CHAPTER 16: 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
Chapter 16: Statement of Cash Flows
4.
The statement of cash flows shows the effects on cash of a company’s operating, investing, and financing activities.
a.
True
b.
False
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 transactions that enter
into the determination of net income.
a.
True
b.
False
Chapter 16: Statement of Cash Flows
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
9.
Cash flows from financing activities, as part of the statement of cash flows, would include any payments
for
dividends.
a.
True
b.
False
Chapter 16: Statement of Cash Flows
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 16: 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
Chapter 16: Statement of Cash Flows
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
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
Chapter 16: Statement of Cash Flows
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
21.
In preparing the statement of cash flows, the correct order of reporting cash activities is financing, operating,
and
investing.
a.
True
b.
False
Chapter 16: Statement of Cash Flows
22.
A cash flow per share amount should be reported on the statement of cash flows.
a.
True
b.
False
23.
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
24.
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
Chapter 16: Statement of Cash Flows
25.
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
26.
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
27.
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
Chapter 16: Statement of Cash Flows
28.
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
29.
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
30.
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
Chapter 16: Statement of Cash Flows
31.
The declaration and issuance of a stock dividend would be reported on the statement of cash flows.
a.
True
b.
False
32.
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
33.
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 16: Statement of Cash Flows
34.
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
35.
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
36.
A building with a cost of $153,000 and accumulated depreciation of $42,000 was sold for a $11,000 gain.
When
using the indirect method, the cash generated from this investing activity was $121,000.
a.
True
b.
False
Chapter 16: Statement of Cash Flows
37.
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
38.
Cash paid to acquire treasury stock should be shown on the statement of cash flows under investing activities.
a.
True
b.
False
39.
Repayments of bonds would be shown as a cash outflow in the investing section of the statement of cash flows.
a.
True
b.
False
Chapter 16: Statement of Cash Flows
40.
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
41.
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
42.
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
Chapter 16: Statement of Cash Flows
43.
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
44.
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
45.
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
Chapter 16: Statement of Cash Flows
46.
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 merchandise sold.
a.
True
b.
False
47.
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
48.
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 payable other than depreciation.
a.
True
b.
False
Chapter 16: Statement of Cash Flows
49.
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
50.
Free cash flow is cash flow from operations less cash used to purchase fixed assets to maintain productive
capacity.
a.
True
b.
False
51.
Free cash flow is the measure of operating cash flow available for corporate purposes after providing sufficient
fixed asset additions to maintain current productive capacity.
a.
True
b.
False
Chapter 16: Statement of Cash Flows
52.
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
53.
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
54.
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 16: Statement of Cash Flows
55.
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
56.
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
57.
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 16: Statement of Cash Flows
58.
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
59.
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
60.
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