Question 1

The IFRS categories of cash flows are

Accepted Answer

The IFRS categories of cash flows are operating, investing, and financing activities.

Question 2

One area of difference between GAAP and IFRS cash flow reporting is the

Accepted Answer

The key difference between GAAP and IFRS in cash flow reporting lies in the allowed classifications of dividends and interest paid or received. Under IFRS, entities have more flexibility in classifying interest and dividends received and paid in either operating, investing, or financing activities, while GAAP has more specific requirements for these items.

Question 3

The statement of cash flows classifies cash inflows and outflows into three different activities: operating, investing, and financing.
Required:
Describe the types of transactions that would be included under each of the statement of cash flow activities.

Accepted Answer

The answer of The statement of cash flows classifies cash...

Question 4

Companies are allowed to report cash flow per share under $\begin{array}{lll}
 & \text { IFRS} & \text { GAAP}\
\text { I. } & \text { Yes } & \text { No } \
\text { II. } & \text { Yes } & \text { Yes } \
\text { III. } & \text { No } & \text { No } \
\text { IVI } & \text { No } & \text { Yee }
\end{array}$

Accepted Answer

The answer of Companies are allowed to report cash flow...

Question 5

Current GAAP permits two methods of calculating and reporting a company's net cash flow from operating activities on its statement of cash flows.
Required:
Identify the two methods.Which method does the FASB prefer? Which method do most companies use and why?

Accepted Answer

The answer of Current GAAP permits two methods of calculating...

Question 6

On its January 1, 2010, balance sheet, Dilbert Company reported equipment of $50, 000 and accumulated depreciation of $20, 000.During 2010, Dilbert sold equipment with an original cost of $5, 000.Selected information from Dilbert's 2010 statement of cash flows follows:
 $\begin{array}{ll}
\text { Net income } & \$ 20,000 \
\text { Depreciation expense on equipment } & 2,000\
\text { Gain on sale of equipment } & 600 \
\text { Proceeds from sale of equipment } & 1,500 \
\text { Purchase of equipment } & 8,000
\end{array}$ Required:
Compute the amount of equipment and accumulated depreciation that should appear on Dilbert's December 31, 2010, balance sheet.

Accepted Answer

The answer of On its January 1, 2010, balance sheet,...

Question 7

Treatments of items in the cash flow statement that differ between IFRS and GAAP include all of the following except the allowed treatment of

Accepted Answer

Under both IFRS and GAAP, losses on the early retirement of bonds are treated similarly in the cash flow statement, typically classified within financing activities. The other options (A, C, D) represent areas where IFRS and GAAP have differing treatments regarding the cash flow statement.

Question 8

A company had an increase in interest payable during the year and also amortized discount on bonds payable.Under the direct method, the amount of interest paid during the year to be reflected in the statement of cash flows is

Accepted Answer

The answer of A company had an increase in interest...

Question 9

The statement of cash flows, along with other financial and operating information, enables investors, creditors, and other users to assess a company's liquidity, financial flexibility, and operating capability.Distinguish between liquidity, financial flexibility, and operating capability.

Accepted Answer

The answer of The statement of cash flows, along with...

Question 10

Exhibit 22-3 The balance sheet accounts and other information related to those accounts are presented below for Tony Company:
 Additional information related to 2011 activities:
1. Net loss for 2011 was $ \$ 40,000 $.
2. Cash dividends of $ \$ 12,000 $ were declared and paid in 2011.
3. 4,000 shares of comunon stock were issued to bonchalders converting bonds payable into common stock. 
4. A long-term investment was sold for $ \$ 100,000 $ cash
5. Equipment costing $ \$ 100,000 $ and having accumulated depreciation of $ \$ 30,000 $ was sold for $ \$ 50,000 $ cash
 
- Refer to Exhibit 22-3.Net cash provided (used)in the operating activities section of Tony's 2011 statement of cash flows was

Accepted Answer

Net cash provided (used)in the operating activities section can be calculated using the indirect method. Starting with net income of $28,000, we add back non-cash expenses such as depreciation ($10,000) and amortization ($2,000), and adjust for changes in current assets and liabilities. We see that accounts receivable decreased by $18,000, inventory increased by $4,000, accounts payable increased by $6,000, and income taxes payable increased by $2,000. Adding these adjustments together, we get $(40,000), which represents net cash provided (used) in operating activities. Therefore, the best choice is C.

