Question 1

Which of the following would not be found in a schedule of noncash investing and financing activities, reported at the end of a statement of cash flows?
A) equipment acquired in exchange for a note payable
B) bonds payable exchanged for common stock
C) purchase of treasury stock
D) common stock issued to acquire fixed assets

Accepted Answer

The purchase of treasury stock is not considered an noncash investing and financing activity as it involves the use of cash to buy back previously issued common stock. The other options involve exchanges or issuances of notes payable, bonds payable, and common stock.

Question 2

On the statement of cash flows, the cash flows from operating activities section would include
A) receipts from the issuance of common stock
B) receipts from the sale of investments
C) payments for the acquisition of investments
D) cash receipts from sales of merchandise

Accepted Answer

The cash flows from operating activities section of the statement of cash flows includes cash receipts and payments related to the company's primary operations, such as sales of merchandise. Receipts from the issuance of common stock and receipts from the sale of investments would be classified as cash flows from financing activities, while payments for the acquisition of investments would be classified as cash flows from investing activities.

Question 3

Cash paid for preferred stock dividends should be shown on the statement of cash flows under
A) investing activities
B) financing activities
C) noncash investing and financing activities
D) operating activities

Accepted Answer

Preferred stock dividends are a financing activity because they involve payments to shareholders in exchange for the use of their investment in the company's stock. Therefore, cash paid for preferred stock dividends should be shown on the statement of cash flows under financing activities.

Question 4

A ten-year bond was issued at par for $250,000 cash. This transaction should be shown on a statement of cash flows under
A) investing activities
B) financing activities
C) noncash investing and financing activities
D) operating activities

Accepted Answer

Issuing a bond is a financing activity since it involves obtaining financing from creditors. The cash received from the bond issuance would be reported as a cash inflow under financing activities in the statement of cash flows.

Question 5

Preferred stock issued in exchange for land would be reported in the statement of cash flows in
A) the cash flows from financing activities section
B) the cash flows from investing activities section
C) a separate schedule
D) the cash flows from operating activities section

Accepted Answer

Exchanging preferred stock for land is a non-cash transaction and would not appear in the main sections of the cash flow statement. Instead, it is disclosed in a separate schedule or note to the financial statements.

Question 6

Which of the following is not one of the four basic financial statements?
A) balance sheet
B) statement of cash flows
C) statement of changes in financial position
D) income statement

Accepted Answer

The statement of changes in financial position is not one of the four basic financial statements. The basic financial statements are the balance sheet, income statement, statement of cash flows, and statement of retained earnings (or statement of shareholders' equity).

Question 7

To determine cash payments for income taxes for the statement of cash flows using the direct method, an increase in income taxes payable is added to the income tax expense.

Accepted Answer

To determine cash payments for income taxes for the statement of cash flows using the direct method, an increase in income taxes payable would be subtracted from the income tax expense, not added, to reflect the portion of the expense not yet paid in cash.

Question 8

When using the spreadsheet (work sheet) method to analyzing noncash accounts, no order of analysis is required, but it is more efficient to start with Retained Earnings and proceed upward in the account listing.

Accepted Answer

Starting with Retained Earnings allows for the calculation of any adjustments to prior periods' Retained Earnings, which can then be used in analyzing other noncash accounts. This approach can save time and ensure accuracy in the analysis.

Question 9

Which of the following can be found on the statement of cash flows?
A) cash flows from operating activities
B) total assets
C) total changes in stockholders' equity
D) changes in retained earnings

Accepted Answer

The statement of cash flows includes cash flows from operating activities, detailing how much cash is generated from the company's regular business operations. Choices B, C, and D refer to items typically found on the balance sheet and the statement of retained earnings, not the statement of cash flows.

Question 10

To determine cash payments for operating expenses for the statement of cash flows using the direct method, a decrease in accrued expenses is added to operating expenses other than depreciation.

Accepted Answer

Accrued expenses represent expenses that have been incurred but not yet paid. An increase in accrued expenses is added to operating expenses other than depreciation to determine cash payments for operating expenses using the direct method, whereas a decrease in accrued expenses is subtracted. Therefore, adding a decrease in accrued expenses to operating expenses would be the correct approach to determine cash payments for operating expenses.

