Deck 11: The Statement of Cash Flows

Question 1

Under the indirect method,the first line in the operating activities section of the statement of cash flows is the net income or loss for the period.

Answer 1

True

Question 2

The statement of cash flows summarizes the operating,investing,and financing activities of a business for a period of time.

Answer 2

True

Question 3

Issuing shares increases the company's cash flows from investing activities.

Answer 3

False

Question 4

In terms of the statement of cash flows,cash includes actual cash items minus certain cash equivalents such as commercial paper,money market funds,and treasury bills.

Question 5

Operating activities involve the acquiring and selling of goods and services for cash or on account.

Question 6

The statement of cash flows helps users understand the reasons for the differences between net income and related cash receipts and payments.

Question 7

Companies can use two different methods to report the amount of cash flow from their investing and financing activities.

Question 8

The indirect method of reporting cash flows from operating activities involves reconciling net income and cash flows from operations.

Question 9

The statement of cash flows is considered to be a good indicator of current cash inflows and outflows.

Question 10

The issuance of common shares in exchange for a building would appear both as a cash inflow in the financing activities section of the cash flow statement and also as a cash outflow in the investing activities section.

Question 11

Free cash flow is equal to net cash flow from operating activities minus capital expenditures and dividends.

Question 12

For the statement of cash flows,companies are required to classify their cash activities into three categories: operating,investing,and financing.

Question 13

Depreciation is a noncash expense that is subtracted from net income in determining cash provided from operating activities under the indirect method.

Question 14

Significant noncash transactions are NOT reported on the statement of cash flows,but in a separate schedule shown either at the bottom of the statement of cash flows or in a note to the financial statements.

Question 15

Cash flows from operating activities often relate to an increase or decrease in either a current asset or a current liability.

Question 16

To be classified as a cash equivalent,an item must be readily convertible to a known amount of cash and have an original maturity to the investor of three months or more.

Question 17

An investment in common shares is NOT considered to be a cash equivalent.

Question 18

Both the indirect and direct method arrive at an identical amount of net cash provided (used)by operating activities.

Question 19

Cash flows from selling machinery would be classified as investing activities.

Question 20

Cash flows from purchases,sales,and maturities of investments are classified as financing activities.

Question 21

Operating cash flows generally involve income statement items (which are reflected in retained earnings)and balance sheet items (such as changes in current assets and current liabilities).

Question 22

Increases in cash = Increases in liabilities + Increases in shareholders' equity + Decreases in noncash assets.

Question 23

If the December 31,Year 1,balance of accounts payable is lower than the January 1,Year 2,balance,then the amount of cash payments will exceed the purchases on account for the year.

Question 24

The information in a statement of cash flows helps investors,creditors and others judge a company's ability to meet its obligations and pay ____________________.

Question 25

Cash ________________ are items readily convertible into a known amount of cash which have an original maturity to the investor of three months or less.

Question 26

Some companies use a spreadsheet approach as a tool to aid in preparing the statement of cash flows.

Question 27

The collection of accounts receivable results in a cash ____________________ reported in the operating activities section of the statement of cash flows using the indirect method.

Question 28

Because the cash received from the sale of long-term assets is reported in the investing activities section of the statement of cash flows,any gain or loss is ignored when reporting the cash flow from operating activities under the indirect method.

Question 29

Under the indirect method,instead of reporting cash receipts and payments,net income is reconciled with net cash from operating activities.

Question 30

An increase in retained earnings indicates that a cash dividend has been paid.

Question 31

If the beginning balance in accounts eeceivable is $11,000 and the ending balance is $9,000,then credit sales must have exceeded collections on account.

Question 32

Cash flows from operating activities correspond to the cash effects of items that determine ____________________.

Question 33

If the December 31,Year 1,balance of accounts receivable is lower than the January 1,Year 2,balance,then the amount of cash collections will be more than the sales on account for the year.

Question 34

Unlike the income statement,no financial ratios are reported on the statement of cash flows.

