Question 1

The non-cash investing and financing activities section of the statement of cash flows appears as a separate schedule of the cash flow statement or in the notes to the financial statements.

Accepted Answer

Non-cash investing and financing activities are not included in the main sections of the cash flow statement but are disclosed separately in a schedule or in the notes to provide a complete picture of all financial activities.

Question 2

While preparing the statement of cash flows using the indirect method, a decrease in current liabilities is added to the net income to arrive at net cash flow from operating activities.

Accepted Answer

A decrease in current liabilities is subtracted from net income when using the indirect method to calculate net cash flow from operating activities, as it indicates a cash outflow.

Question 3

Buying property, plant and equipment for cash would be considered a cash outflow for the financing activities section of the statement of cash flows.

Accepted Answer

Buying property, plant and equipment for cash would be considered a cash outflow for the investing activities section of the statement of cash flows, not financing activities. Financing activities include issuance or repayment of debt, issuance or repurchase of equity, and payment of dividends.

Question 4

Allen Company uses the indirect method to prepare its statement of cash flows. Refer to the following portion of the comparative balance sheet:  If the net income for the year was $58,000, the company must have declared $32,000 as dividends during the year.

Accepted Answer

The answer of Allen Company uses the indirect method to...

Question 5

A debtor of Adams Company owes $500,000 but does not have enough cash to repay the debt. Following lengthy negotiations, the parties agreed that the debtor will issue 200,000 shares of Common Stock to settle the debt. This transaction will be reported in the investing activities section of the statement of cash flows for Adams Company.

Accepted Answer

This transaction would be reported in the financing activities section of the statement of cash flows as it involves the issuance of common stock, which is a financing activity.

Question 6

Financing activities on the statement of cash flows affect the long-term liability and equity accounts, such as Long-Term Notes Payable, Bonds Payable, Common Stock, and Retained Earnings.

Accepted Answer

Financing activities involve obtaining funds for the company through issuing long-term debt or equity, which affects the long-term liability and equity accounts such as Long-Term Notes Payable, Bonds Payable, Common Stock, and Retained Earnings.

Question 7

Transnational Company is looking for additional capital in order to purchase a property to build their headquarters. They found an investor who was willing to sell them land worth $500,000 in exchange for stock in the company. This transaction would be shown in the financing activities section of the statement of cash flows.

Accepted Answer

This transaction would be shown in the investing activities section of the statement of cash flows because it involves the acquisition of a long-term asset (land) in exchange for stock, not cash.

Question 8

The financing section of the statement of cash flows involves transactions relating to the Equity accounts and the Long-Term Liability accounts.

Accepted Answer

The financing section of the statement of cash flows includes transactions related to the issuance or retirement of stock, payment of dividends, and borrowing or repayment of long-term debt. These transactions affect Equity accounts (such as Common Stock and Retained Earnings) and Long-Term Liability accounts (such as Bonds Payable and Notes Payable).

Question 9

While preparing a statement of cash flows using the indirect method, an increase in current assets are added to net income to arrive at net cash flow from operating activities.

Accepted Answer

In the indirect method, an increase in current assets is subtracted from net income to adjust for changes in working capital and arrive at net cash flow from operating activities.

Question 10

Issuing preferred stock to stockholders in exchange for cash would be shown under the financing activities section of the statement of cash flows.

Accepted Answer

Issuing preferred stock is a financing activity because it involves raising funds from investors in exchange for ownership in the company.

Question 11

While preparing the statement of cash flows using the indirect method, Depreciation Expense is subtracted from Net Income under operating activities.

Accepted Answer

Depreciation Expense is added back to Net Income under operating activities because it is a non-cash expense that reduces net income but does not affect cash flow.

Question 12

Arturo Sales purchased some equipment for $12,000 by issuing a 6-month Note Payable. This would appear as a separate schedule of the cash flow statement under a section called non-cash investing and financing activities.

Accepted Answer

Non-cash investing and financing activities appear as a separate schedule in the cash flow statement and include transactions such as issuance of notes payable or receiving equipment through lease or barter.

Question 13

Allen Company uses the indirect method to prepare its statement of cash flows. The Treasury Stock account had a debit balance of $9,000 at the beginning of the year, and a debit balance of $13,000 at the end of the year. No Treasury Stock was sold during the year.
The financing section of the statement of cash flows will show a positive cash flow of $4,000 for the buyback of Treasury Stock.

Accepted Answer

The increase in the debit balance of the Treasury Stock account indicates that Allen Company bought back its own shares, which is a financing activity that uses cash. Therefore, the financing section of the statement of cash flows will show a negative cash flow of $4,000 for the buyback of Treasury Stock, not a positive cash flow.

Question 14

The purchase of equipment financed by a Long-Term Notes Payable is an example of:
A)investing activity.
B)financing activity.
C)operating activity.
D)non-cash investing and financing activity.

Accepted Answer

This transaction is a non-cash investing and financing activity because it involves acquiring equipment (an investing activity) through a long-term note payable (a financing activity) without using cash.

Question 15

The contribution of equipment by a stockholder in exchange for common stock is an example of:
A)investing activity.
B)financing activity.
C)operating activity.
D)non-cash investing and financing activity.

Accepted Answer

The contribution of equipment by a stockholder in exchange for common stock is an example of a non-cash investing and financing activity, as it involves the exchange of non-cash assets for equity without directly affecting cash flow.

Question 16

Which of the following sections of the statement of cash flows are presented differently between the direct method and indirect method?
A)investing activity
B)financing activity
C)operating activity
D)non-cash activity

Accepted Answer

The operating activity section is presented differently between the direct method and indirect method. The direct method reports individual cash inflows and outflows from operating activities, while the indirect method starts with net income and adjusts for any non-cash items and changes in working capital accounts to arrive at operating cash flows. The investing activity, financing activity, and non-cash activity sections are presented similarly in both methods.

Question 17

While preparing the statement of cash flows using the indirect method, a loss on the sale of plant assets must be shown as a subtraction from the investing activities section.

Accepted Answer

A loss on the sale of plant assets is added back to net income in the operating activities section, not subtracted in the investing activities section, when using the indirect method.

Question 18

Companies sometimes obtain financing and do not receive cash. Although such transactions do not directly involve cash, they still must be reported in the financing section of the cash flow statement.

Accepted Answer

Non-cash financing activities are not reported in the financing section of the cash flow statement but are disclosed in the notes to the financial statements or in a separate schedule.

Question 19

The third section presented on the statement of cash flows is the non-cash operating activities section.

Accepted Answer

The third section typically presented on the statement of cash flows is the financing activities section, not the non-cash operating activities section. Non-cash operating activities are usually disclosed in a separate note or in a supplementary schedule to the cash flow statement.

Question 20

Partisan Services purchased 10 delivery vehicles by issuing a 10-year installment Note Payable for $320,000. This transaction would be shown in the investing activities section of the statement of cash flows.

Accepted Answer

The purchase of delivery vehicles through a note payable does not involve cash outflow, so it is not shown in the investing activities section but rather in the non-cash investing and financing activities section.

Quiz 16: The Statement of Cash Flows