Deck 12: The Statement of Cash Flows

Question 1

Which of the three types of activities reported on the statement of cash flows is the MOST critical for evaluating a company's viability?

A)Financing activities
B)Investing activities
C)Operating activities
D)All of the sections are equally important.

Answer 1

C

Question 2

Cash received from the issuance of bonds would be reported on a statement of cash flows under:

A)the operating activities.
B)the financing activities.
C)the investing activities.
D)none of these categories, because issuing bonds for cash would not be reported on a statement of cash flows.

Answer 2

B

Question 3

The three types of activities reported on the statement of cash flows are:

A)operating, long-term investments and financing.
B)operating, investments and financing.
C)operating, investing and financing
D)operating, investing and equity.

Answer 3

C

Question 4

Increases and decreases in the long-term assets available to a company are reported on the statement of cash flows as:

A)investing activities.
B)financing activities.
C)operating activities.
D)both operating and investing activities.

Question 5

The financial statement that reports cash receipts and cash payments classified according to the company's major activities of operating, investing, and financing is the:

A)balance sheet.
B)statement of cash flows.
C)statement of operating activities.
D)income statement.

Question 6

A statement of cash flows:

A)is typically prepared at the request of major creditors.
B)may be combined with the balance sheet.
C)may be combined with the income statement at the option of management.
D)is a basic financial statement required for publicly-held companies.

Question 7

Which of the following is considered to be a cash equivalent?

A)Accounts receivable
B)Notes receivable
C)Investments in short-term U.S. Government securities
D)Trading securities

Question 8

Changes in the current asset and current liability accounts are reported on the statement of cash flows, using the indirect method, as:

A)operating activities.
B)financing activities.
C)investing activities.
D)a mix of all of these.

Question 9

Creditors analyze the statement of cash flows to determine:

A)whether or not the company can pay interest on debt.
B)total interest earned during the period.
C)the quality of the company's earnings.
D)all of the above.

Question 10

There are three ways to format operating activities on the statement of cash flows.

Question 11

Collections on a loan are reported as financing activities on the statement of cash flows.

Question 12

Cash received from customers would be reported on the statement of cash flows:

A)under operating activities.
B)under investing activities.
C)under financing activities.
D)in the schedule of noncash investing and financing activities.

Question 13

Highly liquid short-term investments that are easily convertible into cash are called:

A)cash reserves.
B)accounts receivable.
C)trading securities.
D)cash equivalents.

Question 14

The statement of cash flows is designed to fulfill all of the following purposes EXCEPT to:

A)assess the collectability of accounts receivable.
B)show the relationship of net income to changes in the company's cash.
C)help predict future cash flows.
D)evaluate management decisions.

Question 15

A statement of cash flows:

A)reports where the cash came from (receipts)and how it was spent (payments).
B)covers a span of time.
C)is a basic financial statement required for publicly-held companies.
D)is all of the above.

Question 16

A statement of cash flows:

A)predicts future cash flows.
B)determines the ability of the company to pay dividends and interest.
C)evaluates management decisions.
D)is all of the above.

Question 17

The category of cash flows that creates revenues, expenses, gains, and losses is:

A)financing activities.
B)investing activities.
C)operating activities.
D)all of the above.

Question 18

In order to be successful, a company needs:

A)net income.
B)strong cash flow.
C)strong investing activities.
D)both net income and a strong cash flow.

Question 19

Which of the following statements about the balance sheet is FALSE?

A)The balance sheet reports financial position.
B)The balance sheets from two periods show whether cash increased or decreased.
C)The balance sheet explains why cash increased or decreased from the prior period.
D)The balance sheet is a basic financial statement required for publicly-held companies.

Question 20

Increases and decreases in the long-term liability accounts are reported on the statement of cash flows as:

A)investing activities.
B)operating activities.
C)financing activities.
D)both operating and investing activities.

Question 21

The declaration of dividends by the board of directors would be reported on a statement of cash flows as:

A)a cash inflow under the financing activities.
B)a cash outflow under the financing activities.
C)a cash outflow under the investing activities.
D)none of these. This activity would not be reported on a statement of cash flows.

Question 22

Under the indirect method of preparing the financing section of the statement of cash flows, net cash provided by financing activities is $63,700. If the direct method of preparing the financing section of the statement of cash flows was used:

A)cash provided by financing activities would be more than $63,700.
B)cash provided by financing activities would be less than $63,700.
C)cash provided by financing activities would be the same, $63,700.
D)cannot be determined from the facts given.

Question 23

The direct method of preparing the operating section of the statement of cash flows:

A)is the most popular method used.
B)reports all cash receipts and cash payments from operating activities.
C)reconciles net income to net cash provided by operating activities.
D)reports different amounts for investing and financing activities than the direct method.

Question 24

Which of the following would be reported on a statement of cash flows as an investing activity?

A)Purchase of treasury stock
B)Sale of equipment for cash
C)Depreciation expense
D)All of the above

Question 25

Under the indirect method of preparing the operating section of the statement of cash flows, net cash provided by operating activities is $12,670. If the direct method of preparing the operating section of the statement of cash flows was used:

A)cash provided by operating activities would be more than $12,670.
B)cash provided by operating activities would be less than $12,670.
C)cash provided by operating activities would be the same, $12,670.
D)cannot be determined from the facts given.

Question 26

When preparing a statement of cash flows, the sum of operating and investing and financing activities equals the:

A)change in cash for the period.
B)cash inflow for the period.
C)ending cash balance.
D)net income as reported on the income statement.

Question 27

The receipt of interest on loans would be reported on a statement of cash flows under:

A)the financing activities.
B)the investing activities.
C)the operating activities.
D)none of these categories, because interest received on loans would not be reported on a Statement of cash flows.

Question 28

Which of the following would be reported on a statement of cash flows as a financing activity?

A)Distribution of stock dividend
B)Purchase of treasury stock
C)Interest paid on bonds payable
D)All of the above

Question 29

The statement of cash flows provides the answer as to why a company's cash increased or decreased.

Question 30

The purchase of treasury stock would be reported on a statement of cash flows as a:

A)cash inflow under the operating activities.
B)cash outflow under the financing activities.
C)cash inflow under the investment activities.
D)cash inflow under the financing activities.

Question 31

The two ways to format the operating activities on the statement of cash flows are:

A)direct and indirect methods.
B)direct and operating methods.
C)indirect and net worth methods.
D)direct and net income methods.

Question 32

The purchase of held-to-maturity securities would be reported on a statement of cash flows as:

A)financing activities.
B)investing activities.
C)operating activities.
D)none of the above. Held-to-maturity securities would not be reported on a statement of cash flows.

Question 33

Under the indirect method, depletion expense must be added back to net income under the operating activities.

Question 34

Purchases and sales of which of the following are reported under the investing activities section of the statement of cash flows?

A)Available-for-sale securities
B)Plant assets
C)Held-to-maturity securities
D)All of the above

Question 35

The indirect method of preparing the operating section of the statement of cash flows:

A)produces the same figure for cash from operating method as the direct method.
B)uses different computations than the direct method.
C)does not affect investing or financing activities.
D)is all of the above.

Question 36

A firm's revenue-earning activities appear on the statement of cash flows as:

A)investing activities.
B)operating activities.
C)financing activities.
D)both operating and financing activities.

Question 37

The change in cash is the "check figure" for the statement of cash flows.

Question 38

Interest paid on debt would be reported on a statement of cash flows under:

A)the operating activities.
B)the financing activities.
C)the investing activities.
D)none of these categories, because interest paid on debt would not be reported on a statement of cash flows.

Question 39

Acquisitions of treasury stock would be reported on a statement of cash flows as:

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

Question 40

The balance sheet and the income statement are both used to prepare the statement of cash flows.

Question 41

On an indirect method statement of cash flows, a gain on the sale of plant assets is:

A)reported in the financing activities section.
B)added to net income.
C)reported in the investing activities section.
D)deducted from net income.

Question 42

Which statement is FALSE?

A)An increase in another current asset decreases cash.
B)A decrease in another current asset increases cash.
C)A decrease in a current liability increases cash.
D)An increase in a current liability increases cash.

Question 43

Under the indirect method of preparing the statement of cash flows, the starting point to determine net cash from operating activities is:

A)net income.
B)the ending cash balance.
C)the beginning cash balance.
D)sales.

Question 44

The indirect method of preparing the statement of cash flows is preferred by the FASB because it clearly relates net income to net cash provided by operating activities.

Question 45

Under the indirect method of preparing a statement of cash flows, cash disbursed for the acquisition of a plant asset is:

A)subtracted in the operating activities section.
B)subtracted in the investing activities section.
C)added in the investing activities section.
D)added in the financing activities section.

Question 46

When preparing the statement of cash flows using the indirect method, which statement is NOT true?

A)Depreciation expense is added to net income.
B)Gains on the sale of long-term assets are subtracted from net income.
C)Losses on the sale of long-term assets are subtracted from net income.
D)Increases in current liabilities are added to net income.

Question 47

Which method of preparing the statement of cash flows reports all cash payments and cash receipts from operating activities?

A)Indirect method
B)Comprehensive method
C)Reporting method
D)Direct method

Question 48

Which method of preparing the statement of cash flows reconciles net income to cash flows from operating activities?

A)Direct method
B)Reconciliation method
C)Equilibrium method
D)Indirect method

Question 49

On an indirect method statement of cash flows, dividends paid during the year are:

A)added to net income.
B)reflected in the investing activities section.
C)reflected in the financing activities section.
D)deducted from net income.

Question 50

All increases in other current assets decreases cash in the statement of cash flows.

Question 51

All of the following might appear as adjustments to net income on an indirect method statement of cash flows except:

A)gain on sale of plant assets.
B)payment of cash dividends.
C)an increase in Accounts Receivable.
D)depreciation expense.

Question 52

The indirect method of computing cash flows from operating activities begins with net income and reconciles from net income to operating cash flows.

Question 53

Assume that a statement of cash flows reports increases and decreases in current asset accounts. Which of the following is true?

A)Increases and decreases in current assets are not reported on the statement of cash flows.
B)Increases and decreases in current assets are reported when using both the direct and indirect methods.
C)The statement was prepared using the direct method.
D)The statement was prepared using the indirect method.

Question 54

Investments that do NOT require cash can be reported on a separate schedule under the statement of cash flows.

Question 55

On an indirect method statement of cash flows, the purchase of machinery in exchange for common stock is:

A)reflected in the operating activities section.
B)ignored.
C)reflected in the investing activities section.
D)shown in the schedule of noncash investing and financing activities which accompanies the statement of cash flows.

Question 56

Under the indirect method of preparing a statement of cash flows, depreciation expense for the current period is:

A)added in the operating activities section.
B)subtracted in the operating activities section.
C)not reported.
D)reported in the investing activities section.

Question 57

Under the indirect method, an increase in a current asset other than cash indicates a decrease in cash.

Question 58

Companies can have investing and financing activities that do not require cash.

Question 59

Which statement regarding the statement of cash flows is TRUE?

A)The indirect method is preferred by FASB and is used by most companies.
B)The direct method is preferred by FASB; the indirect method is used by most companies.
C)The direct method is preferred by FASB and is used by most companies.
D)The indirect method is preferred by FASB; the direct method is used by most companies.

Question 60

Operating activities are related to the transactions that make up net income.

Question 61

Activities that affect long-term liabilities and stockholders' equity are:

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

Question 62

1.1.is:

A)deducted from net income to determine net cash provided by operating activities.
B)reported in the investing activities section.
C)not reported.
D)added to net income to determine net cash provided by operating activities.

Question 63

Cash receipts from financing activities do NOT include:

A)issuing stock for cash.
B)selling treasury stock.
C)purchase of treasury stock.
D)borrowing on long-term notes payable.

Question 64

Naraval Corporation sold used equipment with a book value of $31,000 for $27,000. The indirect method statement of cash flows will reflect:

A)an addition of $27,000 in the investing activities section and an addition of $4,000 in the operating activities section.
B)an addition of $27,000 in the investing activities section and a deduction of $4,000 in the operating activities section.
C)an addition of $31,000 in the investing activities section and an addition of $4,000 in the operating activities section.
D)an addition of $31,000 in the investing activities section and a deduction of $4,000 in the operating activities section.

Question 65

Phoenix Rising Corporation sold an unused building for $177,000. The building's book value on the date of sale was $172,000. How will this transaction appear in a statement of cash flows prepared using the indirect method?

A)A $172,000 increase in investing activities and $5,000 increase in operating activities
B)A $177,000 increase in investing activities and $5,000 increase in operating activities
C)A $177,000 increase in investing activities and $5,000 decrease in operating activities
D)A $172,000 increase in investing activities and $5,000 decrease in operating activities

Question 66

Which of the following transactions would be recorded on the schedule of noncash investing and financing activities ?

A)Issuance of common stock for cash
B)Issuance of common stock for land
C)Payment of dividends on common stock
D)Purchase of treasury stock

Question 67

Cash receipts from investing activities include:

A)issuing stock for cash.
B)selling treasury stock.
C)acquisition of plant assets.
D)sale of plant assets.

Question 68

Yanks Company acquired a building by issuing common stock with a market value of $490,000. This transaction would be recorded on the statement of cash flows as a(n):

A)investing activity.
B)operating activity.
C)financing activity.
D)noncash investing and financing activity on a separate schedule on the statement of cash flows.

Question 69

Tryout Corporation's balance in its land account, which represented one piece of land, was $100,000. During the year, the piece of land was sold for $165,000. The amount reported in the investing activities section of the statement of cash flows would be:

A)$100,000.
B)$165,000.
C)$ 65,000.
D)none of the above.

Question 70

Cash payments from investing activities do NOT include:

A)issuing stock for cash.
B)acquisition of plant assets.
C)making loans to others.
D)purchase of long-term investments that are not cash equivalents.

Question 71

On a statement of cash flows prepared using the indirect method, an increase in Accounts Receivable during the period is:

A)added to net income to determine net cash provided by investing activities.
B)deducted from net income to determine net cash provided by investing activities.
C)deducted from net income to determine net cash provided by operating activities.
D)added to net income to determine net cash provided by operating activities.

Question 72

On a statement of cash flows prepared using the indirect method, an increase in Accounts Payable during the period is:

A)deducted from net income to determine net cash provided by operating activities.
B)added to net income to determine net cash provided by financing activities.
C)added to net income to determine net cash provided by operating activities.
D)deducted from net income to determine net cash provided by financing activities.

Question 73

Cash payments from financing activities include:

A)issuing stock for cash.
B)selling treasury stock.
C)acquisition of plant assets.
D)payment of dividends.

Question 74

Hubble Corporation, which uses the indirect method to prepare its statement of cash flows, sold used equipment for cash. Which statement regarding this sale is TRUE?

A)The cash from operating activities will be greater if the direct method is used to prepare the statement of cash flows.
B)The effect on cash from operating activities depends on whether there was a gain or loss on sale.
C)The cash from operating activities will be less if the direct, rather than indirect, method is used to prepare the statement of cash flows.
D)The cash from operating activities will not be reported if the indirect method is used to prepare the statement of cash flows.

Question 75

Activities that affect long-term assets are:

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

Question 76

The following data is provided for last year. Net income was $30,000. Current assets (other than cash)increased by $12,000 and current liabilities increased by $8,000. Under the indirect method, the cash flows from operating activities would be:

A)$34,000.
B)$10,000.
C)$30,000.
D)$26,000.

Question 77

Thunder Corporation had a beginning balance in net plant assets of $220,000. During the year, Thunder purchased $60,000 of new plant assets. Depreciation expense for the year was $30,000, and there was a net gain on the sale of plant assets was $3,000. The ending balance in net plant assets was $170,000. The book value of the plant assets sold was:

A)$ 80,000.
B)$140,000.
C)$ 40,000.
D)none of the above.

Question 78

Thunder Corporation had a beginning balance in net plant assets of $220,000. During the year, Thunder purchased $60,000 of new plant assets. Depreciation expense for the year was $30,000 and there was a net gain on the sale of plant assets was $3,000. The ending balance in net plant assets was $170,000. The cash received from the sale of the plant assets was:

A)$80,000.
B)$88,000.
C)$83,000.
D)none of the above.

Question 79

Tryout Corporation's balance in its land account, which represented one piece of land, was $100,000. During the year, the piece of land was sold for $165,000. The amount reported in the operating activities section of the statement of cash flows, using the indirect method, would be a(n):

A)$100,000 increase to net income.
B)$165,000 decrease to net income.
C)$ 65,000 increase to net income.
D)$ 65,000 decrease to net income.

Question 80

The following data is provided for last year. Net income was $210,000. Current receivables and prepaid expenses increased by $10,000 and $2,000, respectively. Current payables decreased by $8,000. Under the indirect method, the cash flows from operating activities would be:

A)$190,000.
B)$206,000.
C)$230,000.
D)$214,000.