Question 1

Which of the following is included in the cash flows from financing activities section of the statement of cash flows?
A)Interest revenue.
B)Sale of equipment.
C)Interest expense.
D)Purchase of treasury stock.
E)Purchase of stock in another company.

Accepted Answer

The purchase of treasury stock is included in the cash flows from financing activities section of the statement of cash flows because it relates to transactions with the company's owners, affecting the equity of the company.

Question 2

A company had net cash flows from operations of $341,000,net income of $286,000 and average total assets of $1,850,000.The cash flow on total assets ratio equals:
A)83.9%
B)542.5%
C)15.5%
D)18.4%
E)646.9%

Accepted Answer

The answer of A company had net cash flows from...

Question 3

Preparation of the statement of cash flows does not involve:
A)Computing the net increase or decrease in cash.
B)Computing and reporting net cash provided or used by operations.
C)Computing the profit compared to the net increase or decrease in cash.
D)Computing and reporting net cash provided or used by financing activities.
E)Computing and reporting net cash provided or used by investing activities.

Accepted Answer

The preparation of the statement of cash flows does not involve computing the profit compared to the net increase or decrease in cash. The statement of cash flows only reports the inflows and outflows of cash during a period, categorized by operating, investing, and financing activities. The profit or loss is reported on the income statement, not on the statement of cash flows.

Question 4

A company had net cash flows from operations of $120,000,cash flows from financing of $330,000,total cash flows of $500,000,and average total assets of $2,500,000.The cash flow on total assets ratio equals:
A)4.8%.
B)5.0%.
C)20.0%.
D)20.8%.
E)24.0%.

Accepted Answer

The cash flow on total assets ratio is calculated by dividing the total cash flows by the average total assets. In this case, it's $500,000 / $2,500,000 = 0.20 or 20%. However, the correct calculation for cash flow on total assets ratio should actually involve net cash flows from operations, not total cash flows. Therefore, it should be $120,000 / $2,500,000 = 0.048 or 4.8%.

Question 5

The direct method for the preparation of the operating activities section of the statement of cash flows:
A)Separately lists each major item of operating cash receipts and cash payments.
B)Reports adjustments to reconcile net income to net cash provided or used by operating activities in the statement.
C)Reports a different amount of cash flows from operations than if the indirect method is used.
D)Is required if the company is a merchandiser.
E)Is required by the FASB.

Accepted Answer

The direct method lists each major item of operating cash receipts and payments separately, providing a more detailed breakdown of cash flows from operating activities. It is not required by the FASB, nor is it necessary for a company to be a merchandiser to use the direct method. The direct method may result in a different amount of cash flows from operations compared to the indirect method, which adjusts net income for non-cash items and changes in working capital.

Question 6

The appropriate section in the statement of cash flows for reporting the purchase of land in exchange for common stock is:
A)Operating activities.
B)Financing activities.
C)Investing activities.
D)Schedule of noncash investing or financing activity.
E)Reconciliation of cash balance.

Accepted Answer

The purchase of land in exchange for common stock is a noncash transaction that does not affect the cash flow directly. Therefore, it is reported in the schedule of noncash investing and financing activities, not in the operating, investing, or financing sections of the cash flow statement.

Question 7

The purchase of long-term assets by issuing a note payable for the entire amount is reported on the statement of cash flows in the:
A)Operating activities.
B)Financing activities.
C)Investing activities.
D)Schedule of noncash financing and investing activities.
E)Reconciliation of cash balance.

Accepted Answer

The purchase of long-term assets by issuing a note payable is considered a noncash transaction and is reported in the schedule of noncash financing and investing activities on the statement of cash flows. This is because no cash is involved in the transaction at the time of the purchase.

Question 8

Accounting standards:
A)Allow companies to omit the statement of cash flows from a complete set of financial statements if cash is an insignificant asset.
B)Require that companies omit the statement of cash flows from a complete set of financial statements if the company has no investing activities.
C)Require that companies include a statement of cash flows in a complete set of financial statements.
D)Allow companies to include the statement of cash flows in a complete set of financial statements if the cash balance makes up more than 50% of the current assets.
E)Allow companies to omit the statement of cash flows from a complete set of financial statements if the company has no financing activities.

Accepted Answer

Accounting standards require that companies include a statement of cash flows in a complete set of financial statements.

Question 9

Common uses of the statement of cash flows include all but which of the following?
A)Management prediction of future cash flows for decision making.
B)Investor assessment of cash flows before buying and selling stock.
C)Creditor evaluation of a company's ability to generate cash to cover debt.
D)Government assessment of whether company is able to pay taxes as they become due.
E)Management determination of the specific sources and uses of cash.

