Question 1

Cash means more than just cash on hand and cash in the bank.Highly liquid,short-term investments that are easily convertible into cash are called:
A) common shares
B) cash equivalents
C) promissory notes
D) accounts receivable

Accepted Answer

Cash equivalents are highly liquid, short-term investments that can be easily converted into cash within 90 days, such as treasury bills, commercial paper, and money market funds. Common shares and promissory notes are not necessarily easily convertible into cash, while accounts receivable are not considered investments.

Question 2

The statement of cash flows is designed to fulfill all of the following purposes except:
A) to determine the company's ability to pay dividends to shareholders
B) to assess the collectibility of accounts receivable
C) to predict future cash flows
D) to show the relationship of net income to changes in the company's cash

Accepted Answer

The statement of cash flows is designed to determine the sources and uses of cash during a given period. It provides information on the company's ability to generate cash from operating activities and the extent to which it uses that cash. It also helps to explain changes in the cash balance over the period. While it may indirectly reveal information about the collectibility of receivables, it is not its primary purpose.

Question 3

The issuance of common shares in exchange for land and equipment will:
A) affect the financing activities section of a cash flow statement
B) affect the operating activities section of a cash flow statement
C) not affect a cash flow statement
D) affect the investing activities section of a cash flow statement

Accepted Answer

Issuing common shares in exchange for land and equipment is a non-cash transaction and does not directly affect the cash flow statement.

Question 4

Your best friend just lost his job because the company he was working for went bankrupt.He was complaining to you that even though the company had been profitable for three years in a row,it still went out of business.He asks you how this can happen.
Explain the most likely reason for the company declaring bankruptcy.Could your best friend have seen it coming? How?

Accepted Answer

The answer of Your best friend just lost his job...

Question 5

Sometimes income and cash flow follow different patterns.

Accepted Answer

Income refers to the amount of money earned in a given period, while cash flow refers to the movement of money in and out of a business or household. In some cases, income may be earned evenly throughout the year, while cash flow may fluctuate due to irregular expenses, such as large purchases or unexpected bills.

Question 6

A statement of cash flows:
A) is prepared at the option of management
B) may be combined with the balance sheet
C) is a basic financial statement required for publicly held companies
D) may be combined with the statement of retained earnings at the option of management

Accepted Answer

A statement of cash flows is a basic financial statement required for publicly held companies. Option A is incorrect because it is a required statement, not optional. Option B is incorrect because the statement of cash flows cannot be combined with the balance sheet. Option D is incorrect because the statement of retained earnings is a separate statement and cannot be combined with the statement of cash flows.

Question 7

The most important section of a statement of cash flows is the:
A) operating activities
B) investing activities
C) financing activities
D) all of the sections are equally important

Accepted Answer

The operating activities section is the most important section of a statement of cash flows as it provides information about the cash generated or used in the company's core business operations. This section helps investors and creditors understand the company's ability to generate cash from its ongoing operations and assess its liquidity and financial health. Additionally, this section also provides insights into how the company manages its working capital, such as accounts receivable, accounts payable, and inventory, which are key components of the company's financial management.

Question 8

What primary factor should a creditor consider when evaluating whether a corporation can pay the interest and principal on a loan at maturity?

Accepted Answer

The answer of What primary factor should a creditor consider...

Question 9

All of the following are cash equivalents except:
A) money market investments
B) commercial paper
C) notes receivable
D) investments in Canadian Government Treasury bills

Accepted Answer

Notes receivable are not considered cash equivalents as they are a form of trade or financing receivables, and their conversion into cash may involve significant time and effort. The other three options are all considered cash equivalents as they are highly liquid and can be easily converted into cash. Money market investments, commercial paper, and Treasury bills are short-term investments that provide a secure, low-risk option for companies to hold cash that is not immediately needed.

Question 10

The statement of cash flows is a supplement to the balance sheet in a company's annual report.

Accepted Answer

The statement of cash flows is a primary financial statement, not a supplement, that shows the company's cash inflows and outflows over a period of time, separate from the balance sheet and income statement.

Question 11

The statement of cash flows is divided into three major sections.

Accepted Answer

The three major sections of the statement of cash flows are operating activities, investing activities, and financing activities.

Question 12

Why is the statement of cash flows necessary?

Accepted Answer

The answer of Why is the statement of cash flows...

Question 13

The statement of cash flows reports the investments the company is making in non-current assets.

Accepted Answer

The answer of The statement of cash flows reports the...

Question 14

Why is the statement of cash flows of interest to investors,creditors,and management?

Accepted Answer

The answer of Why is the statement of cash flows...

Question 15

Proceeds from the issuance of shares appear in which,if any,section of the cash flow statement?
A) operating activities section
B) investing activities section
C) financing activities section
D) Proceeds from the issuance of shares do not appear in the cash flow statement.

Accepted Answer

Proceeds from the issuance of shares are considered as financing activities and therefore appear in the financing activities section of the cash flow statement.

Question 16

Stock dividends distributed appear in which,if any,section of the cash flow statement?
A) financing and investing activities section
B) operating and investing activities section
C) operating activities section only
D) The distribution of a stock dividend does not appear anywhere in the cash flow statement.

Accepted Answer

The distribution of stock dividends does not affect the cash balance of a company as it involves the transfer of stocks from retained earnings to the shareholders' equity account. Therefore, it does not appear in any section of the cash flow statement, which only reports on transactions that involve actual cash flows.

Question 17

Cash equivalents are highly liquid short-term investments that can be converted into cash quickly.

Accepted Answer

Cash equivalents are investments that are readily convertible into cash and have a short maturity period of less than three months. Examples include money market funds, cash deposits, and treasury bills. They are considered highly liquid and low-risk investments.

Question 18

Cash equivalents would include money market accounts,Canadian Treasury bills,and notes receivable.

Accepted Answer

Cash equivalents include highly liquid investments that are typically convertible to known amounts of cash and have original maturities of three months or less, such as money market accounts and Canadian Treasury bills. Notes receivable, however, are not considered cash equivalents because they do not have the same liquidity and can have longer maturities.

Question 19

Investments in Canadian Government Treasury bills are classified as cash equivalents.

Accepted Answer

Canadian Government Treasury bills are considered highly liquid investments that mature within one year or less, and can be easily converted into cash. As such, they meet the definition of cash equivalents as per International Accounting Standards.

Question 20

Which of the following activities increase and decrease the non-current assets available to a company?
A) operating activities
B) investing activities
C) financing activities
D) warehousing activities

Accepted Answer

Investing activities can increase and decrease non-current assets through activities such as purchasing and selling long-term investments, property, plant and equipment, and intangible assets. Operating activities primarily affect current assets and liabilities, while financing activities primarily affect long-term liabilities and equity. Warehousing activities do not necessarily directly impact non-current assets.

Quiz 10: The Statement of Cash Flows

Cash means more than just cash on hand and cash in the bank.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:

The issuance of common shares in exchange for land and equipment will:

Sometimes income and cash flow follow different patterns.

A statement of cash flows:

The most important section of a statement of cash flows is the:

What primary factor should a creditor consider when evaluating whether a corporation can pay the interest and principal on a loan at maturity?

All of the following are cash equivalents except: