Chapter 13 – Statement of Cash Flows
1. The statement of cash flows is not one of the basic financial statements.
a.
True
b.
False
2. Cash, as the term is used for the statement of cash flows, could indicate either cash or cash equivalents.
a.
True
b.
False
3. The statement of cash flows is an optional financial statement.
a.
True
b.
False
4. The statement of cash flows shows the effects on cash of a company’s operating, investing, and financing activities.
a.
True
b.
False
Chapter 13 – Statement of Cash Flows
5. The statement of cash flows reports a firm’s major sources of cash receipts and major uses of cash for a period of time.
a.
True
b.
False
6. Cash flows from operating activities, as part of the statement of cash flows, include cash flow from transactions that
enter into the determination of net income.
a.
True
b.
False
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.
a.
True
b.
False
8. Cash flows from investing activities, as part of the statement of cash flows, would include any receipts from the sale of
land.
a.
True
b.
False
Chapter 13 – Statement of Cash Flows
9. Cash flows from financing activities, as part of the statement of cash flows, would include any payments for dividends.
a.
True
b.
False
10. Cash flows from investing activities, as part of the statement of cash flows, would include any payments for the
purchase of treasury stock.
a.
True
b.
False
11. Cash flows from investing activities, as part of the statement of cash flows, would include any receipts from the
issuance of bonds payable.
a.
True
b.
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.
a.
True
b.
False
Chapter 13 – Statement of Cash Flows
13. The direct method of preparing the operating activities section of the statement of cash flows reports major classes of
cash receipts and cash payments related to the day–to-day operations of the business.
a.
True
b.
False
14. Under the direct method of reporting cash flows from operations, the primary source of cash is cash received from
customers.
a.
True
b.
False
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.
a.
True
b.
False
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.
a.
True
b.
False
Chapter 13 – Statement of Cash Flows
17. Cash outflows from financing activities include the payment of cash dividends, the acquisition of treasury stock, and
the repayment of amounts borrowed.
a.
True
b.
False
18. Cash flows from investing activities, as part of the statement of cash flows, include payments for the acquisition of
fixed assets.
a.
True
b.
False
19. The acquisition of land in exchange for common stock is an example of noncash investing and financing activity.
a.
True
b.
False
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.
a.
True
b.
False
Chapter 13 – Statement of Cash Flows
21. In preparing the statement of cash flows, the correct order of reporting cash activities is financing, operating, and
investing.
a.
True
b.
False
22. A cash flow per share amount should be reported on the statement of cash flows.
a.
True
b.
False
23. Rarely will 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.
a.
True
b.
False
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.
a.
True
b.
False
Chapter 13 – Statement of Cash Flows
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 the
operating activities section of the statement of cash flows (prepared by the indirect method).
a.
True
b.
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.
a.
True
b.
False
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.
a.
True
b.
False
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.
a.
True
b.
False
Chapter 13 – Statement of Cash Flows
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.
a.
True
b.
False
30. The declaration and issuance of a stock dividend would be reported on the statement of cash flows.
a.
True
b.
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.
a.
True
b.
False
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.
a.
True
b.
False
Chapter 13 – Statement of Cash Flows
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.
a.
True
b.
False
34. Net income for the year was $29,500. Accounts receivable increased $2,500, and accounts payable increased $5,400.
There were no other changes in noncash current assets and liabilities. Under the indirect method, the cash flow from
operations is $32,400.
a.
True
b.
False
35. A building with a cost of $153,000 and accumulated depreciation of $42,000 was sold for an $11,000 gain. When
using the indirect method, the cash generated from this investing activity was $121,000.
a.
True
b.
False
Chapter 13 – Statement of Cash Flows
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.
a.
True
b.
False
37. Cash paid to acquire treasury stock should be shown on the statement of cash flows under investing activities.
a.
True
b.
False
38. Repayments of bonds would be shown as a cash outflow in the investing section of the statement of cash flows.
a.
True
b.
False
39. Purchasing equipment by issuing a six-month note should be shown on the statement of cash flows under the investing
activities section.
a.
True
b.
False
Chapter 13 – Statement of Cash Flows
40. 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.
a.
True
b.
False
41. There is no difference in the investing and financing sections of the statement of cash flows using the indirect and
direct method.
a.
True
b.
False
42. 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.
a.
True
b.
False
Chapter 13 – Statement of Cash Flows
43. The manner of reporting cash flows from investing and financing activities will be different under the direct method as
compared to the indirect method.
a.
True
b.
False
44. 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.
a.
True
b.
False
45. To determine cash payments for merchandise for the statement of cash flows using the direct method, a decrease in
accounts payable is added to the cost of goods sold. Assume all accounts payable are owed to merchandise suppliers.
a.
True
b.
False
46. To determine cash payments for operating expenses for the statement of cash flows using the direct method, a
decrease in prepaid expenses is added to operating expenses other than depreciation.
a.
True
b.
False
Chapter 13 – Statement of Cash Flows
47. To determine cash payments for operating expenses for the statement of cash flows using the direct method, a
decrease in accrued expenses is added to operating expenses other than depreciation.
a.
True
b.
False
48. To determine cash payments for income taxes for the statement of cash flows using the direct method, an increase in
income taxes payable is added to the income tax expense.
a.
True
b.
False
49. Free cash flow is the measure of operating cash flow available for corporate purposes after providing sufficient fixed
asset additions to maintain current operations.
a.
True
b.
False
50. When using the spreadsheet (work sheet) 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.
a.
True
b.
False
Chapter 13 – Statement of Cash Flows
51. 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
52. 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
53. 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
Chapter 13 – Statement of Cash Flows
54. 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
55. 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
56. 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
Chapter 13 – Statement of Cash Flows
57. 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
58. 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
59. 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
Chapter 13 – Statement of Cash Flows
60. 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
61. The last item on the statement of cash flows prior to the schedule of noncash investing and financing activities reports
a.
the change in cash
b.
cash at the end of the year
c.
net cash flow from investing activities
d.
net cash flow from financing activities
62. 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 inventory on account
d.
issuance of common stock to acquire land
Chapter 13 – Statement of Cash Flows
63. Which of the following should be shown on a statement of cash flows under the financing activities 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
64. 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
65. 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
Chapter 13 – Statement of Cash Flows
66. 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
67. 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
68. Cash receipts received from the issuance of a mortgage notes payable would be classified as a(n)
a.
investing activity
b.
operating activity
c.
noncash investing and financing activity
d.
financing activity
Chapter 13 – Statement of Cash Flows
69. Which of the following would not be on the statement of cash flows?
a.
cash flows from investing activities
b.
cash flows from financing activities
c.
cash flows from operating activities
d.
cash flows from contingent activities
70. 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
71. Financing activities include
a.
lending money
b.
acquiring investments
c.
issuing debt
d.
acquiring long-lived assets