Question 11

Which of the following represents an inflow of cash and therefore would be reported on the statement of cash flows?
A) retirement of bond payable
B) acquisition of treasury stock
C) declaration of stock dividends
D) issuance of long-term debt

Accepted Answer

The issuance of long-term debt represents an inflow of cash because the company is receiving cash from the sale of the debt. A retirement of bond payable represents an outflow of cash, the acquisition of treasury stock is a financing activity that doesn't affect cash flow, and the declaration of stock dividends is a distribution of a company's earnings to shareholders and doesn't represent an inflow of cash.

Question 12

There is no difference in the investing and financing sections of the statement of cash flows using the indirect and direct method.

Accepted Answer

The indirect and direct methods differ only in the presentation of the cash flows from operating activities; the investing and financing sections are presented in the same way under both methods.

Question 13

To determine cash payments for merchandise for the statement of cash flows using the direct method, a decrease in accounts payable is added to the cost of goods sold. Assume all accounts payable are owed to merchandise suppliers.

Accepted Answer

A decrease in accounts payable indicates that cash payments were made to reduce the liability, so it is added to the cost of goods sold to reflect the actual cash paid for merchandise.

Question 14

The manner of reporting cash flows from investing and financing activities will be different under the direct method as compared to the indirect method.

Accepted Answer

The direct and indirect methods differ only in the reporting of cash flows from operating activities; the reporting of cash flows from investing and financing activities is the same under both methods.

Question 15

Under the direct method of preparing a statement of cash flows, the gain on the sale of land is not adjusted or reported as part of cash flows from operating activities.

Accepted Answer

Under the direct method, cash inflows and outflows from operating activities are reported based on actual cash transactions, and gains on the sale of assets (such as land) are typically reported as part of cash flows from investing activities.

Question 16

To determine cash payments for operating expenses for the statement of cash flows using the direct method, a decrease in prepaid expenses is added to operating expenses other than depreciation.

Accepted Answer

To determine cash payments for operating expenses using the direct method, an increase in prepaid expenses is added to operating expenses other than depreciation, not a decrease.

Question 17

Which of the following does not represent an outflow of cash and therefore would not be reported on the statement of cash flows as a use of cash?
A) purchase of noncurrent assets
B) purchase of treasury stock
C) discarding an asset that had been fully depreciated
D) payment of cash dividends

Accepted Answer

Discarding an asset that had been fully depreciated does not involve any outflow of cash, and therefore would not be reported on the statement of cash flows as a use of cash. The other choices (purchase of noncurrent assets, purchase of treasury stock, payment of cash dividends) all involve a cash outflow and would be reported as uses of cash on the statement of cash flows.

Question 18

Sales reported on the income statement were $372,000. The accounts receivable balance declined $4,500 over the year. The amount of cash received from customers was $367,500.

Accepted Answer

Cash received from customers = Sales + Decrease in accounts receivable = $372,000 + $4,500 = $376,500

Question 19

Cash paid to purchase long-term investments would be reported in the statement of cash flows in
A) the cash flows from operating activities section
B) the cash flows from financing activities section
C) the cash flows from investing activities section
D) a separate schedule

Accepted Answer

Cash paid to purchase long-term investments is considered an investing activity and would be reported in the cash flows from investing activities section of the statement of cash flows.

Question 20

Free cash flow is the measure of operating cash flow available for corporate purposes after providing sufficient fixed asset additions to maintain current operations.

Accepted Answer

Free cash flow is calculated by subtracting capital expenditures from operating cash flow, leaving the amount available for other purposes such as debt repayment, dividends, share buybacks, and new projects. This calculation ensures that enough money is set aside for maintaining and expanding the company's existing assets while also providing flexibility for other uses of cash.

Quiz 13: Statement of Cash Flows

Which of the following would not be found in a schedule of noncash investing and financing activities, reported at the end of a statement of cash flows?

On the statement of cash flows, the cash flows from operating activities section would include

Cash paid for preferred stock dividends should be shown on the statement of cash flows under

A ten-year bond was issued at par for $250,000 cash. This transaction should be shown on a statement of cash flows under

Preferred stock issued in exchange for land would be reported in the statement of cash flows in

Which of the following is not one of the four basic financial statements?