Question 1

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 2

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

Accepted Answer

Companies typically report cash flow information in the statement of cash flows as total amounts rather than on a per-share basis. Per-share data, such as earnings per share (EPS), is usually found in the income statement or notes to the financial statements.

Question 3

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 statement is true. The direct method of reporting cash flows from operating activities only reports actual cash receipts and payments, so any gain or loss from the sale of long-term assets is included in the cash received amount reported in the investing activities section.

Question 4

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.

Question 5

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 = Current Assets - Current Liabilities. The equation provided in the question includes long-term liabilities and assets, as well as noncash current assets, which should not be included in an equation solely focused on cash.

Question 6

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 statement of cash flows indirect method to determine cash flows from operating activities does not necessarily have to equal total assets. The statement focuses on changes in cash and cash equivalents during the period, not changes in total assets.

Question 7

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 8

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 9

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 organize cash inflows and outflows and calculate net cash flow, which is necessary for preparing a statement of cash flows.

Question 10

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 do use a worksheet approach, which is similar to the T account approach, to help prepare the statement of cash flows.

Question 11

The financial statement that summarizes the operating, investing, and financing activities of a business over a period of time is the ___________________________________.

Accepted Answer

The answer of The financial statement that summarizes the operating,...

Question 12

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 13

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

Accepted Answer

The statement of cash flows explains the sources and uses of cash during a period, including cash flows from operating, investing, and financing activities. While net income is one component of the statement of cash flows, it is not the only focus. The statement of cash flows provides information on how cash is generated and used, and highlights changes in cash balances.

Question 14

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 does not appear on the statement of cash flows at all.

Question 15

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 16

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 correct. Determining the cash flows from operating activities involves analyzing each item on the income statement as well as changes in current asset and liability accounts, except for cash.

Question 17

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 method or the indirect method of reporting cash flows from operating activities.

Question 18

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

This statement is not necessarily true. It is possible that additional purchases were made on account during the year, resulting in the higher balance of accounts payable at the end of the year. Additionally, cash payments may not have been made for all purchases on account during the year.

Question 19

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

Accepted Answer

Under the indirect method, the net income is adjusted for non-cash items and changes in current assets and liabilities to reconcile it with net cash from operating activities. It does not report cash receipts and payments directly.

Question 20

The cash flow adequacy ratio is defined as:

Accepted Answer

The answer of The cash flow adequacy ratio is defined...

Quiz 12: The Statement of Cash Flows