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Chapter 13 Statement of Cash Flows Answer Key
True / False Questions
1.
The principal purpose of a statement of cash flows is to measure the profitability of a
business that maintains its accounting records on the cash basis.
2.
The statement of cash flows helps investors and creditors assess both the cash and
noncash aspects of a company's investing and financing activities.
3.
Interest paid belongs in the operating activities section of the statement of cash flows.
4.
Collections of interest revenue are classified as operating activities.
5.
In a statement of cash flows, the term cash includes both cash and cash equivalents.
6.
Both FASB and IASB require the cash flow statement to be organized in three categories,
operating activities, investing activities, and financing activities.
7.
When preparing a statement of cash flows, money held in cash equivalents is considered
the same as cash.
8.
Companies that show profits on the income statement will always show positive cash flows
from operating activities.
9.
The purchase of equipment for the manufacturing of inventory belongs in the operating
activities section of the statement of cash flows.
10.
When credit sales exceed collections of cash from accounts receivable, the increase in
accounts receivable is added to net sales to determine the amount of cash collected from
customers during the period.
11.
Dividends paid belong in the operating activities section of the statement of cash flows.
12.
If cash increased during the year and there was also a net loss for the year, there must be
positive cash flows from financing and investing activities.
13.
Any "non-cash" investing and financing transactions should be disclosed in a
supplementary schedule accompanying a statement of cash flows.
14.
The purchase or sale of marketable securities is reported in the statement of cash flows as
a financing activity.
15.
For a company to survive in the long-run it must have positive cash flows from investing
activities.
16.
Whether one uses the direct or the indirect method of presentation of the statement of
cash flows, the totals from each of the three sections (activities) will be the same
regardless of the method used.
17.
The SEC requires public companies to use the indirect method for the statement of cash
flows.
18.
Depreciation is a non-cash expense.
19.
Depreciation expense reduces net income but does not reduce the net cash flow from
operating activities.
20.
The operating activities section of the cash flow statement includes the cash effects of
those transactions reported on the income statement.
21.
When applying the direct method in a statement of cash flows, the amount of depreciation
is added to net income.
22.
In the long run, it is more important for a business to generate positive cash flows from
investing activities than from operating activities.
23.
Large cash flows from operations are more important to financial statement analysts over
the long term than cash flows from financing or investing.
24.
If accounts receivable decrease during the period, cash received from customers probably
exceeds net sales.
25.
The FASB permits a company to use the direct method or the indirect method for the
statement of cash flows.
26.
Net cash flows from operating activities will have the same total no matter which method is
used, direct or indirect.
27.
Both the direct method and the indirect method of computing net cash flow from operating
activities convert accrual-based income statement amounts into cash flows.
28.
Under the indirect method, when machinery is sold at a gain, the gain is added in the
operating section of the statement of cash flows and the cost is added in the investing
section.
29.
A net decrease in accounts payable to suppliers indicates that cash payments to suppliers
were less than purchases made during the period.
30.
Under the indirect method, depreciation, increase in inventories, and "non-operating"
losses are added to net income to arrive at net cash flow from operating activities.
31.
If accounts receivable increased during the year, deducting the increase from net sales
determines the amount of cash received.
32.
If a company uses the indirect method to prepare its statement of cash flows, it must
provide a supplementary schedule showing the computation of net cash flow from
operating activities using the direct method.
33.
Free cash flow is computed as net cash flow from operating activities plus cash used to
acquire plant assets minus cash paid for dividends.
34.
The indirect method of computing cash flows from operations begins with net income.
35.
Free cash flow refers to the excess of cash inflows over cash outflows.
36.
Deferring income taxes by using legal accounting methods is one strategy to permanently
improve cash flow.
37.
When a company uses peak pricing, it is charging the highest or "peak" prices the public
will be willing to pay during periods of low demand.
38.
The "worksheet approach" to preparing a statement of cash flows involves analyzing
changes in non-cash balance sheet accounts.
Multiple Choice Questions
39.
A statement of cash flows is not intended to assist investors in evaluating:
40.
The "bottom line" in a statement of cash flows shows:
41.
All of the following are considered cash equivalents
except
:
42.
In a statement of cash flows, cash transactions are classified into three major categories.
Which of the following is
not
one of these three categories?
43.
In a statement of cash flows, the term cash includes:
44.
The FASB classifies interest received on investments and interest paid on debt financing
as part of operating cash flows, while the IASB:
45.
Which of the following indicates a cash receipt?
46.
Cash flows from operating activities include all of the following
except
:
47.
Net income differs from net cash flows from operations because of all the following
except
:
48.
In the statement of cash flows, the purchase of supplies is classified as:
49.
In a statement of cash flows, collections of accounts receivable are classified as:
50.
Which of the following would indicate a cash disbursement?
51.
Which of the following does
not
decrease the cash flow from operating activities?
52.
Which of the following is
not
classified among the operating activities in a statement of
cash flows?