Question 35

____________________ activities involve long-term liabilities and shareholders' equity.

Question 36

The purchase of inventory is an important ____________________ activity for a retailer.

Question 37

The financial statement that summarizes the operating,investing,and financing activities of a business over a period of time is the ____________________.

Question 38

The cash flow adequacy ratio is defined as free cash flow / average amount of debt maturing over the next five years.

Question 39

Many companies use software such as Microsoft PowerPoint to construct their cash flow statements.

Question 40

Determining the cash flows from operating activities generally requires analyzing each item on the income statement as well as the current asset (except cash)and current liability accounts.

Question 41

Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a statement of cash flows if the operating activities section is prepared using the direct method. (Choices may be used more than once.)

-purchased truck for cash

A)inflow from operating activity
B)outflow from operating activity
C)inflow from investing activity
D)outflow from investing activity
E)inflow from financing activity
F)outflow from financing activity
G)noncash investing and financing activity
H)not reported on statement of cash flows

Question 42

A decrease in retained earnings represents dividends that were ____________________ during the period,not necessarily those that were paid.

Question 43

Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a statement of cash flows if the operating activities section is prepared using the direct method. (Choices may be used more than once.)

-issued long term mortgage to acquire land and a building

A)inflow from operating activity
B)outflow from operating activity
C)inflow from investing activity
D)outflow from investing activity
E)inflow from financing activity
F)outflow from financing activity
G)noncash investing and financing activity
H)not reported on statement of cash flows

Question 44

If the balance of prepaid insurance was the same on January 1,Year 1,and December 31,Year 2,then the insurance expense must have been ____________________ the cash payments made for insurance during the year.

Question 45

When a company sells its own common shares,it is a(n)____________________ activity on the statement of cash flows.

Question 46

Under the indirect method,a gain from the sale of land is subtracted from ___________ in the operating activities section of the statement of cash flows.

Question 47

A(n)____________________ occurs when the cash received from selling an item of property,plant,and equipment is greater than the book value of the asset sold.It is also shown in the operating activities section of the statement of cash flows prepared using the indirect method.

Question 48

Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a statement of cash flows if the operating activities section is prepared using the direct method. (Choices may be used more than once.)

-repaid a long-term bonds payable

A)inflow from operating activity
B)outflow from operating activity
C)inflow from investing activity
D)outflow from investing activity
E)inflow from financing activity
F)outflow from financing activity
G)noncash investing and financing activity
H)not reported on statement of cash flows

Question 49

If the balance of wages payable increases during the year,then the ____________________ for the period will be greater than the actual cash wages paid in the period.

Question 50

Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a statement of cash flows if the operating activities section is prepared using the direct method. (Choices may be used more than once.)

-received payments from accounts receivable

A)inflow from operating activity
B)outflow from operating activity
C)inflow from investing activity
D)outflow from investing activity
E)inflow from financing activity
F)outflow from financing activity
G)noncash investing and financing activity
H)not reported on statement of cash flows

Question 51

Under the ____________________ method of preparing a statement of cash flows,the net cash flow from operating activities is computed by adjusting net income to remove the effect of all deferrals of past operating cash receipts and payments,and all accruals of future operating cash receipts or payments.

Question 52

If an analysis of the balance sheet shows that Accounts Payable increased during the period,then the increase would have to be _______________ to net income to convert net income to cash.

Question 53

Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a statement of cash flows if the operating activities section is prepared using the direct method. (Choices may be used more than once.)

-declared share dividends

A)inflow from operating activity
B)outflow from operating activity
C)inflow from investing activity
D)outflow from investing activity
E)inflow from financing activity
F)outflow from financing activity
G)noncash investing and financing activity
H)not reported on statement of cash flows

Question 54

If accounts receivable decreased during the year,then cash collections must have been ____________________ than sales on account for the period.

Question 55

Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a statement of cash flows if the operating activities section is prepared using the direct method. (Choices may be used more than once.)

