Chapter 22

Which of the following represents a common reason why business entities may fail?

A lack of positive cash flows

Which of the following are properly classified as cash equivalents? (Select all that apply.)

An investment in treasury bills that have been purchased within three months of maturity A money market fund

Which of the following transactions/events commonly give rise to cash inflows for business entities? (Select all that apply.)

Cash is collected from customers. Common stock is sold to investors.

Which of the following transactions/events commonly give rise to cash outflows of business entities? (Select all that apply.)

Employees are paid. Fire insurance is purchased.

What aspect(s) are common to both the spreadsheet approach and the T-account approach for the preparation of a statement of cash flows? (Select all that apply.)

Identify operating, investing and financing activities reported in the statement

Which of the following represents a limitation of income statement information with respect to cash flows?

Information about the timing of cash flows is not shown. The information is provided only indirectly.

Which of the following transactions/events commonly give rise to cash outflows of business entities? (Select all that apply.)

Inventory is purchased. Treasury stock is purchased.

Which of the following statements best describes the importance of cash flow information? (Select all that apply.)

Investors and creditors consider the risk associated with cash flow forecasts. Investors and creditors rely heavily on cash flow information.

Which of the following is critically important with respect to the ultimate potential of a firm to provide cash flows to investors and creditors?

The firm's ability to generate cash flows for itself.

Which of the following represent limitations with respect to cash flows? (Select all that apply.)

The items reported in the income statement are not necessarily reported in the period they occurred. The information in the balance sheet is provided only indirectly.

Which of the following statements is correct regarding the relationship between the cash balance in the balance sheet and the net change in cash reported in the statement of cash flows?

The two amounts usually are not the same.

Which of the following statements regarding the recognition of revenues and expenses is correct?

They are recognized even if cash has not been received or paid.

Which of the following statements regarding reporting of cash from investing and cash from financing activities is correct under the direct and the indirect method?

They are the same

Which of the following transactions/events commonly give rise to cash outflows of business entities? (Select all that apply.)

Treasury stock is purchased. Inventory is purchased.

In addition to the primary activities, what other required information must be presented in a statement of cash flows? (Select all that apply.)

a reconciliation of the net increase or decrease in cash with the change in the cash balance noncash investing and financing activities

Short-term, highly liquid investments that can be readily converted to cash, with little risk of loss, are referred to as

cash equivalent

Which of the following are not valid categories in the statement of cash flows? (Select all that apply.)

cash flows from discontinued operations cash flows from continuing operations

Which of the following are valid categories in the statement of cash flows? (Select all that apply.)

cash flows from operating activities cash flows from financing activities cash flows from investing activities

Statement of Financial Accounting Concepts No. 1 states that the primary objective of financial reporting is to provide investors and creditors with information that helps predict future

cash flows.

Many companies that suffer bankruptcy are unable to generate sufficient to satisfy their obligations. (Enter only one word.)

cash,

The net increase or decrease in the cash flows reported on the statement of cash flows is always equal to the ________ evident from the amounts reported on the comparative balance sheet.

change in the cash balance

The method of reporting cash flows from operating activities reports the cash effect of each operating activity.

direct

The method that reports the cash effect of each operating activity explicitly on the statement of cash flows is referred to as the _____ method

direct

Which of the following transactions must be reported on the statement of cash flows as noncash investing and financing activities?

exchange of the company's common stock for a piece of land

Financing activities are inflows and outflows of cash resulting from the

external financing of a business.

Inflows and outflows of cash resulting from the external funding of a business are cash flows from activities. (Enter one word per blank)

financing

The method of presenting the statement of cash flows that begins with a presentation of net income or net loss is referred to as the ____ method.

indirect

The method of reporting cash flows from operating activities begins with net income and works backward to derive cash from operating activities.

indirect

Which of the following are classified as cash inflows from financing activities? (Select all that apply.)

issuance of bonds sale of common stock

Cash flows from activities are both inflows and outflows of cash that result from activities reported in the income statement

operating

Which of the following are required characteristics of cash equivalents? (Select all that apply.)

short-term low risk high liquidity`

Much of the value of the underlying information provided by the _____ is lost if that information is reported only in the balance sheet.

statement of cash flows

The cash flow statement is intended to help investors and creditors assess the amounts, timing, and Correct Unavailable of future cash flows.

uncertainty