Question 11

When reading the Cash Inflows from Operating Activities portion of the statement of cash flows using the direct method, you would expect to find which of the following? I. Collections from customers
II. Interest and dividends collected
III. Other operating receipts
IV. Receipts from stockholders

Accepted Answer

The direct method of reporting cash flows from operating activities includes collections from customers (I), interest and dividends collected (II), and other operating receipts (III). Receipts from stockholders (IV) are financing activities, not operating activities.

Question 12

Which of the following should be presented in a statement of cash flows? $\begin{array}{lll}
& \text { Stock Dividends}& \text { Stock Splits}\
\text { I. } & \text { Yes } & \text { Yes } \
\text { II. } & \text { Yes } & \text { No } \
\text { III. } & \text { No } & \text { Yes } \
\text { IVI } & \text { No } & \text { No }
\end{array}$

Accepted Answer

Stock dividends and stock splits do not involve cash transactions and therefore are not presented in a statement of cash flows.

Question 13

A cash flow statement is one of the basic financial statements that is required under $\begin{array}{lll}
 & \text { IFRS} & \text { GAAP}\
\text { I. } & \text { No } & \text { Yes } \
\text { II. } & \text { No } & \text { No } \
\text { III. } & \text { Yes } & \text { No } \
\text { IV } & \text { Yes } & \text { Yes }
\end{array}$

Accepted Answer

Both IFRS (International Financial Reporting Standards) and GAAP (Generally Accepted Accounting Principles) require the preparation of a cash flow statement as part of an entity's financial statements.

Question 14

Several items to be considered in converting net income to the net cash flow from operating activities under the indirect method are listed below:
  Required:
Fill in the blanks by using a plus sign (+)or a minus sign (-)to indicate whether each item should be added to or subtracted from net income to arrive at the net cash flow from operating activities.

Accepted Answer

The answer of Several items to be considered in converting...

Question 15

The following information relates to the Davenport Company: $\begin{array}{ll}
\text { Accrued interest payable, begining of period }&\$60\
\text { Prevaidinterest end of period.}&40\
\text { Accrued interest payable, end of period } & 10 \
\text { Total interest expense reported on the income statement } & 750 \
\text { Prepaid interest, beginning of period } & 70
\end{array}$
 What was the amount of cash payments for interest?

Accepted Answer

To find the cash payments for interest, we adjust the total interest expense by the changes in accrued and prepaid interest. The calculation is as follows: Total interest expense ($750) + Beginning accrued interest ($60) - Ending accrued interest ($10) - Beginning prepaid interest ($70) + Ending prepaid interest ($40) = $770. However, the correct calculation should be: Total interest expense ($750) + Increase in accrued interest payable ($10 - $60 = -$50) + Decrease in prepaid interest ($70 - $40 = $30) = $750 - $50 + $30 = $730.

Question 16

When preparing a statement of cash flows using a worksheet, it is best to begin the worksheet with

Accepted Answer

The answer of When preparing a statement of cash flows...

Question 17

A statement of cash flows contains the following sections:
 a. net cash flow from operating activities
b. cash flows from investing activities
c. cash flows from financing activities
d. investing and financing activities not affecting cash A list of items that appear on the statement is provided below:
  Required:
In the space provided, using the letters (a-d), indicate in which section(s)of the statement of cash flows (or accompanying schedule)the preceding items would most likely be classified.After each item affecting cash, indicate with a plus sign (+)or a minus sign (-)whether the item would be reported as an increase (inflow)or a decrease (outflow).

Accepted Answer

The answer of A statement of cash flows contains the...

Question 18

When reading the Cash Outflows from Operating Activities portion of the statement of cash flows, you would expect to find which of the following? I. Payments to suppliers
II.  Payments to customer:
III. Payments to employees
IV. Payments of interest
V. Payments for income tax
VI. Other operating payments

Accepted Answer

Payments to suppliers, employees, interest, income tax, and other operating payments are typical cash outflows from operating activities. Payments to customers are not a standard outflow in this category, as they would represent inflows for the customers instead.

Question 19

A company's unearned rental revenue account increased from the beginning to the end of the year.In the statement of cash flows using the direct method, the cash collected from tenants would be

Accepted Answer

The correct answer is B) rent revenue plus the increase in unearned rent revenue during the year. This is because the increase in unearned rent revenue indicates that the company has received cash for rent that has not yet been earned, which must be added to the rent revenue reported on the income statement to determine the total cash collected from tenants.

Question 20

Unlike GAAP, IFRS encourage the disclosure of all of the following except

Accepted Answer

IFRS does not require the reconciliation of net income to operating cash flows when the direct method is used, unlike GAAP which does.

Quiz 22: The Statement of Cash Flows