Question 1

If a company has made arrangements with a bank to borrow money in the months when they have a negative cash balance,this arrangement is a

Accepted Answer

A line of credit is an agreement between a business and a bank that provides the business with access to a certain amount of funding that can be borrowed as needed, up to a specified limit. This type of arrangement is often used when a business has a fluctuating cash flow, and may need to borrow funds to cover temporary cash shortages. Unlike a traditional loan, businesses only borrow what is needed and pay interest solely on the amount borrowed, making it a flexible and cost-effective financing solution. Bank overdrafts are typically short-term loans used to cover cash shortages, whereas long-term loans are used for larger capital investments. A demand loan is a type of loan that requires repayment at any time upon demand by the lender.

Question 2

Cash flows from financing activities include

Accepted Answer

Proceeds received from the sale of the company's shares are considered cash flows from financing activities because they involve raising capital for the company through equity financing.

Question 3

Which of the following would be an example of a financing activity on the Statement of Cash Flows?

Accepted Answer

Repayment of a loan from another company is an example of financing activity as it involves the repayment of borrowed funds.

Question 4

Obtaining resources for the corporation from investors or debt-holders and the return of resources to shareholders and debt-holders is considered part of which of these activities on the Statement of Cash Flows?

Accepted Answer

Obtaining resources from investors or debt-holders and returning resources to shareholders and debt-holders are both examples of financing activities, as they involve the procurement and management of the company's capital structure. The other options (A and B) refer to different types of cash flow transactions, such as revenue generation through operations or investment in long-term assets, respectively.

Question 5

The direct method of Statement of Cash Flows preparation is

Accepted Answer

The direct method of Statement of Cash Flows preparation is preferred by standard setters because it provides a clearer picture of cash flows from operating activities by listing major classes of gross cash receipts and payments.

Question 6

Cash equivalents includes everything,except

Accepted Answer

Short-term bank loans and lines of credit are not considered cash equivalents because they are not highly liquid and can take time to access.

Question 7

Operating activities typically involve accounts classified as

Accepted Answer

Operating activities typically involve transactions with current assets (such as cash, accounts receivable, and inventory) and current liabilities (such as accounts payable and accrued expenses). Operating activities involve the day-to-day operations of the business and are reflected in the income statement. Transactions with long-term assets and liabilities are typically classified as investing or financing activities.

Question 8

Financing activities typically involve accounts classified as

Accepted Answer

Financing activities generally involve obtaining funds for the long-term operations of a business. Long-term liabilities and shareholders' equity are the two accounts that are used for long-term financing. Current assets and liabilities are typically used for short-term operations, while current liabilities alone are not sufficient for most long-term financing needs.

Question 9

Which of the following transactions or activities would not be reflected on the cash flow statement?

Accepted Answer

The purchase of land with shares would not be reflected on the cash flow statement as it does not involve the inflow or outflow of cash. The other choices all involve actual cash transactions and would be reflected on the cash flow statement.

Question 10

The activities of a corporation that are directed to investing the resources of the corporation over extended periods of time in long-term assets is considered part of which of these activities on the Statement of Cash Flows?

Accepted Answer

Investing activities involve the acquisition and disposal of long-term assets, such as property, plant, and equipment, and investments in other companies. Therefore, the activities of a corporation that are directed to investing the resources of the corporation over extended periods of time in long-term assets are considered part of investing activities on the Statement of Cash Flows.

Question 11

How should a gain on the sale of equipment be reflected in the operating section of the Statement of Cash Flows when using the indirect method?

Accepted Answer

Gains on the sale of equipment are deducted from net income in the operating section of the Statement of Cash Flows when using the indirect method. This is because the gain is considered a non-cash item that increased net income, but it did not result from operating activities.

Question 12

Which of the following would be an example of an investing activity on the Statement of Cash Flows?

Accepted Answer

Purchase of bonds as an investment is an example of an investing activity on the Statement of Cash Flows. Investing activities are those that involve the acquisition or disposal of long-term assets or investments, such as property, plant and equipment or stocks and bonds. Issuance of bonds payable and common shares are financing activities, while collection of rent from tenants is an operating activity.

