Deck 12: Reporting Cash Flows

Question 1

A company purchased equipment for $150,000 by paying $50,000 and signing a $100,000 note payable. The entire $150,000 is reported as a cash outflow in the financing section of the statement of cash flows.

Answer 1

False

Question 2

The purchase of equity securities is classified as a financing activity.

Answer 2

False

Question 3

A noncash investing activity should be disclosed in a note to the statement of cash flows or on a separate schedule.

Answer 3

True

Question 4

The payment of cash dividends to shareholders is classified as a financing activity.

Question 5

The statement of cash flows explains the difference between the beginning and ending balances of cash and cash equivalents.

Question 6

Cash receipts and cash payments are classified as operating, investing, or financing activities on the statement of cash flows.

Question 7

Financing activities include (a) the purchase and sale of long-term assets, (b) the purchase and sale of short-term investments, and (c) lending and collecting on loans.

Question 8

Investing activities include (a) the purchase and sale of long-term assets, (b) the purchase and sale of short-term investments, and (c) loaning money.

Question 9

The statement of cash flows reports and proves the net change in cash for a reporting period.

Question 10

The purchase of equity securities is classified as an investing activity.

Question 11

Conversion of preferred stock to common stock is disclosed in the financing section of the statement of cash flows.

Question 12

The primary purpose of the statement of cash flows is to report all major cash receipts (inflows) and cash payments (outflows) during a period.

Question 13

Cash paid for merchandise is an operating activity.

Question 14

A purchase of land in exchange for a long-term note payable must be disclosed as a noncash investing and financing activity.

Question 15

The purchase of a long-term asset using a long-term note payable is an example of a noncash investing and financing activity, which should be disclosed in a note or separate schedule.

Question 16

Receipts of cash dividends and interest earned on loans are classified as investing activities.

Question 17

A purchase of land in exchange for a long-term note payable is reported in the investing section of the statement of cash flows.

Question 18

A cash equivalent must be readily convertible to a known amount of cash, and must be sufficiently close to its maturity so its market value is unaffected by interest rate changes.

Question 19

Cash flow statements help users decide whether a company has enough cash to pay its debts.

Question 20

To be classified as a cash equivalent, the only criterion an item must meet is that it must be readily convertible to a liquid asset.

Question 21

The reporting of financing activities in the statement of cash flows is identical under the direct method and indirect method.

Question 22

Information about cash flows influences decisions made by both internal and external users.

Question 23

The cash flow on total assets ratio is computed by dividing cash flows from operations by average total assets.

Question 24

Both the direct and indirect methods yield the identical net cash flow amount provided or used by operating activities.

Question 25

Information to prepare the statement of cash flows usually comes from (a) comparative balance sheets, (b) current income statement, and (c) additional information.

Question 26

The direct method for computing and reporting net cash flows from operating activities involves adjusting the net income figure to obtain net cash provided or used by operating activities.

Question 27

The direct method separately lists operating cash receipts, such as cash received from customers.

Question 28

The cash flow on total assets ratio is computed by dividing average total assets by operating income.

Question 29

A purchase of land in exchange for shares of stock is disclosed at the bottom of the statement of cash flows or in a note to the statement.

Question 30

The cash flow on total assets ratio is affected by income recognition and measurement.

Question 31

Because the direct method of preparing the statement of cash flows starts with net income, it is the method most frequently used.

Question 32

The statement of cash flows explains how transactions and events impact the end-of-period cash balance to produce the end-of-period net income.

Question 33

The cash flow on total assets ratio is not affected by accounting recognition and measurement.

Question 34

Managers review the statement of cash flows before making business decisions.

Question 35

The cash flows from operating activities section of an indirect method of cash flows begins with net income or loss.

Question 36

A cash-based measure to help business decision makers estimate the amount and timing of cash flows from operating activities is the cash flow on total assets ratio.

Question 37

Cash flow amounts and their timing should be considered when planning and analyzing operating activities.

Question 38

Managers primarily use the statement of cash flows to determine the amount of the company's assets relative to the amount of its debt.

Question 39

To effectively evaluate cash flows, we separately analyze investing, financing, and operating activities.

Question 40

The reporting of investing activities in the statement of cash flows is identical under the direct method and indirect method.

Question 41

The direct method separately lists each major item of operating cash receipts and cash payments.

Question 42

When preparing the operating activities section of the statement of cash flows using the indirect method, expenses and losses with no cash outflows are added back to net income.

Question 43

Cash flows are essentially the same as net income because they are both measured using accrual accounting principles.

Question 44

When preparing the operating activities section of the statement of cash flows using the indirect method, decreases in current assets are added back to net income.

Question 45

When preparing the operating activities section of the statement of cash flows using the indirect method, decreases in current operating liabilities are added back to net income.

Question 46

Financing activities include receiving cash dividends from investments in equity securities.

Question 47

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

Question 48

When preparing the operating activities section of the statement of cash flows using the direct method, expenses and losses with no cash outflows are added back to net income.

Question 49

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

Question 50

The indirect method for computing and reporting net cash flows from operating activities involves adjusting the net income figure to obtain net cash provided or used by operating activities.

Question 51

The indirect method separately lists each major item of operating cash receipts and cash payments.

Question 52

When preparing the operating activities section of the statement of cash flows using the indirect method, decreases in current liabilities are subtracted from net income.

Question 53

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

Question 54

Companies can use either the direct or indirect method to prepare the operating section of the statement of cash flows.

Question 55

When preparing the operating activities section of the statement of cash flows using the indirect method, decreases in current assets are subtracted from net income.

Question 56

When preparing the operating activities section of the statement of cash flows using the indirect method, depreciation is added back to net income.

Question 57

When preparing the operating activities section of the statement of cash flows using the indirect method, expenses with no cash outflows are added back to net income.

Question 58

When preparing the operating activities section of the statement of cash flows using the direct method, revenues and gains with no cash inflows are added back to net income.

Question 59

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.

Question 60

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

Question 61

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 within 3 years of its maturity date.
D) Is not considered highly liquid.
E) Another name for cash.

Question 62

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.

Question 63

Investing activities include: (a) the purchase and sale of long-term assets, (b) loaning money in return for notes receivable, and (c) the purchase and sale of short-term investments.

Question 64

Using the direct method, operating cash receipts includes cash received from customers.

Question 65

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.

Question 66

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

Question 67

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) Equity method investment.
B) Operating activity.
C) Common stock.
D) Cash equivalent.
E) Financing activity.

Question 68

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

Question 69

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

Question 70

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.

Question 71

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

Question 72

Investing activities include receiving cash dividends from stock investments.

Question 73

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

Question 74

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.

Question 75

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.

Question 76

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.

Question 77

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.

Question 78

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.

Question 79

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

Question 80

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.