Financial Accounting: IFRS, 11e, GE
Harrison/Horngren/Thomas/Tietz/Suwardy
Test Item File
Chapter 11: Cash Flows
11.1-1 The statement of cash flows is presented as of a specific date in time.
11.1-2 The statement of cash flows is used by the firm’s creditors to evaluate the firm’s ability to pay dividends.
11.1-3 The statement of cash flows shows the relationship of net income to cash flows.
11.1-4 The statement of cash flows reports the investments the company is making in long-term assets.
11.1-5 Highly liquid short-term investments that can be converted into cash quickly are included in the definition
of cash.
11.1-6 Investments in U.S. Government Treasury bills are classified as cash equivalents.
11.1-7 The statement of cash flows helps to predict future cash flows.
11.1-8 If a company has a high net income, it will never have trouble paying its bills.
11.1-9 Net income and cash flow usually move together since net income generates cash, but this is not always
the case.
11.1-10 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.
11.1-11 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.
11.1-12 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.
11.1-13 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.
11.1-14 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.
11.1-15 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.
11.1-16 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.
11.1-17 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.
11.1-18 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
11.1-19 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.
11.2-1 If a business is to prosper in the future, it must generate most of its cash from operating activities.
11.2-2 Most of the time, net income will not be the same as cash flows from operating activities.
11.2-3Changes in long-term assets and long-term liabilities are reported as investing activities.
11.2-4 Of the three types of business activities reported on a statement of cash flows, financing activities are the
most important when evaluating a business.
11.2-5 The three categories on the statement of cash flows are listed in order of importance to the success of the
business.
11.2-6 Because they represent long-term decisions, investing activities are regarded as the most important
activities on the statement of cash flows.
11.2-7 Collections on a loan are reported as financing activities on the statement of cash flows.
11.2-8 There are three ways to format operating activities on the statement of cash flows.
11.2-9 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.
11.2-10 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.
11.2-11 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.
11.2-12 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.
11.2-13 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.
.
11.2-14 Changes in the current asset and current liability accounts are reported on the statement of cash
flows as:
A) operating activities.
B) financing activities.
C) investing activities.
D) a mix of all of these.
11.2-15 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.
11.2-16 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.
11.2-17 Interest paid on debt 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 interest paid on debt would not be reported on a statement
of cash flows.
11.2-18 The receipt of interest on loans would be reported on a statement of cash flows under:
A) the financing activities.
B) the investing activities.
C) the operating activities.
D) none of these categories, because interest received on loans would not be reported on a
Statement of cash flows.
11.2-19 A firm’s revenue-earning activities appear on the statement of cash flows as:
A) investing activities.
B) operating activities.
C) financing activities.
D) both operating and financing activities.
11.2-20 Purchases and sales of which of the following are reported under the investing activities section
of the statement of cash flows?
A) Available-for-sale securities
B) Trading securities
C) Held-to-maturity securities
D) All of the above
11.2-21 The purchase of held-to-maturity securities would be reported on a statement of cash flows as:
A) financing activities.
B) investing activities.
C) operating activities.
D) none of the above. Held-to-maturity securities would not be reported on a statement of cash
flows.
11.2-22 Acquisitions of treasury sharesshares would be reported on a statement of cash flows as:
A) financing activities.
B) investing activities.
C) operating activities.
D) either investing activities or operating activities.
11.2-23 The purchase of treasury shares would be reported on a statement of cash flows as a:
A) cash inflow under the operating activities.
B) cash outflow under the financing activities.
C) cash inflow under the investment activities.
D) cash inflow under the financing activities.
11.2-24 The declaration of dividends by the board of directors would be reported on a statement of cash
flows as:
A) a cash inflow under the financing activities.
B) a cash outflow under the financing activities.
C) a cash outflow under the investing activities.
D) none of these. This activity would not be reported on a statement of cash flows.
11.2-25 Which of the following would be reported on a statement of cash flows as an investing activity?
A) Purchase of treasury shares
B) Sale of equipment for cash
C) Depreciation expense
D) All of the above
11.2-26 Which of the following would be reported on a statement of cash flows as a financing activity?
A) Distribution of share dividend
B) Purchase of treasury shares
C) Interest paid on bonds payable
D) All of the above
11.2-27 When preparing a statement of cash flows, the sum of operating and investing and financing
activities equals the:
A) change in cash for the period.
B) cash inflow for the period.
C) ending cash balance.
D) net income as reported on the income statement.
