Question 1

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 reported under cash flows from financing activities on the statement of cash flows using the indirect method.

Question 2

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

Accepted Answer

The payment of cash dividends reduces retained earnings because dividends are paid out of the company's profits, which are part of retained earnings.

Question 3

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

Accepted Answer

Financing activities include receiving cash from issuing debt, but receiving cash dividends from investments is considered an investing activity, not a financing activity.

Question 4

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

Investing activities refer to all activities related to investing in long-term assets, lending and collecting on notes receivable, and buying and selling short-term investments in securities of other entities.

Question 5

Financing activities include receiving cash from issuing debt and paying cash dividends to shareholders.

Accepted Answer

Financing activities involve activities that affect the company's capital structure, such as issuing debt or equity securities, paying dividends to shareholders, buying back shares, or repaying debt obligations. Therefore, receiving cash from issuing debt and paying cash dividends to shareholders are examples of financing activities.

Question 6

Equipment costing $200,000 with accumulated depreciation of $160,000 is sold at a loss of
$10,000. This implies that $30,000 cash was received from the sale.

Accepted Answer

The book value of the equipment is $40,000 ($200,000 - $160,000). Selling at a loss of $10,000 means it was sold for $30,000 ($40,000 - $10,000).

Question 7

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) Direct activities.
B) Indirect activities.
C) Financing activities.
D) Operating activities.
E) Investing activities.

Accepted Answer

Operating activities involve the day-to-day business operations of producing or purchasing merchandise and selling goods and services to customers, as well as the necessary administrative expenses to operate the business.

Question 8

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

Accepted Answer

The statement of cash flows reports cash inflows and cash outflows for an accounting period. It shows where the cash came from and where it went during the period.

Question 9

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

Accepted Answer

A cash equivalent is an investment that can be readily converted into a known amount of cash, typically within three months of its acquisition. Examples include short-term treasury bills, commercial paper, and money market instruments. It is highly liquid and easily tradable, making it an ideal choice for short-term investments. Options A, B, D, and E are incorrect as they do not accurately describe a cash equivalent.

Question 10

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 actually entered with a credit in the statement of cash flows section and a debit in the balance sheet section. This is because a decrease in accounts payable means that less cash was paid out for expenses, resulting in an increase in cash in the statement of cash flows section, and a reduction in liabilities in the balance sheet section.

Question 11

When using a spreadsheet to prepare the statement of cash flows, an increase 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

An increase in accounts payable represents a decrease in cash, which is entered as a debit in the statement of cash flows section. The corresponding credit in the balance sheet section reflects the increase in accounts payable.

Question 12

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

Accepted Answer

The statement of cash flows reports cash flows from operating, investing, and financing activities, as well as significant noncash financing and investing activities. It does not report the financial position of the company, which is found in the balance sheet.

Question 13

The statement of cash flows is:
A) A financial statement that lists the types and amounts of the revenues and expenses of a business for an accounting period.
B) Another name for the statement of financial position.
C) A financial statement that lists the types and amounts of assets, liabilities, and equity of a business on a specific date.
D) A financial statement that presents information about changes in equity during a period.
E) 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.

Accepted Answer

The statement of cash flows reports the cash inflows and outflows for an accounting period and classifies those cash flows as operating, investing, or financing activities.

Question 14

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 15

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

Accepted Answer

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

Question 16

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

Accepted Answer

A spreadsheet can be used to organize and categorize the different cash inflows and outflows from a business, which can then be used to prepare a statement of cash flows.

Question 17

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) Operating activity.
B) Cash equivalent.
C) Short-term marketable equity security.
D) Common stock.
E) Financing activity.

Accepted Answer

A cash equivalent is an investment that can easily be converted to cash and has a maturity date that is close enough so that its value is not affected by interest rate changes. This type of investment is often used to temporarily hold funds while waiting for a future use or to meet short-term cash needs. Examples of cash equivalents include Treasury bills, commercial paper, and money market funds.

Question 18

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

Accepted Answer

Depreciation expense is a non-cash expense that is added back to net income in the operating activities section of the statement of cash flows prepared using the indirect method. However, in the direct method, operating cash flows are reported by directly disclosing actual cash inflows and outflows from operating activities, and hence depreciation expense is not separately reported.

Question 19

Equipment costing $100,000 with accumulated depreciation of $40,000 is sold at a loss of $10,000. This implies that $40,000 cash was received from the sale.

Accepted Answer

The loss on the sale of the equipment is $10,000, meaning the equipment was sold for $90,000. However, the accumulated depreciation of $40,000 must be subtracted from the original cost of $100,000 to find the equipment's book value at the time of sale, which is $60,000. Therefore, the cash received from the sale would be $90,000, not $40,000.

Question 20

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 true. The FASB requires a reconciliation of net income to net cash provided or used by operating activities when the direct method is used, and this information can be reported in the notes to the financial statements.

Quiz 16: Reporting the Statement of Cash Flows

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.

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

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

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.

Financing activities include receiving cash from issuing debt and paying cash dividends to shareholders.

Equipment costing $200,000 with accumulated depreciation of $160,000 is sold at a loss of $10,000. This implies that $30,000 cash was received from the sale.

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:

The statement of cash flows reports:

A cash equivalent is: