69) Match each of the following line items with the type of ACTIVITY OR ACTIVITIES
found on the statement of cash flows. Each can be used more than once.
a. cash inflow from operating activities
b. cash outflow for operating activities
c. cash inflow from investing
d. cash outflow for investing
e. cash inflow from financing
f. cash outflow for financing
g. noncash item
h. reported in a schedule at the bottom of the statement of cash flows
______ 1. payment of a cash dividend
______ 2. collection of accounts receivable
______ 3. repayment of loan principal
______ 4. purchase of inventory
______ 5. sale of used equipment
______ 6. amortization of a patent
______ 7. cash sales
______ 8. purchase of store supplies
______ 9. payment of interest
______ 10. sale of land in exchange for a note payable
70) Match each of the following line items with the type of activity.
a. operating activities
b. investing activities
c. financing activities
d. noncash item
______ 1. purchase of land in exchange for stock
______ 2. payment of interest expense
______ 3. issuance of bonds
______ 4. purchase of store equipment
______ 5. sale of a used delivery van
71) Match each of the following line items with the type of activity.
a. operating activities
b. investing activities
c. financing activities
d. noncash item
______ 1. issuance of stock
______ 2. purchase of equipment by issuing a long-term note payable
______ 3. collection of accounts receivable
______ 4. purchase of a stamping machine
72) Match each of the following line items with the type of activity found on the statement of
cash flows. Each activity can be used more than once.
a. operating activities
b. investing activities
c. financing activities
d. noncash item
______ 1. issuance of stock
______ 2. recognition of amortization expense
______ 3. purchase of a building in exchange for stock
______ 4. payment of interest
______ 5. purchase of office supplies
73) Match each of the following line items with the type of activity found on the statement of
cash flows. Each activity can be used more than once.
a. operating activities
b. investing activities
c. financing activities
d. noncash item
______ 1. purchase of equipment by issuing a note payable
______ 2. purchase of treasury stock
______ 3. purchase of equipment with cash
______ 4. sale of used equipment
Learning Objective 9-7
1) Negative cash flow from investing activities on the statement of cash flows means that a
company has ________.
A) paid a large cash dividend to shareholders
B) paid more for operating expenses than it collected from customers
C) sold additional shares of common stock
D) bought additional property, plant and equipment
2) Positive cash flow from investing activities on the statement of cash flows means that a
company has ________.
A) paid a large cash dividend to shareholders
B) paid more for operating expenses than it collected from customers
C) sold additional shares of common stock
D) sold property, plant and equipment
3) Negative cash flow from financing activities on the statement of cash flows means that a
company has ________.
A) paid a large cash dividend to shareholders
B) paid more for operating expenses than it collected from customers
C) sold additional shares of common stock
D) bought additional property, plant and equipment
4) Positive cash flow from financing activities on the statement of cash flows means that a
company has ________.
A) paid a large cash dividend to shareholders
B) paid more for operating expenses than it collected from customers
C) sold additional shares of common stock
D) bought additional property, plant and equipment
5) Positive cash flow from operating activities on the statement of cash flows means that a
company has ________.
A) paid a large cash dividend to shareholders
B) collected more from customers than it paid for operating expenses
C) sold additional shares of common stock
D) bought additional property, plant and equipment
6) Negative cash flow from financing activities on the statement of cash flows most likely
indicates a company is ________.
A) borrowing more than it is paying off
B) buying more long-term assets than it is selling
C) paying off more of its debts than it is borrowing
D) in poor financial health
7) Positive cash flow from financing activities on the statement of cash flows most likely
indicates a company is ________.
A) borrowing more than it is paying off
B) buying more long-term assets than it is selling
C) paying off more of its debts than it is borrowing
D) in poor financial health
8) Negative cash flow from investing activities on the statement of cash flows most likely
indicates a company is ________.
A) borrowing more than it is paying off
B) buying more long-term assets than it is selling
C) paying off more of its debts than it is borrowing
D) in poor financial health
9) Negative cash flow from operating activities on the statement of cash flows most likely
indicates a company is ________.
A) borrowing more than it is paying off
B) buying more long-term assets than it is selling
C) paying off more of its debts than it is borrowing
D) in poor financial health
10) The statement of cash flows helps analysts to evaluate a company’s ability to ________.
A) pay amounts owed
B) invest in long-term assets
C) collect accounts receivable
D) all of these
11) Managers of a company can use the statement of cash flows to make decisions about
________.
A) borrowing
B) buying new equipment
C) issuing corporate stock
D) all of these
12) Analysts use free cash flows to measure ________.
A) the ability of a company to raise money through the sale of stock
B) the amount of money available to pay dividends
C) the amount of cash generated by operating activities
D) a firm’s ability to operate successfully over the long-term
13) Free cash flows measures ________.
A) the ability of a company to raise money through the sale of stock
B) the amount of cash available to pay dividends
C) the amount of excess cash generated by operating activities
D) a firm’s ability to engage in long-term investment opportunities
14) Analysts use the statement of cash flows to measure ________.
A) the ability of a company to repay loans
B) the ability of a company to expand by investing in new equipment
C) the amount of excess cash generated by operating activities
D) all of these
15) Analysts use the statement of cash flows to measure ________.
A) the profitability of a company
B) the amount of the company’s obligations
C) the amount of excess cash generated by operating activities
D) all of these
16) During the year, Team Shirts, Inc. had net cash from operating activities of $50,000; it paid
$10,000 in dividends; and it purchased long-term assets for $30,000. Free cash flow for the year
was ________.
A) $90,000
B) $40,000
C) $20,000
D) $10,000
17) During the year, Team Shirts, Inc. had net cash from operating activities of $50,000; it paid
$20,000 in dividends; it purchased equipment for $30,000; and it purchased office supplies for
$10,000. Free cash flow for the year was ________.
A) $0
B) $(10,000)
C) $10,000
D) $100,000
18) Williston Skateboards had net cash from operating activities of $63,780. During the month,
the firm paid no dividends and $575 in interest. Williston Skateboards also spent $4,925 on
office equipment. Free cash flow for the month was ________.
A) $63,780
B) $63,205
C) $58,280
D) $58,855
19) Williston Skateboards had net cash from operating activities of $33,780. During the month,
the firm paid no dividends and $435 in interest. Williston Skateboards also spent $12,740 on
office equipment. Free cash flow for the month was ________.
A) $20,505
B) $33,780
C) $33,345
D) $21,040
20) In the long run, it is most important that a company has positive cash flow from ________.
A) operating activities
B) investing activities
C) financing activities
D) none of these; it is better to have negative cash flows in the long run
21) Which of the following best indicates that a company is expanding/growing?
A) Positive cash flow from financing activities
B) Positive cash flow from investing activities
C) Negative cash flow from financing activities
D) Negative cash flow from investing activities
22) A continued trend of ________ may indicate a company is in poor financial health.
A) positive cash flow from financing activities
B) positive cash flow from operating activities
C) negative cash flow from operating activities
D) negative cash flow from investing activities
23) Which of the following supplementary disclosures are required by GAAP to be reported on
the statement of cash flows or as a note to the financial statements?
A) interest and taxes paid
B) free cash flow
C) earnings per share
D) operating activities plus dividends plus capital expenditures
24) The following information is available for two different retailers, both of whom began
business this year:
Cash flows from: (in 000’s)
Gnu Co.
Lube Co.
Operating Activities
$ (50,000)
$ 60,000
Investing Activities
30,000
(90,000)
Financing Activities
40,000
50,000
Net increase in cash
$20,000
$20,000
Which company appears to be purchasing long-term assets?
A) Gnu Co.
B) Lube Co.
C) Both are purchasing long-term assets
D) Neither is purchasing long-term assets
25) The following information is available for two different retailers, both of whom began
business this year:
Cash flows from: (in 000’s)
Gnu Co.
Lube Co.
Operating Activities
$ (50,000)
$ 60,000
Investing Activities
30,000
(90,000)
Financing Activities
40,000
50,000
Net increase in cash
$20,000
$20,000
Which company would you expect to have future financial troubles?
A) Gnu Co.
B) Lube Co.
C) Both Gnu Co. and Lube Co.
D) Neither Gnu Co. nor Lube Co.
26) The following information is available for two different retailers, both of whom began
business this year:
Cash flows from: (in 000’s)
Gnu Co.
Lube Co.
Operating Activities
$ (50,000)
$ 60,000
Investing Activities
30,000
(90,000)
Financing Activities
40,000
50,000
Net increase in cash
$20,000
$20,000
Which company would you expect to have high depreciation and/or amortization expense?
A) Gnu Co.
B) Lube Co.
C) Both Gnu Co. and Lube Co.
D) Neither Gnu Co. nor Lube Co.
27) The following information is available for two different retailers, both of whom began
business this year:
Cash flows from: (in 000’s)
Gnu Co.
Lube Co.
Operating Activities
$ (30,000)
$ 60,000
Investing Activities
40,000
(90,000)
Financing Activities
10,000
50,000
Net increase in cash
$20,000
$20,000
Which company would you expect to have high interest expense?
A) Gnu Co.
B) Lube Co.
C) Both Gnu Co. and Lube Co.
D) Neither Gnu Co. nor Lube Co.
28) Free cash flow is cash from operating activities minus dividends and minus capital
expenditures.
29) Free cash flow measures a company’s ability to engage in long-term investment
opportunities.
30) A positive cash flow from investing activities indicates the company is expanding.
31) A negative cash flow from operating activities indicates the company is expanding.
32) A positive cash flow from operating activities indicates the company is healthy.
33) Negative cash flow from operating activities is usually good.
34) A company that has a negative cash flow from operating activities and a positive cash flow
from investing activities may be in poor financial health and having to sell its long-term assets to
pays its current liabilities.
35) A company that has a positive cash flow from operating activities and a negative cash flow
from investing activities may be in poor financial health and having to sell its long-term assets to
pays its current liabilities.
36) Why do investors use free cash flow to analyze a company?