-sold common shares for cash

A)inflow from operating activity
B)outflow from operating activity
C)inflow from investing activity
D)outflow from investing activity
E)inflow from financing activity
F)outflow from financing activity
G)noncash investing and financing activity
H)not reported on statement of cash flows

Question 56

____________________ represents the cash flow that a company is able to generate after considering the maintenance or expansion of its assets (capital expenditures)and payment of dividends.

Question 57

Beginning equipment minus equipment sold and minus ending equipment equals ____________________.

Question 58

The use of a(n)______________ provides a means of systematically analyzing changes in the balance sheet amounts,along with the information from the income statement and any additional information,to produce the statement of cash flows.

Question 59

The indirect method of preparing a statement of cash flows begins with net income and then adjusts it for noncash items to produce net cash flow from ____________________.

Question 60

Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a statement of cash flows if the operating activities section is prepared using the direct method. (Choices may be used more than once.)

-paid employee insurance expense

A)inflow from operating activity
B)outflow from operating activity
C)inflow from investing activity
D)outflow from investing activity
E)inflow from financing activity
F)outflow from financing activity
G)noncash investing and financing activity
H)not reported on statement of cash flows

Question 61

Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method. (Choices may be used more than once.)

-increased the inventory balance

A)operating activity-add to net income
B)operating activity-deduct from net income
C)inflow from investing activity
D)outflow from investing activity
E)inflow from financing activity
F)outflow from financing activity
G)noncash investing and financing activity
H)not reported on statement of cash flows

Question 62

Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method. (Choices may be used more than once.)

-issued a twenty-year mortgage note for cash

A)operating activity-add to net income
B)operating activity-deduct from net income
C)inflow from investing activity
D)outflow from investing activity
E)inflow from financing activity
F)outflow from financing activity
G)noncash investing and financing activity
H)not reported on statement of cash flows

Question 63

Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a statement of cash flows if the operating activities section is prepared using the direct method. (Choices may be used more than once.)

-paid the cash dividends

A)inflow from operating activity
B)outflow from operating activity
C)inflow from investing activity
D)outflow from investing activity
E)inflow from financing activity
F)outflow from financing activity
G)noncash investing and financing activity
H)not reported on statement of cash flows

Question 64

Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method. (Choices may be used more than once.)

-paid cash dividends

A)operating activity-add to net income
B)operating activity-deduct from net income
C)inflow from investing activity
D)outflow from investing activity
E)inflow from financing activity
F)outflow from financing activity
G)noncash investing and financing activity
H)not reported on statement of cash flows

Question 65

Match these terms with their correct definition.

-determines operating cash flow that begins with net income and then adjusts it for noncash items

A)cash flow adequacy ratio
B)cash flows from financing activities
C)cash flows from investing activities
D)cash flow from operating activities
E)direct method
F)free cash flow
G)income statement
H)indirect method
I)noncash investing & financing activities
J)statement of cash flows

Question 66

Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method. (Choices may be used more than once.)

-increased the unearned revenue balance

A)operating activity-add to net income
B)operating activity-deduct from net income
C)inflow from investing activity
D)outflow from investing activity
E)inflow from financing activity
F)outflow from financing activity
G)noncash investing and financing activity
H)not reported on statement of cash flows

Question 67

Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method. (Choices may be used more than once.)

-declared cash dividends

A)operating activity-add to net income
B)operating activity-deduct from net income
C)inflow from investing activity
D)outflow from investing activity
E)inflow from financing activity
F)outflow from financing activity
G)noncash investing and financing activity
H)not reported on statement of cash flows

Question 68

Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method. (Choices may be used more than once.)

-received cash from the sale of securities

A)operating activity-add to net income
B)operating activity-deduct from net income
C)inflow from investing activity
D)outflow from investing activity
E)inflow from financing activity
F)outflow from financing activity
G)noncash investing and financing activity
H)not reported on statement of cash flows

Question 69

Match these terms with their correct definition.

-provides information that can be used to judge a company's ability to meet its obligations and pay dividends

A)cash flow adequacy ratio
B)cash flows from financing activities
C)cash flows from investing activities
D)cash flow from operating activities
E)direct method
F)free cash flow
G)income statement
H)indirect method
I)noncash investing & financing activities
J)statement of cash flows

Question 70

Match these terms with their correct definition.

