978-0134125053 Chapter 11 Part 1

Unlock access to all the studying documents.

View Full Document

Financial Accounting, 4e (Kemp)

Chapter 11 The Statement of Cash Flows

11.1 Identify the purposes and importance of the statement of cash flows

1) The cash flow statement and Balance Sheet use accrual accounting.

Question Type: Concept

2) A comparative Balance Sheet reports at least two consecutive years of information that can be

used to compile a Statement of Cash Flows.

Question Type: Concept

3) A comparative Balance Sheet details why the ending cash balance increased or decreased.

Question Type: Concept

4) The Statement of Cash Flows is prepared to show why the cash amount changed from the

beginning of the period to the end of the period.

Question Type: Concept

5) A Statement of Cash Flows shows the company’s sources of cash, but does not detail how the

cash was used by the company.

Question Type: Concept

6) The Statement of Cash Flows is divided into two categories – operations and investments.

Question Type: Concept

7) The Statement of Cash Flows reports the sources and uses of cash from all of the following

EXCEPT:

A) managerial activities.

B) financing activities.

C) operating activities.

D) investing activities.

Question Type: Concept

8) The ________ is the financial statement associated with the operating, investing and financing

activities of a corporation.

A) Income Statement

B) Statement of Stockholders‘ Equity

C) Statement of Cash Flows

D) Balance Sheet

Question Type: Concept

9) The accuracy of the Statement of Cash Flows can be verified by computing the change in the

balance of the:

A) cash and cash equivalent accounts.

B) equity account.

C) revenue accounts.

D) asset and liability accounts.

10) The purpose of the Statement of Cash Flows is to show:

A) the revenue earned.

B) the profits that were earned.

C) the expenses that were paid.

D) how cash was received and used during the period.

Question Type: Concept

11) The cash flow statement is the communicating link between the:

A) Statement of Stockholders‘ Equity and the cash reported on the Balance Sheet.

B) Income Statement and the Statement of Stockholders‘ Equity.

C) cash reported on the Balance Sheet and the accrual based Income Statement.

D) cash reported on the Balance Sheet and the Statement of Stockholders‘ Equity.

Answer: C

Diff: 1

Question Type: Concept

11.2 Differentiate between cash flows from operating, investing, and financing activities

1) For a business to remain successful, investing activities must be the main source of its cash

over the long run.

Question Type: Concept

2) The difference between the direct and indirect methods is the format of the financing section.

Question Type: Concept

3) The three types of business activities on a Statement of Cash Flows are operating, investing,

and management activities.

Question Type: Concept

4) Operating activities reflect such things as acquiring equipment and machinery.

Question Type: Concept

5) Cash received from issuing stock would be included in investing activities.

Question Type: Concept

6) Cash received from the sale of land would be included in financing activities.

Question Type: Concept

7) The direct method of formatting a Statement of Cash Flows starts with net income.

Question Type: Concept

8) The investing and financing sections of the Statement of Cash Flows are the same for the

indirect and direct method.

Question Type: Concept

9) The cash flows from operations computed using the indirect method is different than that

computed using the direct method.

Question Type: Concept

10) Which of the following is NOT a part of operating activities?

A) Paying dividends

B) Paying payables

C) Net income

D) Paying utilities

Question Type: Concept

11) Which of the following is NOT a part of investing activities?

A) Buying a building

B) Collecting on a loan receivable

C) Borrowing money

D) Selling off equipment

Question Type: Concept

12) Which of the following is NOT a part of financing activities?

A) Paying dividends

B) Issuing stock

C) Paying off loans

D) Buying land

Question Type: Concept

13) Operating Cash Flows affect:

A) current assets and current liabilities.

B) long-term asset accounts.

C) equity accounts.

D) long-term liability accounts.

Question Type: Concept

14) Investing Cash Flows affect:

A) current assets and current liabilities.

B) long-term asset accounts.

C) equity accounts.

D) long-term liability accounts.

Question Type: Concept

15) Financing activities affect:

A) current and long-term assets.

B) current and long-term liabilities.

C) current assets and current liabilities.

D) long-term liabilities and equity accounts.

Question Type: Concept

16) Which of the following activities is computed differently using the two methods of

formatting a Statement of Cash Flows?

A) Operating activities

B) Financing activities

C) Investing activities

D) Both operating activities and investing activities

Question Type: Concept

17) Operating activities are transactions and events associated with selling a product or providing

a service related to the:

A) revenues and expenses reported on the Income Statement.

B) assets and liabilities reported on the Balance Sheet.

C) net income reported on the Statement of Retained Earnings.

D) Retained Earnings reported on the Balance Sheet.

Question Type: Concept

18) When comparing net cash provided by operations using the direct method versus indirect

method, we find that:

A) net cash is higher using the indirect method.

B) net cash is lower using the indirect method.

C) there is no difference in the net cash between the two methods.

D) Depreciation Expense is used in the direct method.

Question Type: Concept

19) As you approach graduation, you are evaluating your job offers from the following

companies. Assuming that all other factors are equal (pay, benefits, location, job duties, industry,

company size, company age etc.), for which of the following companies would you chose to

work and why?

Cash Flows from operations

+$115,000

$100,000

Cash Flows from investing activities

($20,000)

Cash Flows from financing activities

+$5,000

+$100,000

Net increase in cash for the most current year

+$100,000

A) Company A, the company is generating cash from its daily operations, investing in long-term

assets and generating cash from its’ owners or borrowing a relatively small amount.

B) Company B, the company only generates cash from its daily operations and is not spending

the cash for any other reason.

C) Company C, the company only generates cash from the owners.

D) All three companies offer the same opportunity for the future.

Question Type: Critical Thinking

20) Are all increases to cash from financing activities the result of a favorable situation?

A) Yes, an increase to cash is always good.

B) No, cash could increase in this category as a result of replacing long-term assets.

C) Yes, this increase would reflect the results of the company’s daily activities.

D) No, an increase in long-term debt might be the result of an unfavorable situation.

Question Type: Critical Thinking

21) Are all decreases to cash the result of an unfavorable situation?

A) Yes, decreases to cash are always bad.

B) No, cash could decrease as a result of acquiring long-term assets which the company needs to

expand or stay competitive.

C) Yes, cash could decrease as a result of paying off long-term debt which is an unfavorable

action to take.

D) No, cash could decrease because the company issued more stock.

Question Type: Critical Thinking

22) Aspen Corp. sold an asset with a book value of $58,000 for $31,000 cash. Which of the

following is a TRUE statement?

A) Loss on sale equals $31,000 and Cash inflow equals $31,000.

B) Loss on sale equals $58,000 and Cash inflow equals $58,000.

C) Loss on sale equals $27,000 and Cash inflow equals $31,000.

D) Loss on sale equals $31,000 and Cash inflow equals $27,000.

Question Type: Application

23) Bach Company sold an asset with a book value of $54,000 for $90,000 cash. Which of the

following is a TRUE statement?

A) Gain on sale equals $90,000 and Cash inflow equals $90,000.

B) Gain on sale equals $54,000 and Cash inflow equals $54,000.

C) Gain on sale equals $36,000 and Cash inflow equals $90,000.

D) Gain on sale equals $90,000 and Cash inflow equals $36,000.

Question Type: Application

24) In which section of the Statement of Cash Flows would you add or subtract a change in

Accounts Payable, and why?

A) The financing section, in order to recognize amounts paid through third party financing.

B) The operating section, in order to make things balance and provide up–to-date information for

investors.

C) The operating section, in order to recognize that not all expenses are cash expenses.

D) The financing section, in order to correctly compute the amount that the company has re–

invested through purchases.

Question Type: Critical Thinking

25) Which format is favored by companies for the operating activities section of the Statement of

Cash Flows, and why?

A) The indirect method is used more often because it allows the user to more easily visualize the

connection between the financial statements.

B) The indirect method is used more often because it allows for a restatement of each accrual

based item to a cash basis.

C) The direct method is used more often because it allows the user to more easily visualize the

connection between the financial statements.

D) The direct method is used more often because it allows for a restatement of each accrual

based item to a cash basis.

Question Type: Concept

26) Kringle Co. issued bonds during the year. This would be considered a _______ of cash, and

would be reported in the _______ section of the Statement of Cash Flows.

A) source, financing

B) use, investing

C) source, investing

D) use, financing

Question Type: Application

11.3 Prepare the statement of cash flows using the indirect method

1) Most businesses prefer to use the indirect method of formatting a Statement of Cash Flows.

Question Type: Concept

2) In order to prepare a Statement of Cash Flows using the indirect method, you only need the

Income Statement.

Question Type: Concept

3) Operating Cash Flows under the indirect method starts with the net income for the period from

the Income Statement.

Question Type: Concept

4) Even though depreciation, depletion and amortization are expenses, they are considered non–

cash transactions and must be subtracted from net income in the operating activities section of an

indirect method cash flow statement.

Question Type: Concept

5) Gains and losses do not represent Cash Flows.

Question Type: Concept

6) Changes in the long-term assets and long-term liabilities accounts must be analyzed to

determine how they are presented in the operating section of a cash flow statement.

Question Type: Concept

7) Acquisitions and sales of long-term assets belong in the financing section of a cash flow

statement using the indirect method.

Question Type: Concept

8) Changes in long-term liabilities belong in the financing section of a cash flow statement using

the indirect method.

Question Type: Concept

9) The sum of the net increases/decreases in the operating, investing and financing sections of

the cash flow statement is equal to the change in cash over the period.

Question Type: Concept

10) A transaction that exchanged a building for shares of stock would be an investing activity

and would appear on the cash flow statement.

Question Type: Concept

11) A transaction acquiring land by issuing a note for the full purchase price would not appear on

the cash flow statement because no cash was involved, but it may be disclosed in a separate

section.

Question Type: Concept

12) Business transactions that do NOT involve the payment or receipt of cash are considered to

be non-cash transactions.

Question Type: Concept

13) A decrease in a current liability causes an increase in cash.

Question Type: Concept

14) Robbins Company distributed a 5% common stock dividend, this will be reported in the

financing activity section of the cash flow statement.

Question Type: Application

15) The purchase of treasury stock is shown as a cash outflow in the investing section of the cash

flow statement.

Question Type: Concept

16) Gains on the sale of long-term assets are:

A) added to investing activities.

B) added to financing activities.

C) added to operating activities.

D) subtracted from operating activities.

Question Type: Concept

17) Losses on the sale of long-term assets are:

A) added to operating activities.

B) subtracted from operating activities.

C) added to investing activities.

D) subtracted from investing activities.

Question Type: Concept

18) Cash receipts from the sale of long-term assets, such as equipment and vehicles, are:

A) added to operating activities.

B) subtracted from operating activities.

C) added to investing activities.

D) subtracted from investing activities.

Question Type: Concept

19) The cost of purchasing long-term assets, such as buildings and land, are:

A) added to operating activities.

B) subtracted from operating activities.

C) added to investing activities.

D) subtracted from investing activities.

Question Type: Concept