Question 13

Which of the following would be added to net income when using the indirect approach to prepare the cash from operating activities of the Statement of Cash Flows?

Accepted Answer

A decrease in accounts receivable indicates that cash has been collected from customers, which increases cash flow and is added back to net income in the indirect method.

Question 14

Which of the following is a deduction from net income when using the indirect approach to prepare the cash from operating activities of the Statement of Cash Flows?

Accepted Answer

An increase in prepaid expenses is deducted from net income in the indirect method because it represents a cash outflow that does not affect net income.

Question 15

Investing activities typically involve accounts classified as

Accepted Answer

Investing activities involve the purchase and sale of long-term assets such as property, plant, and equipment, investments in securities, and loans made to other entities. Therefore, the accounts involved in investing activities are classified as long-term assets.

Question 16

Under the indirect approach,adjustments must be made to net income in the operations section for all of the following items,except

Accepted Answer

Proceeds for the issuance of preferred shares is not an item that affects net income in the operations section, therefore, adjustments do not need to be made for it under the indirect approach. However, depreciation, gain/loss on the sale of assets all affect net income and require adjustments under the indirect approach.

Question 17

On the Statement of Cash Flows,which of the following would equal cash paid for income taxes?

Accepted Answer

Cash paid for income taxes is equal to income taxes expense plus the change in income taxes payable. Since income taxes payable is a liability account, an increase in the balance would represent taxes owed but not yet paid, and a decrease would represent taxes paid. Therefore, the change in income taxes payable represents the cash paid for income taxes.

Question 18

Which of the following would be an example of an investing activity on the Statement of Cash Flows?

Accepted Answer

Purchase of capital assets is an investing activity because it involves the acquisition of long-term assets that are expected to generate future benefits for the company.

Question 19

Which of the following is normally disclosed as supplementary information on the Statement of Cash Flows?

Accepted Answer

Depreciation expense is a non-cash expense that is added back to net income to arrive at cash flow from operating activities.

Question 20

Under the indirect approach,in preparing the cash from operations section of the Statement of Cash Flows,depreciation is added to net income because

Accepted Answer

Depreciation is a non-cash expense that reduces net income but does not involve any outflow of cash. Therefore, it needs to be added back to net income in order to arrive at the cash from operations.

Quiz 5: The Statement of Cash Flows

If a company has made arrangements with a bank to borrow money in the months when they have a negative cash balance,this arrangement is a

Cash flows from financing activities include

Which of the following would be an example of a financing activity on the Statement of Cash Flows?

Obtaining resources for the corporation from investors or debt-holders and the return of resources to shareholders and debt-holders is considered part of which of these activities on the Statement of Cash Flows?

The direct method of Statement of Cash Flows preparation is

Cash equivalents includes everything,except

Operating activities typically involve accounts classified as

Financing activities typically involve accounts classified as

Which of the following transactions or activities would not be reflected on the cash flow statement?

The activities of a corporation that are directed to investing the resources of the corporation over extended periods of time in long-term assets is considered part of which of these activities on the Statement of Cash Flows?

How should a gain on the sale of equipment be reflected in the operating section of the Statement of Cash Flows when using the indirect method?

Which of the following would be an example of an investing activity on the Statement of Cash Flows?

Which of the following would be added to net income when using the indirect approach to prepare the cash from operating activities of the Statement of Cash Flows?

Which of the following is a deduction from net income when using the indirect approach to prepare the cash from operating activities of the Statement of Cash Flows?

Investing activities typically involve accounts classified as

Under the indirect approach,adjustments must be made to net income in the operations section for all of the following items,except

On the Statement of Cash Flows,which of the following would equal cash paid for income taxes?

Which of the following would be an example of an investing activity on the Statement of Cash Flows?

Which of the following is normally disclosed as supplementary information on the Statement of Cash Flows?

Under the indirect approach,in preparing the cash from operations section of the Statement of Cash Flows,depreciation is added to net income because