Question 1

Which of the three types of activities reported on the statement of cash flows is the MOST critical for evaluating a company's viability?
A)Financing activities
B)Investing activities
C)Operating activities
D)All of the sections are equally important.

Accepted Answer

Operating activities provide insight into a company's ability to generate cash from its core operations and sustain its daily operations. It reflects the company's ability to convert its sales into cash, manage its working capital, and cover its operating expenses. In contrast, investing activities and financing activities are important, but they focus on the use and sources of cash, respectively. These activities are not as critical for evaluating a company's short-term viability as operating activities.

Question 2

Cash received from the issuance of bonds would be reported on a statement of cash flows under:
A)the operating activities.
B)the financing activities.
C)the investing activities.
D)none of these categories, because issuing bonds for cash would not be reported on a statement of cash flows.

Accepted Answer

Cash received from the issuance of bonds is a financing activity and would be reported under the financing section of the statement of cash flows.

Question 3

The three types of activities reported on the statement of cash flows are:
A)operating, long-term investments and financing.
B)operating, investments and financing.
C)operating, investing and financing
D)operating, investing and equity.

Accepted Answer

The three types of activities reported on the statement of cash flows are operating, investing, and financing. Choice C correctly identifies these three types of activities. Choice A includes long-term investments, which is a subcategory of investing activities. Choice B includes investments, which is too broad and does not specify whether it refers to short-term or long-term investments. Choice D includes equity, which is not a type of activity reported on the statement of cash flows.

Question 4

Increases and decreases in the long-term assets available to a company are reported on the statement of cash flows as:
A)investing activities.
B)financing activities.
C)operating activities.
D)both operating and investing activities.

Accepted Answer

Increases and decreases in long-term assets are reported as investing activities on the statement of cash flows.

Question 5

The financial statement that reports cash receipts and cash payments classified according to the company's major activities of operating, investing, and financing is the:
A)balance sheet.
B)statement of cash flows.
C)statement of operating activities.
D)income statement.

Accepted Answer

The statement of cash flows reports cash inflows and outflows categorized into operating, investing, and financing activities. The balance sheet reports the company's assets, liabilities, and equity at a specific point in time, the income statement reports revenues and expenses over a period of time, and there is no statement of operating activities.

Question 6

A statement of cash flows:
A)is typically prepared at the request of major creditors.
B)may be combined with the balance sheet.
C)may be combined with the income statement at the option of management.
D)is a basic financial statement required for publicly-held companies.

Accepted Answer

A statement of cash flows is a basic financial statement required for publicly-held companies as it provides essential information about a company's cash inflows and outflows.

Question 7

Which of the following is considered to be a cash equivalent?
A)Accounts receivable
B)Notes receivable
C)Investments in short-term U.S. Government securities
D)Trading securities

Accepted Answer

Cash equivalents are highly liquid investments that can be readily converted to cash with minimal risk of loss. Investments in short-term U.S. Government securities like Treasury bills, commercial paper, and money market funds are considered to be cash equivalents because they have a maturity of three months or less and are highly marketable. Accounts receivable and notes receivable are not cash equivalents because they represent amounts owed to a company by its customers, and trading securities refer to investments in stocks or bonds with the intention of selling them for a profit, which involves higher risk and volatility.

Question 8

Changes in the current asset and current liability accounts are reported on the statement of cash flows, using the indirect method, as:
A)operating activities.
B)financing activities.
C)investing activities.
D)a mix of all of these.

Accepted Answer

Changes in current asset and current liability accounts are typically included in the operating activities section of the statement of cash flows, using the indirect method. This section reports cash inflows and outflows related to the company's primary operations, including the impact of changes in working capital accounts like accounts receivable, inventory, and accounts payable. Financing activities relate to changes in long-term liabilities and equity, while investing activities relate to changes in long-term assets like property, plant, and equipment.

Question 9

Creditors analyze the statement of cash flows to determine:
A)whether or not the company can pay interest on debt.
B)total interest earned during the period.
C)the quality of the company's earnings.
D)all of the above.

Accepted Answer

Creditors analyze the statement of cash flows to determine if the company can pay interest on debt.

Question 10

There are three ways to format operating activities on the statement of cash flows.

Accepted Answer

There are only two methods to format operating activities on the statement of cash flows: the direct method and the indirect method.

Question 11

Collections on a loan are reported as financing activities on the statement of cash flows.

Accepted Answer

Collections on a loan are reported as operating activities on the statement of cash flows, as they relate to the core business operations of lending and collecting money.

Question 12

Cash received from customers would be reported on the statement of cash flows:
A)under operating activities.
B)under investing activities.
C)under financing activities.
D)in the schedule of noncash investing and financing activities.

Accepted Answer

Cash received from customers is a result of the primary business activity of the company and is reported as part of operating activities on the statement of cash flows.

Question 13

Highly liquid short-term investments that are easily convertible into cash are called:
A)cash reserves.
B)accounts receivable.
C)trading securities.
D)cash equivalents.