Accepted Answer

The statement of cash flows is not used by the government to assess a company's ability to pay taxes. However, it is used by management to predict future cash flows, by investors to assess cash flows before buying/selling stock, by creditors to evaluate a company's ability to generate cash to cover debt, and by management to determine the specific sources and uses of cash.

Question 10

The statement of cash flows cannot help address questions such as:
A)How is the increase in investments financed?
B)What is the source of cash for new plant assets?
C)How much cash is generated from or used in operations?
D)How much of the company's revenues have been retained as profit?
E)Why is cash flow from operations different from income?

Accepted Answer

The statement of cash flows provides information about the sources and uses of cash for a period, but it does not provide information about retained earnings or profits. The retained earnings can be found in the balance sheet under the equity section.

Question 11

The cash flow on total assets ratio:
A)Is the same as return on assets.
B)Is the same as profit margin.
C)Can be an indicator of earnings quality.
D)Is highly affected by accounting principles of income recognition and measurement.
E)Is average net assets divided by cash flows from operations.

Accepted Answer

The cash flow on total assets ratio can be an indicator of earnings quality, as it measures a company's ability to generate cash flow from its total assets, rather than just its reported profits. It is less affected by accounting principles compared to other profitability ratios like return on assets, as it uses cash flow information. Option A and B are incorrect as the cash flow on total assets ratio is not the same as return on assets or profit margin. Option D is partly true, but it is not highly affected as it uses cash flow information rather than accounting principles. Option E is incorrect because it uses an incorrect formula for the ratio.

Question 12

The cash flow on total assets ratio is calculated by:
A)Dividing cash flows from operations by average total assets.
B)Dividing total cash flows by average total assets.
C)Dividing average total assets by cash flows from investing activities.
D)Dividing average total assets by total cash flows.
E)Total cash flows divided by average total assets times 365.

Accepted Answer

The cash flow on total assets ratio measures a company's ability to generate cash flow from its total assets. It is calculated by dividing cash flows from operations by average total assets. This ratio is useful for analyzing a company's cash flow generating ability relative to the size of its asset base.

Question 13

The statement of cash flows helps analysts evaluate all but which of the following?
A)Ability of the company to generate profit.
B)Source of cash used for plant expansion.
C)Differences between net income and net operating cash flow.
D)Source of cash used to finance investing activities.
E)Source of cash used for debt repayments.

Accepted Answer

The statement of cash flows provides information about the sources and uses of cash during a specific period, but it does not directly evaluate the ability of a company to generate profit. Profitability analysis is typically done through the income statement and other financial ratios. The other options listed are all areas that can be evaluated using the statement of cash flows.

Question 14

A company had average total assets of $1,660,000,total cash flows of $1,320,000,cash flows from operations of $205,000,and cash flows from financing of $750,000.The cash flow on total assets ratio equals:
A)45.2%.
B)22.0%.
C)11.65%.
D)12.3%.
E)79.5%.

Accepted Answer

Cash flow on total assets ratio = (Cash flows from operations ÷ Average Total Assets) x 100%

= (205,000 ÷ 1,660,000) x 100%

= 0.123 x 100%

= 12.3%

Therefore, the answer is D) 12.3%.

Question 15

Cash flows from interest received on loans are reported in the statement of cash flows as part of:
A)Operating activities.
B)Financing activities.
C)Investing activities.
D)Noncash activities.
E)This is not reported in the statement of cash flows.

Accepted Answer

Interest received on loans is considered a part of operating activities in the statement of cash flows.

Question 16

An example of a transaction that must be disclosed as a noncash investing and financing activity includes all but which of the following?
A)The retirement of debt by issuing equity stock.
B)A transaction exchanging cash equivalents for cash.
C)The leasing of assets in a transaction that qualifies as a capital lease.
D)The purchase of noncash assets in exchange for equity or debt securities.
E)The purchase of long-term assets financed by a cash down payment and a note payable to the seller for the balance.

Accepted Answer

A transaction exchanging cash equivalents for cash is a cash transaction and does not involve noncash investing or financing activities. The other options all involve the use of noncash assets or securities in financing or investing activities and would therefore need to be disclosed.

Question 17

A statement of cash flows explains the differences between the beginning and ending balances of:
A)Net income.
B)Equity.
C)Cash and cash equivalents.
D)Working capital.
E)Cash,cash equivalents,and short-term investments.

