stock is shown as a cash outflow in the investing section of the cash flow statement.

Question 47

Cash receipts from the sale of long-term assets, such as equipment and vehicles, are:

A)added to operating activities.
B)subtracted from operating activities.
C)added to investing activities.
D)subtracted from investing activities.

Question 48

Gains and losses do not represent Cash Flows.

Question 49

Business transactions that do NOT involve the payment or receipt of cash are considered to be non-cash transactions.

Question 50

Changes in long-term liabilities belong in the financing section of a cash flow statement using the indirect method.

Question 51

A transaction acquiring land by issuing a note for the full purchase price would not appear on the cash flow statement because no cash was involved, but it may be disclosed in a separate section.

Question 52

Changes in the long-term assets and long-term liabilities accounts must be analyzed to determine how they are presented in the operating section of a cash flow statement.

Question 53

Changes in all current assets EXCEPT ________ are adjustments to net income in the operating section of an indirect cash flow statement.

A)prepaid expenses
B)inventory
C)cash
D)notes receivable

Question 54

Losses on the sale of long-term assets are:

A)added to operating activities.
B)subtracted from operating activities.
C)added to investing activities.
D)subtracted from investing activities.

Question 55

Which would be subtracted from net income in the operating section of an indirect cash flow statement?

A)A decrease in prepaid insurance
B)A decrease in bonds payable
C)An increase in interest payable
D)An increase in inventory

Question 56

Robbins Company distributed a 5% common stock dividend, this will be reported in the financing activity section of the cash flow statement.

Question 57

A transaction that exchanged a building for shares of stock would be an investing activity and would appear on the cash flow statement.

Question 58

Even though depreciation, depletion and amortization are expenses, they are considered non-cash transactions and must be subtracted from net income in the operating activities section of an indirect method cash flow statement.

Question 59

Gains on the sale of long-term assets are:

A)added to investing activities.
B)added to financing activities.
C)added to operating activities.
D)subtracted from operating activities.

Question 60

A decrease in a current liability causes an increase in cash.

Question 61

The Sales Tax Payable balance has decreased during the year. How would this affect the Statement of Cash Flows operations section under the indirect method?

A)It is already included in the net income.
B)It would be added back to net income.
C)It would be subtracted from net income.
D)It does not affect the cash flow from operations.

Question 62

Goldman Company's Accounts Receivable decreased by $23,000 and its Accounts Payable increased by $12,000. What is the net effect on cash from operations under the indirect method?

A)+$35,000
B)-$11,000
C)-$35,000
D)+$11,000

Question 63

When preparing the Statement of Cash Flows by the indirect method, if current liabilities increase, the difference is:

A)added to net income.
B)added to investing activities.
C)deducted from net income.
D)deducted from investing activities.

Question 64

The Prepaid Rent balance has decreased during the year. How would this affect the Statement of Cash Flows operations section under the indirect method?

A)It is already included in the net income.
B)It would be added back to net income.
C)It would be subtracted from net income.
D)It does not affect the cash flow from operations.

Question 65

An example of a cash outflow from investing activities is:

A)payment on bonds payable.
B)making a loan to another company.
C)paying cash dividends.
D)the purchase of treasury stock.

Question 66

The Cash balance has decreased during the year. How would this affect the Statement of Cash Flows operations section under the indirect method?

A)It is already included in the net income.
B)It would be added back to net income.
C)It would be subtracted from net income.
D)It does not affect the cash flow from operations.

Question 67

A transaction involving the exchange of stock for land would be classified as a(n):

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

Question 68

There was a gain on the sale of investment property. How would this affect the Statement of Cash Flows operations section under the indirect method?

A)It is already included in the net income.
B)It would be added back to net income.
C)It would be subtracted from net income.
D)It does not affect the cash flow from operations.

Question 69

Of the following, which is NOT classified as an investing activity on the Statement of Cash Flows?

A)Sale of equipment for cash
B)Purchasing land
C)Collecting the principal on loans
D)Selling goods and services

Question 70

A Statement of Cash Flows would NOT disclose:

A)stock dividends declared.
B)bonds payable issued.
C)purchase of treasury stock.
D)capital stock issued.

Question 71

Which of the following is NOT a cash inflow or outflow from an investing activity?

A)Company A loans money to Company B
B)Company A purchases land
C)Company A purchases treasury stock
D)Company A sells off Company C stock that it had owned for 3 years

Question 72

The balance in the Treasury Stock account has increased. This represents a cash _____ and is properly categorized in the _______ activities section of the Statement of Cash Flows.

A)inflow, investing
B)outflow, investing
C)inflow, financing
D)outflow, financing

Question 73

Activities that increase and decrease as a result of selling a company's stock are:

A)marketing activities.
B)operating activities.
C)investing activities.
D)financing activities.

Question 74

Under the indirect method of cash flow, which of the following adjustments would NOT be made to net income when computing cash from operating activities?

A)Add an increase in Accounts Payable
B)Add Depreciation Expense
C)Add a decrease in Accounts Payable
D)Subtract the gain on sale of land

Question 75

Under the indirect method, which of the following is NOT a proper adjustment to net income under operating activities?

A)Adding a decrease in supplies
B)Subtracting an increase in interest payable
C)Subtracting an increase in prepaid insurance
D)Adding a loss on the sale of machinery

Question 76

An example of a cash outflow from financing activities is:

A)paying off note payable.
B)paying for 6 months rent in advance.
C)purchasing land.
D)making payment on accounts payable.

Question 77

Caesario Company's Accounts Receivable increased by $39,000 and their Accounts Payable decreased by $19,000. What is the net effect on cash from operations under the indirect method?

A)+$58,000
B)-$20,000
C)-$58,000
D)+$20,000

Question 78

In the indirect method of Cash Flows, which of the following would be added to net income?

A)A decrease in Supplies
B)An increase in Prepaid Rent
C)A decrease in Sales Tax Payable
D)An increase in Inventory

Question 79

A company issues common stock to settle a debt, this would be classified as a(n):

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

Question 80

An example of a cash inflow from financing activities is:

A)cash receipts from sale of investments.
B)cash receipts from issuance of bonds.
C)selling a building.
D)gain on sale of land.