Statement of Cash Flows Questions Answer Key Part 1

Statement of Cash Flows Key 1. The statement of cash flows is not one of the basic financial statements. FALSE 2. Cash, as the term is used for the statement of cash flows, could indicate either cash or cash equivalents. TRUE 3. The statement of cash flows is an optional financial statement. FALSE 4. The statement of cash flows shows the effects on cash of a company's operating, investing, and financing activities. TRUE 5. The statement of cash flows reports a firm's major sources of cash receipts and major uses of cash payments for a period. TRUE 6. Cash flows from operating activities, as part of the statement of cash flows, include cash transactions that enter into the determination of net income. TRUE 7. To arrive at cash flows from operations, it is necessary to convert the income statement from an accrual basis to the cash basis of accounting. TRUE 8. Cash flows from investing activities, as part of the statement of cash flows, include receipts from the sale of land. TRUE 9. Cash flows from financing activities, as part of the statement of cash flows, include payments for dividends. TRUE 10. Cash flows from investing activities, as part of the statement of cash flows, include payments for the purchase of treasury stock. FALSE 11. Cash flows from investing activities, as part of the statement of cash flows, include receipts from the issuance of bonds payable. FALSE 12. There are two alternatives to reporting cash flows from operating activities in the statement of cash flows: (1) the direct method and (2) the indirect method. TRUE 13. The direct method of preparing the operating activities section of the statement of cash flows reports major classes of gross cash receipts and gross cash payments. TRUE 14. Under the direct method of reporting cash flows from operations, the major source of cash is cash received from customers. TRUE 15. The main disadvantage of the direct method of reporting cash flows from operating activities is that the necessary data are often costly to accumulate. TRUE 16. A major disadvantage of the indirect method of reporting cash flows from operating activities is that the difference between the net amount of cash flows from operating activities and net income is emphasized. FALSE 17. Cash outflows from financing activities include the payment of cash dividends, the acquisition of treasury stock, and the repayment of amounts borrowed. TRUE 18. Cash flows from investing activities, as part of the statement of cash flows, include payments for the acquisition of fixed assets. TRUE 19. The acquisition of land in exchange for common stock is an example of noncash investing and financing activity. TRUE 20. If a business issued bonds payable in exchange for land, the transaction would be reported in a separate schedule on the statement of cash flows. TRUE 21. A cash flow per share amount should be reported on the statement of cash flows. FALSE 22. When using the worksheet 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. TRUE 23. Rarely would the cash flows from operating activities, as reported on the statement of cash flows, be the same as the net income reported on the income statement. TRUE 24. Using the indirect method, if land costing $85,000 was sold for $145,000, the amount reported in the financing activities section of the statement of cash flows would be $85,000. FALSE 25. If land costing $145,000 was sold for $205,000, the $60,000 gain on the sale would be added to net income in of the operating activities section of the statement of cash flows (prepared by the indirect method). FALSE 26. In preparing the cash flows from operating activities section of the statement of cash flows by the indirect method, the net decrease in inventories from the beginning to the end of the period is added to net income for the period. TRUE 27. In determining the cash flows from operating activities for the statement of cash flows by the indirect method, the depreciation expense for the period is added to the net income for the period. TRUE 28. In preparing the cash flows from operating activities section of the statement of cash flows by the indirect method, the amortization of bond discount for the period is deducted from the net income for the period. FALSE 29. If cash dividends of $135,000 were paid during the year and the company sold 1,000 shares of common stock at $30 per share, the statement of cash flows would report net cash flow from financing activities as $165,000. FALSE 30. The declaration and issuance of a stock dividend would be reported on the statement of cash flows. FALSE 31. If 800 shares of $40 par common stock are sold for $43,000, the $43,000 would be reported in the cash flows from financing activities section of the statement of cash flows. TRUE 32. If $475,000 of bonds payable are sold at 101, $475,000 would be reported in the cash flows from financing activities section of the statement of cash flows. FALSE 33. Net income was $51,000 for the year. The accumulated depreciation balance increased by $14,000 over the year. There were no sales of fixed assets or changes in noncash current assets or liabilities. Under the indirect method, the cash flow from operations is $37,000. FALSE 34. Net income for the year was $29,500. Accounts receivable increased $2,500, and accounts payable increased $5,400. Under the indirect method, the cash flow from operations is $32,400. TRUE 35. A building with a cost of $153,000 and accumulated depreciation of $42,000 was sold for a $11,000 gain. When using the indirect method, the cash generated from this investing activity was $121,000. FALSE 36. Under the indirect method, expenses that do not affect cash are added to net income in the operating activities section of the statement of cash flows. TRUE 37. Cash paid to acquire treasury stock should be shown on the statement of cash flows from investing activities. FALSE 38. Repayments of bonds would be shown as a cash outflow in the investing section of the statement of cash flows. FALSE 39. Purchasing equipment by issuing a six-month note should be shown on the statement of cash flows under the investing activities section. FALSE 40. In preparing the statement of cash flows, the correct order of reporting cash activities is Financing, Operating, Investing. FALSE 41. Cash inflows and outflows are not netted in the investing or financing sections of the statement of cash flows but are separately disclosed to give the reader full information. TRUE 42. There is no difference in the Investing and Financing sections of the statement of cash flows using the indirect and direct method. TRUE 43. 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. TRUE 44. The manner of reporting cash flows from investing and financing activities will be different under the direct method as compared to the indirect method. FALSE 45. 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. FALSE 46. To determine cash payments for merchandise for the cash flow statement using the direct method, a decrease in accounts payable is added to the cost of merchandise sold. TRUE 47. To determine cash payments for operating expenses for the cash flow statement using the direct method, a decrease in prepaid expenses is added to operating expenses other than depreciation. FALSE 48. To determine cash payments for operating expenses for the cash flow statement using the direct method, a decrease in accrued expenses is added to operating expenses other than depreciation. TRUE 49. To determine cash payments for income tax for the cash flow statement using the direct method, an increase in income taxes payable is added to the income tax expense. FALSE 50. Free cash flow is cash flow from operations, less cash used to purchase fixed assets to maintain productive capacity and cash used for dividends. TRUE 51. Free cash flow is the measure of operating cash flow available for corporate purposes after providing sufficient fixed asset additions to maintain current productive capacity and dividends. TRUE 52. 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 53. Which of the following concepts of cash is not appropriate to use in preparing the statement of cash flows? A. cash B. cash and money market funds C. cash and cash equivalents D. cash and U.S. treasury bonds 54. 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 55. On the statement of cash flows, the cash flows from operating activities section would include A. receipts from the issuance of capital stock B. receipts from the sale of investments C. payments for the acquisition of investments D. cash receipts from sales activities 56. 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 57. 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 58. 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 capital stock C. purchase of treasury stock D. capital stock issued to acquire fixed assets 59. 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 60. 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 61. 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 62. 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 63. The last item on the statement of cash flows prior to the schedule of noncash investing and financing activities reports A. the increase or decrease in cash B. cash at the end of the year C. net cash flow from investing activities D. net cash flow from financing activities 64. Which of the following is a noncash investing and financing activity? A. payment of a cash dividend B. payment of a six-month note payable C. purchase of merchandise inventory on account D. issuance of common stock to acquire land 65. Which of the following should be shown on a statement of cash flows under the financing activity section? A. the purchase of a long-term investment in the common stock of another company B. the payment of cash to retire a long-term note C. the proceeds from the sale of a building D. the issuance of a long-term note to acquire land 66. A company purchases equipment for $32,000 cash. This transaction 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 67. Cash flow per share is A. required to be reported on the balance sheet B. required to be reported on the income statement C. required to be reported on the statement of cash flows D. not required to be reported on any statement 68. On the statement of cash flows prepared by the indirect method, the cash flows from operating activities section would include A. receipts from the sale of investments B. amortization of premium on bonds payable C. payments for cash dividends D. receipts from the issuance of capital stock 69. The statement of cash flows is not useful for: A. planning future investing and financing activities B. determining a company’s ability to pay its debts C. determining a company’s ability to pay dividends D. calculating the net worth of a company 70. Cash receipts received from the issuance of a mortgage notes payable would be classified as A. investing activities. B. operating activities. C. either financing or investing activities. D. financing activities. 71. The order of presentation of activities on the statement of cash flows is A. operating, investing, and financing. B. operating, financing, and investing. C. financing, operating, and investing. D. financing, investing, and operating. 72. Financing activities include A. lending money. B. acquiring investments. C. issuing debt. D. acquiring long-lived assets. 73. Investing activities include A. collecting cash on loans made. B. obtaining cash from customers. C. obtaining capital from owners. D. repaying money previously borrowed.