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Chapter 14 Statement of Cash Flows Answer Key
True / False Questions
1. Cash payments to retire bonds payable are reported as a cash outflow in the financing
activities section of the statement of cash flows.
2. When a company issues common stock in exchange for cash, the cash inflow is recorded in
the investing activities section of the statement of cash flows.
3. Paying taxes to governmental bodies is considered an operating activity on the statement of
cash flows.
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4. The sale of a long-term investment for cash would be classified as an investing activity in
the statement of cash flows.
5. Paying cash to retire bonds payable would be considered a financing activity on the
statement of cash flows.
6. Under the indirect method of determining the net cash provided by operating activities on
the statement of cash flows, an increase in inventory is subtracted from net income.
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7. Under the indirect method of determining the net cash provided by operating activities on
the statement of cash flows, a decrease in accounts receivable is added to net income.
8. A gain on the sale of equipment would be included as part of a company’s financing
activities on the statement of cash flows.
9. The investing and financing sections of the statement of cash flows record net cash flows
rather than gross cash flows.
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10. A company can increase its net cash flow by increasing the depreciation expense it
records during the period.
11. A company can have a net loss and still generate a positive net cash provided by operating
activities in its statement of cash flows.
12. Free cash flow increases when a company issues common stock for cash.
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13. Free cash flow is net cash provided by operating activities less dividends.
14. Negative free cash flow suggests that the company did not generate enough cash flow
from its operating activities to fund its capital expenditures and dividend payments.
15. A newly formed company with enormous growth prospects would be expected to have
negative free cash flow during its start-up phase.
16. The change in the cash balance must equal the changes in all other balance sheet accounts
besides cash.
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17. For asset accounts, credits are added to the beginning balance on the statement of cash
flows.
18. For liability accounts, debits are added to the beginning balance on the statement of cash
flows.
19. For stockholders’ equity accounts, credits are added to the beginning balance on the
statement of cash flows.
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20. For contra-asset accounts, debits are added to the beginning balance on the statement of
cash flows.
Multiple Choice Questions
21. Which of the following would be considered a cash outflow in the investing activities
section of the statement of cash flows?
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22. In a statement of cash flows, which of the following would be classified as an operating
activity?
23. All of the following should be recorded in the operating activities section of the statement
of cash flows EXCEPT:
24. In a statement of cash flows, receipts from sales of property, plant, and equipment should
be classified as a(n):
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25. In a statement of cash flows, all of the following would be classified as financing
activities except:
26. If Thomson Company did not issue any bonds payable during the year and its bonds
payable account decreased by $200,000 over the course of a year, then this amount would be
shown on the company’s statement of cash flows prepared under the indirect method as:
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27. Which of the following should be classified as a financing activity on a statement of cash
flows?
28. Which of the following would be classified as a financing activity on the statement of cash
flows?
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29. Which of the following would be added to net income in the operating activities section of
a statement of cash flows prepared using the indirect method?
30. A company that had a $500 decrease in accounts receivable during a period would do
which of the following on its statement of cash flows prepared using the indirect method?
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31. Under the indirect method of determining net cash provided by operating activities on the
statement of cash flows, which of the following would be subtracted from net income?
32. An increase in the Prepaid Expenses account 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:
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33. Gary 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?
34. The sale of equipment at a gain would be shown on the statement of cash flows prepared
under the indirect method in which of the following manners?
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35. The statement of cash flows:
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36. The following transactions occurred last year at Jogger Company:
Based solely on the above information, the net cash provided by financing activities for the
year on the statement of cash flows would be:
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37. Last year Burford Company’s cash account decreased by $19,000. Net cash used in
investing activities was $9,000. Net cash provided by financing activities was $16,000. On the
statement of cash flows, the net cash flow provided by (used in) operating activities was:
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38. Maze Company’s cash and cash equivalents consist of cash and marketable securities. Last
year the company’s cash account increased by $24,000 and its marketable securities account
decreased by $16,000. Cash provided by operating activities was $40,000. Net cash used in
financing activities was $39,000. Based on this information, the net cash flow from investing
activities on the statement of cash flows was:
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39. Newburn Corporation’s most recent balance sheet appears below:
The company’s net income for the year was $53 and it did not sell or retire any property,
plant, and equipment during the year. Cash dividends were $11. The net cash provided by
(used in) investing activities for the year was:
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40. Lueckenhoff Corporation’s most recent balance sheet appears below:
The company’s net income for the year was $153 and it did not sell or retire any property,
plant, and equipment during the year. Cash dividends were $28. The net cash provided by
(used in) operating activities for the year was:
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