Question 1

Which of the following activities is correctly associated with its cash flow classification?

Accepted Answer

Purchase of Treasury Stock is classified as financing activity because it involves the use of cash to purchase the company's own stock, which decreases outstanding shares and increases the ownership percentage of remaining shareholders.

The other options are not classified correctly as:
A) Sale of company's own common stock is classified as financing activity if the shares are newly issued, but if it is the sale of existing shares, it is classified as investing activity.
C) Payment of rent for the next two months is an operating expense and not a cash flow activity.
D) Payment of interest on bonds payable is also a financing activity as it represents the payment of interest to the bondholders.

Question 2

To assess a company's ability to meet its obligations and pay dividends,the _________ activities section would be analyzed.

Accepted Answer

The operating activities section of a company's cash flow statement shows the company's ability to generate cash from its primary operations, which are directly related to its obligations (such as paying bills and salaries) and its potential ability to pay dividends. The investing and financing activities sections provide information about the company's investments and financing decisions, respectively, which are not directly related to its ability to meet its obligations and pay dividends. Therefore, choice C (operating) is the best choice.

Question 3

Payments to employees would be reported in the following section of the statement of cash flows:

Accepted Answer

Payments to employees are considered an operating expense and therefore would be reported in the operating activities section of the statement of cash flows.

Question 4

Cash inflow from the sale of Trading Securities would be reported in which of the following in the statement of cash flows?

Accepted Answer

Cash inflows from the sale of Trading Securities represent investment activity and would be reported in the investing section of the statement of cash flows. Operating activities involve the main revenue-producing activities of the business and financing activities involve raising and repaying capital.

Question 5

All of the following represent sections of the statement of cash flows except:

Accepted Answer

Controlling activities are not a section of the statement of cash flows. The correct sections are A) investing activities, B) financing activities, and C) operating activities.

Question 6

Receipt of dividends from an investment in another company would be reported in the following section of the statement of cash flows:

Accepted Answer

Dividends received from an investment in another company is considered as an operating cash flow because it is not related to any investing or financing activity of the company. It represents a return on the company's investment and is included in the operating activities section of the statement of cash flows.

Question 7

Collections from customers would be reported in the following section of the statement of cash flows:

Accepted Answer

Collections from customers relate to the primary operations of the business and therefore are classified as cash inflows from operating activities in the statement of cash flows.

Question 8

Cash payments made to acquire equipment would be reported in the following section of the statement of cash flows:

Accepted Answer

Cash payments made to acquire equipment would be considered a purchase of a long-term asset and therefore be reported in the investing activities section of the statement of cash flows.

Question 9

Which of the following activities is not correctly associated with its cash flow classification?

Accepted Answer

Purchase of Treasury Stock should be classified as Financing activity, not Investing activity.

Question 10

To assess a company's ability to generate positive future cash flows,the _________ activities section would be analyzed.

Accepted Answer

The operating activities section shows the cash flows generated from a company's primary business operations, which is the main source of future cash flows. The financing and investing activities sections are not directly related to a company's ability to generate positive cash flows from its core operations. The noncash investing and financing activities section only shows non-cash transactions and does not provide information on the company's ability to generate positive future cash flows.

Question 11

All of the following are primary purposes of the statement of cash flows except:

Accepted Answer

The statement of cash flows is primarily used to assess an entity's cash inflows and outflows for a period, including the reasons for any differences between income and associated cash receipts and payments. It helps in evaluating the entity's ability to generate future net cash flows, understanding the impact of investing and financing decisions on cash balances, and assessing the adequacy of cash to meet the entity's obligations. However, it is not designed to assess management's success in limiting income taxes paid to the federal government.

Question 12

The proceeds from the issuance of common stock would be reported in the following section of the statement of cash flows:

Accepted Answer

The proceeds from issuing common stock represent a source of financing for the company, and therefore would be reported in the financing activities section of the statement of cash flows.

Question 13

Cash paid for interest on a note payable would be found in the ______ section of the cash flow statement.

Accepted Answer

Cash paid for interest on a note payable is classified in the operating section of the cash flow statement. This is because it relates to the cost of borrowing money, which is considered an operating activity.

Question 14

The purchase of machinery by signing a long-term note payable would be reported in the following section of the statement of cash flows:

Accepted Answer

The purchase of machinery by signing a long-term note payable is a noncash transaction that affects both investing (purchase of machinery) and financing (issuance of a note payable) activities. Therefore, it is reported in the noncash investing and financing activities section of the statement of cash flows.

Question 15

Cash flows resulting from a company's normal earnings process are reported on the statement of cash flows in the:

Accepted Answer

Cash flows from a company's normal earnings process, such as cash received from customers and payment to suppliers, are classified as operating activities and reported in the operating activities section of the statement of cash flows. Financing activities involve raising and repaying capital, while investing activities involve buying and selling long-term assets such as property, plant, and equipment. Noncash investing and financing activities involve transactions that do not involve actual cash flows, such as issuance of stock or bonds in exchange for assets.

Question 16

Cash payments for dividends would be reported in the following section of the statement of cash flows:

Accepted Answer

Cash payments for dividends are considered a financing activity, as the payment of dividends involves distributing earnings to shareholders, which is a way of returning capital to those who have invested in the company. Therefore, cash payments for dividends would be reported in the financing activities section of the statement of cash flows.

Question 17

The issuance of common stock in exchange for a patent would be reported in the following section of the statement of cash flows:

Accepted Answer

The answer of The issuance of common stock in exchange...

Question 18

When adjusting net income to cash using the indirect method describe how each of the following should adjust net income.Added (+),Subtracted (-)or No Adjustment (N
A).
_____ 1.Increases in Accounts Receivable
_____ 2.Gain on Sale of Equipment
_____ 3.Decrease in Accounts Payable
_____ 4.Depreciation Expense
_____ 5.Increase in Land account
_____ 6.Decrease in Inventory
_____ 7.Decrease in Dividend Payable
_____ 8.Increase in Prepaid Insurance
_____ 9.Decrease in Discount on Bonds Payable
.Decrease in Salaries Payable

Accepted Answer

The answer of When adjusting net income to cash using...

Question 19

Payment of cash for interest is considered which of the following in the statement of cash flows?

Accepted Answer

The answer of Payment of cash for interest is considered...

Question 20

Collections of cash from the sale of land would be reported in the following section of the statement of cash flows:

Accepted Answer

The answer of Collections of cash from the sale of...

Quiz 19: Company Performance: Cash Flows