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1. Collecting the principal on a loan to another company would be reported on the investing
activities section of the statement of cash flows.
2. Money received from issuing bonds payable would be included as part of a company's
financing activities on the statement of cash flows.
3. The collection of a loan made to a supplier would be treated as an investing activity on a
statement of cash flows.
4. Paying taxes to governmental bodies is considered a cash outflow in the operating
activities section on the statement of cash flows.
5. When a company pays cash to repurchase its own common stock, this is reported as a
cash outflow in the financing activities section of the statement of cash flows.
6. When a company pays a supplier for inventory it has purchased, the cash outflow is
recorded in the investing activities section of the statement of cash flows.
7. In the statement of cash flows, collecting cash from customers is treated as a cash inflow
in the financing activities section.
8. Paying wages and salaries to employees is classified as a cash outflow in the operating
activities section of the statement of cash flows.
9. Investing activities on the statement of cash flows generate cash inflows and outflows
related to borrowing from and repaying principal to creditors and completing transactions with
the company's owners such as selling or repurchasing shares of common stocks and paying
dividends.
10. Paying interest to lenders is classified as an operating activity on the statement of cash
flows.
11. Cash received from the sale of equipment the company had used in its own operations
would be considered an operating activity on a statement of cash flows.
12. Buying property, plant, or equipment would be reported as a cash outflow on the investing
activities section of the statement of cash flows.
13. Cash payments to repay the principal amount of debt are reported as a cash outflow in the
investing activities section of the statement of cash flows.
14. Insurance and utility expenses are considered operating activities on the statement of
cash flows.
15. The net cash provided by operating activities on the statement of cash flows does not
include any dividends paid to the company's own shareholders.
16. Cash equivalents on the statement of cash flows consist of any investment that can be
converted into cash within one year.
17. The statement of cash flows relies on a fundamental principle of double-entry
bookkeeping; namely, the change in the cash balance must equal the change in total liabilities
and stockholders' equity.
18. When computing the net cash provided by operating activities under the indirect method
on the statement of cash flows, an increase in prepaid expenses would be added to net income.
19. Under the indirect method of determining the net cash provided by operating activities on
the statement of cash flows, a decrease in inventory would be added to net income.
20. Under the indirect method of determining the net cash provided by operating activities on
the statement of cash flows, a loss on the sale of an asset would be added to net income.
21. Under the indirect method of determining the net cash provided by operating activities on
the statement of cash flows, an increase in property, plant, and equipment is subtracted from net
income.
22. When computing the net cash provided by operating activities under the indirect method
on the statement of cash flows, a decrease in common stock would be subtracted from net
income.
23. Under the indirect method of determining the net cash provided by operating activities on
the statement of cash flows, an increase in accounts receivable would be subtracted from net
income.
24. The direct method of preparing the statement of cash flows will show the same increase
or decrease in cash as the indirect method.
25. The amount of depreciation added to net income equals the sum of the debits to the
Accumulated Depreciation account.
26. Free cash flow will increase if a company increases its accounts payable balance by
delaying payments to suppliers.
27. Free cash flow is net cash provided by operating activities less capital expenditures.
28. Negative free cash flow suggests that the company generated enough cash flow from its
operating activities to fund its capital expenditures and dividend payments.
29. Negative free cash flow does not automatically signal poor performance.
30. Free cash flow decreases when a company issues common stock for cash.
31. In a statement of cash flows, the sale of a long-term investment would ordinarily be
classified as:
32. Which one of the following transactions should be classified as a financing activity on the
statement of cash flows?
33. In a statement of cash flows, issuing bonds payable affects the:
34. Which of the following would be considered a cash inflow in the financing activities
section of the statement of cash flows?
35. In a statement of cash flows, a change in an income taxes payable account would be
recorded in the:
36. Which of the following items would not be classified as an operating activity on the
statement of cash flows?
37. In a statement of cash flows, which of the following would be classified as an investing
activity?
38. Which of the following would be classified as a financing activity on the statement of
cash flows?
39. Tomlin Corporation prepares its statement of cash flows using the indirect method.
Which of the following would be subtracted from net income in the operating activities section of
the statement?
Increase in Accounts Receivable Decrease in Accrued Liabilities
A) Yes Yes
B) Yes No
C) No Yes
D) No No
40. Shoshoni Corporation prepares its statement of cash flows using the indirect method.
Which of the following would be added to net income in the operating activities section of the
statement?
Increase in Accounts Receivable Decrease in
Accounts Payable
A) Yes Yes
B) Yes No
C) No Yes
D) No No
41. An increase in accounts receivable of $1,000 over the course of a year would be shown
on the company's statement of cash flows prepared under the indirect method as:
42. An increase in accrued liabilities of $1,000 during a year would be shown on the
company's statement of cash flows prepared under the indirect method as:
43. When computing the net cash provided by operating activities using the indirect approach
on the statement of cash flows, which item below would NOT be added to net income?