11.2-28 The two ways to format the operating activities on the statement of cash flows are:
A) direct and indirect methods.
B) direct and operating methods.
C) indirect and net worth methods.
D) direct and net income methods.
11.2-29 The direct method of preparing the operating section of the statement of cash flows:
A) is the most popular method used.
B) reports all cash receipts and cash payments from operating activities.
C) reconciles net income to net cash provided by operating activities.
D) reports different amounts for investing and financing activities than the direct method.
11.2-30 The indirect method of preparing the operating section of the statement of cash flows:
A) produces the same figure for cash from operating method as the direct method.
B) uses different computations than the direct method.
C) does not affect investing or financing activities.
D) is all of the above.
11.2-31 Under the indirect method of preparing the operating section of the statement of cash flows, net
cash provided by operating activities is $12,670. If the direct method of preparing the operating
section of the statement of cash flows was used:
A) cash provided by operating activities would be more than $12,670.
B) cash provided by operating activities would be less than $12,670.
C) cash provided by operating activities would be the same, $12,670.
D) cannot be determined from the facts given.
11.2-32 Under the indirect method of preparing the financing section of the statement of cash flows, net
cash provided by financing activities is $63,700. If the direct method of preparing the financing
section of the statement of cash flows was used:
A) cash provided by financing activities would be more than $63,700.
B) cash provided by financing activities would be less than $63,700.
C) cash provided by financing activities would be the same, $63,700.
D) cannot be determined from the facts given.
11.3-1 The change in cash is the “check figure” for the statement of cash flows.
11.3-2 The balance sheet and the income statement are both used to prepare the statement of cash flows.
11.3-3 The statement of cash flows provides the answer as to why a company’s cash increased or
decreased.
11.3-4 Under the indirect method, depletion expense must be added back to net income under the
operating activities.
11.3-5Under the indirect method, a gain on the sale of long-term assets is deducted from net income under the
operating activities.
11.3-6 The indirect method of computing cash flows from operating activities begins with net income
and reconciles from net income to operating cash flows.
11.3-7 Under the indirect method, an increase in a current asset other than cash indicates a decrease in
cash.
11.3-8 Operating activities are related to the transactions that make up net income.
11.3-9 All increases in other current assets decreases cash in the statement of cash flows.
11.3-10To convert net income to cash flows under the indirect method, depreciation expense is subtracted from
net income.
11.3-11 The indirect method of preparing the statement of cash flows is preferred by the IASB because it
clearly relates net income to net cash provided by operating activities.
11.3-12 Investments that do NOT require cash can be reported on a separate schedule under the statement
of cash flows.
11.3-13 Companies can have investing and financing activities that do not require cash.
11.3-14 Which method of preparing the statement of cash flows reconciles net income to cash flows from
operating activities?
A) Direct method
B) Reconciliation method
C) Equilibrium method
D) Indirect method
11.3-15 Under the indirect method of preparing the statement of cash flows, the starting point to
determine net cash from operating activities is:
A) net income.
B) the ending cash balance.
C) the beginning cash balance.
D) sales.
11.3-16 Which method of preparing the statement of cash flows reports all cash payments and cash
receipts from operating activities?
A) Indirect method
B) Comprehensive method
C) Reporting method
D) Direct method
11.3-17 Assume that a statement of cash flows reports increases and decreases in current asset accounts.
Which of the following is true?
A) Increases and decreases in current assets are not reported on the statement of cash flows.
B) Increases and decreases in current assets are reported when using both the direct and indirect
methods.
C) The statement was prepared using the direct method.
D) The statement was prepared using the indirect method.
11.3-18 Which statement regarding the statement of cash flows is TRUE?
A) The indirect method is preferred by IASB and is used by most companies.
B) The direct method is preferred by IASB; the indirect method is used by most companies.
C) The direct method is preferred by IASB and is used by most companies.
D) The indirect method is preferred by IASB; the direct method is used by most companies.
11.3-19 When preparing the statement of cash flows using the indirect method, which statement is NOT
true?
A) Depreciation expense is added to net income.
B) Gains on the sale of long-term assets are subtracted from net income.
C) Losses on the sale of long-term assets are subtracted from net income.
D) Increases in current liabilities are added to net income.
11.3-20 On an indirect method statement of cash flows, the purchase of machinery in exchange for
ordinary shares is:
A) reflected in the operating activities section.
B) ignored.
C) reflected in the investing activities section.
D) shown in the schedule of noncash investing and financing activities which
accompanies the statement of cash flows.