Accepted Answer

A statement of cash flows is specifically designed to explain the changes in the cash and cash equivalents balance over a period by detailing the cash inflows and outflows from operating, investing, and financing activities.

Question 18

The reporting of net cash provided or used by operating activities that lists the major items of operating cash receipts,such as receipts from customers,and subtracts the major items of operating cash disbursements,such as cash paid for merchandise,is referred to as the:
A)Direct method of reporting net cash provided or used by operating activities.
B)Cash basis of accounting.
C)Classified statement of cash flows.
D)Indirect method of reporting net cash provided or used by operating activities.
E)Net method of reporting cash flows from operating activities.

Accepted Answer

The direct method of reporting net cash provided or used by operating activities involves listing the major operating cash receipts and subtracting the major operating cash disbursements. It is a more detailed and transparent method of reporting than the indirect method, which reconciles changes in balance sheet accounts to arrive at net cash provided or used by operating activities. The cash basis of accounting is a method of recognizing revenue and expenses when cash is received or paid, rather than when they are earned or incurred. The classified statement of cash flows is a statement that separates cash flows into operating, investing, and financing categories. The net method of reporting cash flows from operating activities is not a commonly used reporting method.

Question 19

Noncash investing and financing activities may be disclosed in:
A)A note in the financial statements or a schedule attached to the statement of cash flows.
B)The operating activities section of the statement of cash flows.
C)The investing activities section of the statement of cash flows.
D)The financing activities section of the statement of cash flows.
E)The reconciliation of cash balance section.

Accepted Answer

Noncash investing and financing activities, such as the issuance of stock or the acquisition of an asset through the issuance of a note payable, should be disclosed in a note in the financial statements or a schedule attached to the statement of cash flows. This allows users of the financial statements to understand the impact of these transactions on the company's overall financial position, despite not directly affecting cash flows. Noncash activities should not be included in the operating, investing, or financing activities sections of the statement of cash flows as they do not involve cash inflows or outflows. The reconciliation of cash balance section is not a standard section of the financial statements.

Question 20

The accounting principle that requires important noncash financing and investing activities be reported on the statement of cash flows or in a footnote is the:
A)Historical cost principle.
B)Materiality principle.
C)Full disclosure principle.
D)Going concern principle.
E)Business entity principle.

Accepted Answer

The full disclosure principle requires that important noncash financing and investing activities be disclosed in the financial statements, either in the statement of cash flows or in a footnote. This principle ensures that users of the financial statements have access to all relevant information necessary to make informed decisions. The historical cost principle states that assets should be recorded at their historical cost, the materiality principle requires that financial information be material to be included in the financial statements, the going concern principle assumes that a company will continue operations in the foreseeable future, and the business entity principle requires that business transactions be recorded separately from personal transactions.

Quiz 12: Reporting and Analyzing Cash Flows

Which of the following is included in the cash flows from financing activities section of the statement of cash flows?

A company had net cash flows from operations of $341,000,net income of $286,000 and average total assets of $1,850,000.The cash flow on total assets ratio equals:

Preparation of the statement of cash flows does not involve:

A company had net cash flows from operations of $120,000,cash flows from financing of $330,000,total cash flows of $500,000,and average total assets of $2,500,000.The cash flow on total assets ratio equals:

The direct method for the preparation of the operating activities section of the statement of cash flows:

The appropriate section in the statement of cash flows for reporting the purchase of land in exchange for common stock is:

The purchase of long-term assets by issuing a note payable for the entire amount is reported on the statement of cash flows in the:

Accounting standards:

Common uses of the statement of cash flows include all but which of the following?

The statement of cash flows cannot help address questions such as:

The cash flow on total assets ratio:

The cash flow on total assets ratio is calculated by:

The statement of cash flows helps analysts evaluate all but which of the following?

A company had average total assets of $1,660,000,total cash flows of $1,320,000,cash flows from operations of $205,000,and cash flows from financing of $750,000.The cash flow on total assets ratio equals:

Cash flows from interest received on loans are reported in the statement of cash flows as part of:

An example of a transaction that must be disclosed as a noncash investing and financing activity includes all but which of the following?

A statement of cash flows explains the differences between the beginning and ending balances of:

The reporting of net cash provided or used by operating activities that lists the major items of operating cash receipts,such as receipts from customers,and subtracts the major items of operating cash disbursements,such as cash paid for merchandise,is referred to as the:

Noncash investing and financing activities may be disclosed in:

The accounting principle that requires important noncash financing and investing activities be reported on the statement of cash flows or in a footnote is the: