Question 1

The purchase of another company's stock is an example of an investing activity.

Accepted Answer

The purchase of a company's stock is considered an investing activity as it involves investing money in the hope of generating future returns in the form of dividends or capital gains.

Question 2

All of the following would be included in a company's financing activities except
A)receipt of dividends.
B)payment of dividends.
C)issuing stock.
D)purchase of treasury stock.
E)issuing bonds.

Accepted Answer

Receipt of dividends is a cash inflow from investing activities, not financing activities.

Question 3

Cash flows from operating activities include the receipt of interest income.

Accepted Answer

Cash flows from operating activities include any cash inflows or outflows that are directly related to a company's primary operations, which can include the receipt of interest income.

Question 4

Cash dividends paid to stockholders are an operating activity on the statement of cash flows.

Accepted Answer

Cash dividends paid to stockholders are classified as a financing activity on the statement of cash flows, not an operating activity.

Question 5

Cleft Company had the following account balances on its balance sheet at December 31,2012 and 2011,respectively:
$$\text { Long-term Bonds Payeble } \quad \frac { 12 / 31 / 12 } { \$ 39,000 } \quad \frac { 12 / 31 / 11 } { \$ 36,000 }$$ Assume no bonds were retired during 2012.What was the positive cash flow associated with the long-term debt for Cleft Company in 2012?
A)$10,000
B)$3,000
C)$13,000
D)$4,000
E)$7,000

Accepted Answer

The positive cash flow associated with the long-term debt for Cleft Company in 2012 would be the difference between the amount of long-term bonds payable in 2012 and 2011. Therefore, the positive cash flow would be $39,000 - $36,000 = $3,000. Option B is the correct choice.

Question 6

Issuing equity securities is an operating activity on the statement of cash flows.

Accepted Answer

Issuing equity securities is considered a financing activity on the statement of cash flows, not an operating activity.

Question 7

Which of the following would appear in the financing activities section of a statement of cash flows?
A)Cash payments to employees
B)Cash payment of dividends
C)Cash purchase of equipment
D)Cash paid for income taxes
E)Cash purchase of land

Accepted Answer

Cash payment of dividends would appear in the financing activities section of a statement of cash flows, as it represents a distribution of profits to shareholders. Choices A, C, D, and E would appear in the operating or investing activities sections.

Question 8

Cash flows from financing activities include borrowing cash through a lender.

Accepted Answer

Cash flows from financing activities include borrowing cash from lenders as well as repaying loans, issuing and buying back stock, and paying dividends to shareholders.

Question 9

Companies with divisions outside the United States
A)prepare their Statement of Cash Flows with consolidated equipment purchases,but retain individual financial statements otherwise.
B)confirm account balances on their Statement of Cash Flows using the throughput method.
C)show the effect of exchange rate differences on their Statement of Cash Flows.
D)indicate variances on material purchases on a separate coinciding schedule.
E)label their Statement of Cash Flows by preceding the label with the term "International Operations."

Accepted Answer

Companies with divisions outside the United States need to consider the effect of currency exchange rate fluctuations when preparing their Statement of Cash Flows. These adjustments should be shown in the statement to give a clear picture of the company's operating cash flows. Therefore, option C is the best choice. Options A, B, D, and E are not relevant or necessary when preparing the Statement of Cash Flows for a company with divisions outside the United States.

Question 10

Cash received from customers is a financing activity on the statement of cash flows.

Accepted Answer

Cash received from customers is an operating activity on the statement of cash flows, as it is part of the company's normal business operations. Financing activities typically involve obtaining or repaying loans, issuing or buying back stock, or paying dividends to shareholders.

Question 11

Investing activities involve obtaining resources as a borrower and repaying creditors.

Accepted Answer

Investing activities refer to the acquisition and disposal of long-term assets or investments, such as property, plant, and equipment, and investments in other companies. Obtaining resources as a borrower and repaying creditors fall under financing activities.

Question 12

Cash flows from financing activities include the payment of interest on a note payable.

Accepted Answer

Cash flows from financing activities include transactions involving raising capital (e.g., issuing stock, borrowing) and returning capital (e.g., repaying debt, paying dividends), but interest payments are classified under operating activities according to most accounting standards like IFRS and GAAP.

Question 13

A transaction in which long-term debt of $50,000 is converted to common stock would be reported in the financing section of the cash flow statement.

Accepted Answer

This transaction involves a non-cash financing activity and would not be reported in the cash flow statement but disclosed in the notes to the financial statements.

Question 14

The issuance of long-term debt results in a cash outflow as reported in the financing section.

Accepted Answer

The issuance of long-term debt results in a cash inflow, as it means the company is borrowing money, which increases its cash reserves.

Question 15

Dividends received from a subsidiary would be classified as an investing activity on a statement of cash flows.

Accepted Answer

Dividends received from a subsidiary are typically classified as operating activities on a statement of cash flows because they are considered returns on investments in the operations of the subsidiary.

Question 16

All of the following would be included in a company's investing activities except
A)purchase of land.
B)payment of dividends.
C)collection of loan repayments.
D)purchase of equipment.
E)purchase of another company's stock.

Accepted Answer

Investing activities involve the purchase, sale, or acquisition of long-term assets such as land, equipment, or other companies' stock. Payment of dividends falls under financing activities, as it involves distributing profits to shareholders. Collection of loan repayments would fall under operating activities, as it is related to the company's core business operations.

Question 17

Operating activities on a statement of cash flows relate to acquiring assets such as buildings and equipment.

Accepted Answer

Operating activities on a statement of cash flows relate to the day-to-day operations of the business, such as revenue generation, payment of expenses, and collection of accounts receivable. Acquiring assets such as buildings and equipment would be classified as investing activities.

Question 18

The receipt of loan repayments is an investing activity on the statement of cash flows.

Accepted Answer

Loan repayments are considered a return on investment, and therefore fall under the category of investing activities on the statement of cash flows.

Question 19

Designate how each transaction would be reported on the statement of cash flows using OP for operating activities,IN for investing activities,FI for financing activities,I for an inflow of cash and O for an outflow of cash.If the transaction is included only in a supplemental schedule,denote this as SS.
 $\begin{array}{lccc}
&\text { Section } & \text { Inflow or Outflow }  \
\text { Outflow } &    \
\text { 1. Paid cash dividends} &  ---------&---------  \
\text { 2. Purchased 6 months of insurance in advance} &  ---------&---------  \
\text { 3. Sold inventory for cash} &  ---------&---------  \
\text { 4. Purchased equipment signing a two-year note} &  ---------&---------  \
\text { 5. Collected accounts receivable balance from a customer} &  ---------&---------  \
\text { 6. Sold shares of another company's stock held for speculative purposes} &  ---------&---------  \
\text { 7. Reclassified a note from long term to short term} &  ---------&---------  \
\text { 8. Issued bonds at a premium }&  ---------&---------  \
\end{array}$

Accepted Answer

The answer of Designate how each transaction would be reported...

Question 20

All of the following would be included in a company's financing activities except
A)issuing equity securities.
B)purchasing treasury stock.
C)repayment of amounts borrowed.
D)borrowing cash from a bank.
E)interest payments.

Accepted Answer

Interest payments are considered a part of a company's operating activities, not financing activities. Financing activities involve obtaining and repaying funds to support the business's operations, whereas operating activities are related to the actual operations of the business.

Quiz 5: Statement of Cash Flows