Question 1

On a spreadsheet used to prepare the operating activities section of the statement of cash flows,depreciation expense does not require an entry in the Analysis of Changes columns because it is a noncash item.

Accepted Answer

The answer of On a spreadsheet used to prepare the...

Question 2

The gain or loss from retirement of debt is reported under cash flows from operating activities on the statement of cash flows using the direct method.

Accepted Answer

The gain or loss from retirement of debt is typically reported under cash flows from financing activities on the statement of cash flows using either the direct or indirect method.

Question 3

The statement of cash flows is:
A)Another name for the statement of financial position.
B)A financial statement that presents information about changes in equity during a period.
C)A financial statement that reports the cash inflows and cash outflows for an accounting period,and that classifies those cash flows as operating activities,investing activities,or financing activities.
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 for an accounting period.

Accepted Answer

The statement of cash flows reports the cash inflows and cash outflows for a specific period and classifies them into operating, investing, and financing activities. It is different from the statement of financial position (D) which lists the assets, liabilities, and equity of the company at a specific date, and from the income statement (E) which reports revenues and expenses. It is also different from the statement of changes in equity (B) which reports the changes in equity during a period.

Question 4

An investment that is readily convertible to a known amount of cash and that is sufficiently close to its maturity date so that its market value is unaffected by interest rate changes is a(n):
A)Short-term marketable equity security.
B)Operating activity.
C)Common stock.
D)Cash equivalent.
E)Financing activity.

Accepted Answer

A cash equivalent is an investment that is readily convertible to a known amount of cash and has a maturity date of three months or less. Since it is close to maturity, its market value is unlikely to be affected by interest rate changes.

Question 5

The statement of cash flows reports:
A)Assets,liabilities,and equity.
B)Revenues,gains,expenses,and losses.
C)Cash inflows and cash outflows for an accounting period.
D)Equity,net income,and dividends.
E)Changes in equity.

Accepted Answer

The statement of cash flows reports the cash inflows and outflows for an accounting period from operating, investing, and financing activities. It does not report assets, liabilities, equity, revenues, gains, expenses, losses, net income, or dividends.

Question 6

Depreciation expense is not reported on a statement of cash flows prepared under the direct method.

Accepted Answer

Depreciation expense is a non-cash transaction and is not reported on the statement of cash flows prepared under the direct method. It is only reported in the operating activities section of the statement of cash flows prepared under the indirect method.

Question 7

The statement of cash flows reports all but which of the following?
A)Cash flows from operating activities.
B)Cash flows from financing activities.
C)Cash flows from investing activities.
D)Significant noncash financing and investing activities.
E)The financial position of the company at the end of the accounting period.

Accepted Answer

The statement of cash flows reports cash flows from operating, financing, and investing activities, as well as significant noncash financing and investing activities. However, it does not report the financial position of the company at the end of the accounting period, which is reported in the balance sheet.

Question 8

Financing activities include receiving cash dividends from investments in other companies' stocks.

Accepted Answer

The answer of Financing activities include receiving cash dividends from...

Question 9

Investing activities include: (a)the purchase and sale of long-term assets, (b)lending and collecting on notes receivable,and (c)the purchase and sale of short-term investments in the securities of other entities,other than cash equivalents and trading securities.

Accepted Answer

This is a correct description of investing activities, as defined in accounting principles.

Question 10

A spreadsheet can help organize the information needed to prepare a statement of cash flows.

Accepted Answer

A spreadsheet can be used to categorize and track cash inflows and outflows, making it easier to prepare a statement of cash flows.

Question 11

When preparing the operating activities section of the statement of cash flows using the indirect method,non-operating gains are added to net income.

Accepted Answer

Non-operating gains or losses are excluded from the operating activities section of the statement of cash flows using the indirect method. They are reported in the investing or financing sections, depending on their nature.

Question 12

When preparing the operating activities section of the statement of cash flows using the indirect method,depreciation is subtracted from net income.

Accepted Answer

The answer of When preparing the operating activities section of...

Question 13

The payment of cash dividends never changes the balance of retained earnings.

Accepted Answer

The payment of cash dividends reduces the balance of retained earnings, as it represents a distribution of profits to shareholders.

Question 14

The FASB requires a reconciliation of net income to net cash provided or used by operating activities when the direct method is used (which can be reported in the notes).

Accepted Answer

This is a requirement by the FASB when using the direct method for reporting net cash provided or used by operating activities. The reconciliation can be reported in the notes to the financial statements.

Question 15

Financing activities include receiving cash from issuing debt and receiving cash dividends from investments in other companies' stocks.

Accepted Answer

The answer of Financing activities include receiving cash from issuing...

Question 16

When preparing the operating activities section of the statement of cash flows using the indirect method,a decrease in accounts receivable is subtracted from net income.

Accepted Answer

The answer of When preparing the operating activities section of...

Question 17

A cash equivalent is:
A)An investment readily convertible to a known amount of cash.
B)Close to its maturity date but its market value may still be affected by interest rate changes.
C)Generally is within 12 months of its maturity date.
D)Is not considered highly liquid.
E)Another name for cash.

Accepted Answer

A cash equivalent is an investment that is easily and quickly convertible to a known amount of cash, typically within 90 days. Examples include Treasury bills, money market funds, and commercial paper.

Question 18

When using a spreadsheet to prepare the statement of cash flows,a decrease in accounts payable is entered in the Analysis of Changes columns with a debit in the statement of cash flows section and a credit in the balance sheet section.

Accepted Answer

A decrease in accounts payable is considered a source of cash and is entered with a credit in the statement of cash flows section and a debit in the balance sheet section.

Question 19

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 classified as:
A)Financing activities.
B)Investing activities.
C)Operating activities.
D)Direct activities.
E)Indirect activities.

Accepted Answer

Operating activities involve the day-to-day operations of a business, including the production, purchase, and sale of goods and services. These activities also include administration expenses such as salaries, rent, and utilities. Financing activities involve obtaining or repaying funds, while investing activities involve acquiring or selling long-term assets. Direct and indirect activities are not commonly used to classify business activities.

Question 20

When preparing the operating activities section of the statement of cash flows using the indirect method,an increase in income taxes payable is added to net income.

Accepted Answer

An increase in income taxes payable represents a cash outflow from the operating activities, which is added to net income in the operating activities section using the indirect method.

Quiz 16: Reporting the Statement of Cash Flows