-includes cash received from the sale of property,plant,and equipment and cash paid to purchase equity securities

A)cash flow adequacy ratio
B)cash flows from financing activities
C)cash flows from investing activities
D)cash flow from operating activities
E)direct method
F)free cash flow
G)income statement
H)indirect method
I)noncash investing & financing activities
J)statement of cash flows

Question 71

Match these terms with their correct definition.

-represents the cash flow that a company is able to generate after considering the maintenance or expansion of its assets and the payment of dividends

A)cash flow adequacy ratio
B)cash flows from financing activities
C)cash flows from investing activities
D)cash flow from operating activities
E)direct method
F)free cash flow
G)income statement
H)indirect method
I)noncash investing & financing activities
J)statement of cash flows

Question 72

Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a statement of cash flows if the operating activities section is prepared using the direct method. (Choices may be used more than once.)

-sold office building for cash

A)inflow from operating activity
B)outflow from operating activity
C)inflow from investing activity
D)outflow from investing activity
E)inflow from financing activity
F)outflow from financing activity
G)noncash investing and financing activity
H)not reported on statement of cash flows

Question 73

Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method. (Choices may be used more than once.)

-recorded depreciation expenses for the year

A)operating activity-add to net income
B)operating activity-deduct from net income
C)inflow from investing activity
D)outflow from investing activity
E)inflow from financing activity
F)outflow from financing activity
G)noncash investing and financing activity
H)not reported on statement of cash flows

Question 74

Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method. (Choices may be used more than once.)

-issued long-term bonds

A)operating activity-add to net income
B)operating activity-deduct from net income
C)inflow from investing activity
D)outflow from investing activity
E)inflow from financing activity
F)outflow from financing activity
G)noncash investing and financing activity
H)not reported on statement of cash flows

Question 75

Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method. (Choices may be used more than once.)

-purchased land for cash

A)operating activity-add to net income
B)operating activity-deduct from net income
C)inflow from investing activity
D)outflow from investing activity
E)inflow from financing activity
F)outflow from financing activity
G)noncash investing and financing activity
H)not reported on statement of cash flows

Question 76

Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method. (Choices may be used more than once.)

-issued shares to buy a building

A)operating activity-add to net income
B)operating activity-deduct from net income
C)inflow from investing activity
D)outflow from investing activity
E)inflow from financing activity
F)outflow from financing activity
G)noncash investing and financing activity
H)not reported on statement of cash flows

Question 77

Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method. (Choices may be used more than once.)

-recognized a gain on the sale of securities

A)operating activity-add to net income
B)operating activity-deduct from net income
C)inflow from investing activity
D)outflow from investing activity
E)inflow from financing activity
F)outflow from financing activity
G)noncash investing and financing activity
H)not reported on statement of cash flows

Question 78

Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method. (Choices may be used more than once.)

-sold shares for cash

A)operating activity-add to net income
B)operating activity-deduct from net income
C)inflow from investing activity
D)outflow from investing activity
E)inflow from financing activity
F)outflow from financing activity
G)noncash investing and financing activity
H)not reported on statement of cash flows

Question 79

Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a statement of cash flows if the operating activities section is prepared using the direct method. (Choices may be used more than once.)

-paid interest on a capital lease

A)inflow from operating activity
B)outflow from operating activity
C)inflow from investing activity
D)outflow from investing activity
E)inflow from financing activity
F)outflow from financing activity
G)noncash investing and financing activity
H)not reported on statement of cash flows

Question 80

Match these terms with their correct definition.

-determines operating cash flow by adjusting each item on the income statement by the changes in the related current asset or liability accounts

A)cash flow adequacy ratio
B)cash flows from financing activities
C)cash flows from investing activities
D)cash flow from operating activities
E)direct method
F)free cash flow
G)income statement
H)indirect method
I)noncash investing & financing activities
J)statement of cash flows