Question 1

The cash flow adequacy ratio is defined as:

Accepted Answer

The definition for cash flow adequacy ratio is not provided in the question. Therefore, it cannot be determined whether the statement is true or false.

Question 2

Under the indirect method, instead of reporting cash receipts and payments, net income is reconciled with net cash from operating activities.

Accepted Answer

The indirect method starts with net income from the income statement, adjusts for non-cash items, and reconciles with net cash from operating activities in the statement of cash flows. It does not report cash receipts and payments directly.

Question 3

The statement of cash flows emphasizes explanations for the change in net income.

Accepted Answer

The statement of cash flows emphasizes explanations for the change in cash and cash equivalents, not net income. It shows the sources and uses of cash during a given period, and how net income was converted into cash flow.

Question 4

The work sheet used to prepare a statement of cash flows indirect method to determine cash flows from operating activities) should have a total in the Changes column equal to total assets.

Accepted Answer

The total in the Changes column of the worksheet used to prepare a statement of cash flows (indirect method) should equal the net increase or decrease in cash for the period, not total assets.

Question 5

Many companies report cash flow per common share on the statement of cash flows.

Accepted Answer

Companies report cash flow per common share on the statement of cash flows. Cash flow per common share is a metric used to evaluate a company's cash-generating abilities on a per-share basis, but it is not reported on the statement of cash flows.

Question 6

Some companies use a work sheet approach, which functions like the T account approach, as a tool to aid in preparing the statement of cash flows.

Accepted Answer

Some companies use a work sheet approach, which functions like the T account approach, as a tool to aid in preparing the statement of cash flows.

Question 7

Significant noncash transactions are not reported on the statement of cash flows, but either in a separate schedule or in a note to the financial statements.

Accepted Answer

This statement is true. Noncash transactions are not reported in the statement of cash flows but are separately disclosed in schedules or notes to the financial statements. Examples of significant noncash transactions include issuances of common stock in exchange for assets or the conversion of debt into equity.

Question 8

The financial statement that primarily reflects events related to the operating activities of a business, or the selling of products or providing services is the .

Accepted Answer

The answer of The financial statement that primarily reflects events...

Question 9

All the information needed to compute the cash flow adequacy ratio is found on the balance sheet.

Accepted Answer

The cash flow adequacy ratio requires information from both the income statement and the cash flow statement, in addition to the balance sheet. Therefore, all the information needed to compute the ratio is not found only on the balance sheet.

Question 10

If the December 31, 2016, balance of accounts receivable is higher than the January 1, 2016, balance, then the amount of cash collections will be less than the sales on account for the year.

Accepted Answer

The answer of If the December 31, 2016, balance of...

Question 11

A decrease in retained earnings indicates that a cash dividend has been paid.

Accepted Answer

A decrease in retained earnings can result from a cash dividend payment, but it can also be due to a company reporting a net loss.

Question 12

Under the direct method, depreciation expense is treated as an outflow in the Investing Activities section of the statement of cash flows.

Accepted Answer

Under the direct method, depreciation expense is not reported in the Investing Activities section of the statement of cash flows. Instead, it is shown in the Operating Activities section as a non-cash expense that is added back to net income to calculate cash flows from operating activities.

Question 13

Because the cash received from the sale of long-term assets is reported in the investing activities section of the statement of cash flows, any gain or loss is built into the cash received under the direct method.

Accepted Answer

This is true. When a long-term asset is sold, any gain or loss is already included in the cash received reported in the investing activities section of the statement of cash flows. As such, under the direct method of reporting cash flows, the gain or loss does not need to be separately recorded or reported.

Question 14

The cash flow adequacy ratio can only be calculated if a company uses the direct method to report cash flows from operating activities.

Accepted Answer

The cash flow adequacy ratio can be calculated using either the direct or indirect method for reporting cash flows from operating activities.

Question 15

The basic accounting equation can be restated in terms of cash by the following equation: Cash = current liabilities + long-term liabilities + capital stock - retained earnings - noncash current assets + long-term assets.

Accepted Answer

The basic accounting equation in terms of cash is: Cash = Assets - Liabilities, and not as stated in the statement.

Question 16

The Financial Accounting Standards Board FASB) has expressed a strong preference for the indirect method, but allows companies to use the direct method in calculating the cash flow from operating activities.

Accepted Answer

The answer of The Financial Accounting Standards Board FASB) has...

Question 17

If the December 31, 2016, balance of accounts payable is higher than the January 1, 2016, balance, then the amount of cash payments will exceed the purchases on account for the year.

Accepted Answer

If the December 31, 2016, balance of accounts payable is higher than the January 1, 2016, balance, it means that more purchases were made on account during the year than were paid off with cash. Therefore, the amount of cash payments will be less than the purchases on account for the year.

Question 18

Cash flow per share is computed by dividing cash on the balance sheet by the number of shares outstanding.

Accepted Answer

Cash flow per share is computed by dividing the cash flow from operating activities by the number of shares outstanding, not by the cash on the balance sheet.

Question 19

A work sheet is an alternative to T accounts to help in the preparation of a statement of cash flows.

Accepted Answer

A worksheet can be used to classify cash inflows and outflows into operating, investing, and financing activities, which is essential for preparing a statement of cash flows.

Question 20

Determining the cash flows from operating activities generally requires analyzing each item on the income statement as well as the current asset except cash) and current liability accounts.

Accepted Answer

This statement is true. Determining cash flows from operating activities involves analyzing each item on the income statement as well as changes in current asset and liability accounts.

Quiz 12: The Statement of Cash Flows

The cash flow adequacy ratio is defined as:

Under the indirect method, instead of reporting cash receipts and payments, net income is reconciled with net cash from operating activities.

The statement of cash flows emphasizes explanations for the change in net income.

The work sheet used to prepare a statement of cash flows indirect method to determine cash flows from operating activities) should have a total in the Changes column equal to total assets.

Many companies report cash flow per common share on the statement of cash flows.

Some companies use a work sheet approach, which functions like the T account approach, as a tool to aid in preparing the statement of cash flows.

Significant noncash transactions are not reported on the statement of cash flows, but either in a separate schedule or in a note to the financial statements.

The financial statement that primarily reflects events related to the operating activities of a business, or the selling of products or providing services is the .

All the information needed to compute the cash flow adequacy ratio is found on the balance sheet.

If the December 31, 2016, balance of accounts receivable is higher than the January 1, 2016, balance, then the amount of cash collections will be less than the sales on account for the year.

A decrease in retained earnings indicates that a cash dividend has been paid.

Under the direct method, depreciation expense is treated as an outflow in the Investing Activities section of the statement of cash flows.

Because the cash received from the sale of long-term assets is reported in the investing activities section of the statement of cash flows, any gain or loss is built into the cash received under the direct method.

The cash flow adequacy ratio can only be calculated if a company uses the direct method to report cash flows from operating activities.

The basic accounting equation can be restated in terms of cash by the following equation: Cash = current liabilities + long-term liabilities + capital stock - retained earnings - noncash current assets + long-term assets.

The Financial Accounting Standards Board FASB) has expressed a strong preference for the indirect method, but allows companies to use the direct method in calculating the cash flow from operating activities.

If the December 31, 2016, balance of accounts payable is higher than the January 1, 2016, balance, then the amount of cash payments will exceed the purchases on account for the year.

Cash flow per share is computed by dividing cash on the balance sheet by the number of shares outstanding.

A work sheet is an alternative to T accounts to help in the preparation of a statement of cash flows.

Determining the cash flows from operating activities generally requires analyzing each item on the income statement as well as the current asset except cash) and current liability accounts.