Accepted Answer

Highly liquid short-term investments that are easily convertible into cash are called cash equivalents. Examples include Treasury bills, commercial paper, and money market funds.

Question 14

The statement of cash flows is designed to fulfill all of the following purposes EXCEPT to:
A)assess the collectability of accounts receivable.
B)show the relationship of net income to changes in the company's cash.
C)help predict future cash flows.
D)evaluate management decisions.

Accepted Answer

While the statement of cash flows can provide information on the changes in accounts receivable, its primary purpose is to provide information on the company's cash inflows and outflows. The other purposes listed, including showing the relationship between net income and cash, predicting future cash flows, and evaluating management decisions, are all core functions of the statement of cash flows.

Question 15

A statement of cash flows:
A)reports where the cash came from (receipts)and how it was spent (payments).
B)covers a span of time.
C)is a basic financial statement required for publicly-held companies.
D)is all of the above.

Accepted Answer

A statement of cash flows reports both the sources and uses of cash over a period of time, making it a basic financial statement required for publicly-held companies.

Question 16

A statement of cash flows:
A)predicts future cash flows.
B)determines the ability of the company to pay dividends and interest.
C)evaluates management decisions.
D)is all of the above.

Accepted Answer

A statement of cash flows provides information that can help predict future cash flows, assess the company's ability to pay dividends and interest, and evaluate management decisions.

Question 17

The category of cash flows that creates revenues, expenses, gains, and losses is:
A)financing activities.
B)investing activities.
C)operating activities.
D)all of the above.

Accepted Answer

Operating activities involves cash inflows and outflows related to the main business operations of the company, including revenue and expenses from sales and purchases of inventory, payment to employees, payment of taxes, payment to suppliers etc. This category includes all transactions that are not related to investing or financing activities. Therefore, revenues, expenses, gains, and losses fall under operating activities. Financing activities are related to cash inflows and outflows from sources such as borrowing or repaying loans, issuing or buying back stock, or paying dividends. Investing activities are related to cash inflows and outflows from acquiring or disposing of long-term assets such as property, plant, and equipment, or investments in securities other than cash equivalents.

Question 18

In order to be successful, a company needs:
A)net income.
B)strong cash flow.
C)strong investing activities.
D)both net income and a strong cash flow.

Accepted Answer

A company needs both net income and a strong cash flow to be successful. Net income is the profit a company earns after deducting all of its expenses from its revenues, while strong cash flow ensures that the company has enough cash to cover its operating expenses, pay off debts, and reinvest in the business. Strong investing activities are also important, but they are not as essential as net income and cash flow.

Question 19

Which of the following statements about the balance sheet is FALSE?
A)The balance sheet reports financial position.
B)The balance sheets from two periods show whether cash increased or decreased.
C)The balance sheet explains why cash increased or decreased from the prior period.
D)The balance sheet is a basic financial statement required for publicly-held companies.

Accepted Answer

The balance sheet reports financial position and provides information on a company's assets, liabilities, and equity. It can show whether cash increased or decreased from the prior period, but it does not explain why. Rather, changes in cash are typically explained in the cash flow statement. Additionally, while the balance sheet is a required financial statement for publicly-held companies, it is also used by privately-held companies and organizations.

Question 20

Increases and decreases in the long-term liability accounts are reported on the statement of cash flows as:
A)investing activities.
B)operating activities.
C)financing activities.
D)both operating and investing activities.

Accepted Answer

Increases and decreases in long-term liability accounts are considered financing activities, as they relate to the long-term financing of the company and its operations. Financing activities are reported in the financing section of the statement of cash flows.

Quiz 12: The Statement of Cash Flows

Which of the three types of activities reported on the statement of cash flows is the MOST critical for evaluating a company's viability?

Cash received from the issuance of bonds would be reported on a statement of cash flows under:

The three types of activities reported on the statement of cash flows are:

Increases and decreases in the long-term assets available to a company are reported on the statement of cash flows as:

The financial statement that reports cash receipts and cash payments classified according to the company's major activities of operating, investing, and financing is the:

A statement of cash flows:

Which of the following is considered to be a cash equivalent?

Changes in the current asset and current liability accounts are reported on the statement of cash flows, using the indirect method, as:

Creditors analyze the statement of cash flows to determine:

There are three ways to format operating activities on the statement of cash flows.

Collections on a loan are reported as financing activities on the statement of cash flows.

Cash received from customers would be reported on the statement of cash flows:

Highly liquid short-term investments that are easily convertible into cash are called:

The statement of cash flows is designed to fulfill all of the following purposes EXCEPT to:

A statement of cash flows:

A statement of cash flows:

The category of cash flows that creates revenues, expenses, gains, and losses is:

In order to be successful, a company needs:

Which of the following statements about the balance sheet is FALSE?

Increases and decreases in the long-term liability accounts are reported on the statement of cash flows as: