ACCN-4110 Int Accn 2 Chp 21

During the current period, Schmidt Corp. disposed of old equipment and received $1,000 cash; purchased new equipment for $10,000 cash; paid an accounts payable balance of $2,500; and sold an investment costing $2,000 for $2,800. Net cash from investing activities is (indicate the amount and whether it is a net inflow or outflow) $7,000 net outflow $6,200 net inflow $8,700 net outflow $6,200 net outflow

$6,200 net outflow 1,000 - 10,000 + 2,800

Which of the following financial statements tends to provide the best indication of current operating performance? Balance sheet Income statement Statement of cash flows Statement of owners' equity

Income statement

Which of following statements regarding the profitability of companies and role of cash flows is correct? a. Profitable entities that cannot generate sufficient cash can fail. b. Entities with good cash flows are always profitable. c. Profitable entities always generate sufficient cash.

Profitable entities that cannot generate sufficient cash can fail.

Which of the following would result in a cash inflow from investing activities? Sale of inventory in excess of cost. Sale of the company's common stock for cash. Sale of a machine for cash.

Sale of a machine for cash.

Which of the following may explain why a profitable company may still fail? The company doesn't properly manage its cash flows The company doesn't sufficiently control its expenses The company overprices its products and services

The company doesn't properly manage its cash flows

Which method of presenting the statement of cash flows is currently most frequently used by companies? direct method Both are used about equally frequent The indirect method

The indirect method

Which of the following is correct regarding transfers between cash and cash equivalents with respect to reporting the transfer in the statement of cash flows? These transfers are reported in the noncash transaction section of the statement of cash flows. These transfers are reported in the operating section of the statement of cash flows. These transfers are not reported in the statement of cash flows.

These transfers are not reported in the statement of cash flows.

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? More detail is provided under the indirect method. They are the same More detail is provided under the direct method.

They are the same

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

True or false: Most companies use the direct method to report cash flows from operating activities.

false Most companies report cash flows from operating activities using the indirect method.

Which of the following sources commonly provide funding for investing activities? (Select all that apply.) financing activities operating activities continuing operations

financing activities operating activities

Abner Corp. prepares its statement of cash flows utilizing the direct method. During the current period, its cash from operating activities was $15.5 million. If the company had utilized the indirect method, its cash from operating activities would have been $15.5 million. lower. higher.

$15.5 million.

Which of the following concepts governs recognition of revenue and expense? Conservatism Accrual accounting Matching principle

Accrual accounting

Sales and service revenue

Cash collected from customers

Which of the following is true regarding classification on the statement of cash flows? Cash flows from inventory and property, plant, and equipment are classified as investing activities. Cash flows from inventory are classified as operating while cash flows from property, plant, and equipment are classified as investing. Cash flows from inventory and property, plant, and equipment are classified as operating activities.

Cash flows from inventory are classified as operating while cash flows from property, plant, and equipment are classified as investing.

Which of the following is true regarding classification on the statement of cash flows? Cash flows from inventory are classified as operating while cash flows from property, plant, and equipment are classified as investing. Cash flows from inventory and property, plant, and equipment are classified as operating activities. Cash flows from inventory and property, plant, and equipment are classified as investing activities.

Cash flows from inventory are classified as operating while cash flows from property, plant, and equipment are classified as investing.

Which sections are identical under the direct and indirect method of the statement of cash flows? (Select all that apply.) Cash from investing activities Cash from financing activities Cash from operating activities

Cash from investing activities Cash from financing activities

Which of the following statements is correct regarding the direct and indirect methods of preparing the operating activities section of the statement of cash flows? Cash from operating activities is the same under either method. Cash from operating activities tends to be higher under the direct method. Cash from operating activities tends to be higher under the indirect method.

Cash from operating activities is the same under either method.

Interest expense

Cash paid to creditors

Salaries expense

Cash paid to employees

Tax expense

Cash paid to governments

Cost of goods sold

Cash paid to suppliers of inventory

Investment revenue

Cash received from dividends and interest

Which of the following transactions/events commonly give rise to cash outflows of business entities? (Select all that apply.) Patent amortization is accrued periodically. Common stock is exchanged for a piece of land. Fire insurance is purchased. Employees are paid.

Fire insurance is purchased. Employees are paid.

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 primarily focus on income and less on cash flow information. Investors and creditors rely heavily on cash flow information.

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

Depreciation expense

Not reported

Why is inventory treated differently than property, plant, and equipment when classifying their cash effects on the statement of cash flows? (Select all that apply.) Property, plant, and equipment benefit the business over a relatively long period of time. One has only cash outflows associated with it while the other only has only cash inflows associated with it. Property, plant, and equipment represent a larger dollar amount so they are classified differently. Inventory is purchased and sold as part of the firm's current operations.

Property, plant, and equipment benefit the business over a relatively long period of time. Inventory is purchased and sold as part of the firm's current operations.

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. The firm's ability to obtain additional financing. The firm's ability to generate positive net income.

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

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. The two amounts are always equal. The two amounts are equal if the company does not report any noncash transactions.

The two amounts usually are not the same.

Which of the following statements regarding reporting of transfers between cash and cash equivalents is correct? They are reported to show the difference in the two amounts. They are not reported because the total of cash and cash equivalents does not change. They are reported because cash equivalents involve instruments other than cash.

They are not reported because the total of cash and cash equivalents does not change.

Which of the following statements regarding the recognition of revenues and expenses is correct? They are recognized only if cash has been received or paid. They are recognized even if cash has not been received or paid. They are recognized if it is expected that cash will be received or paid within 90 days of the balance sheet date.

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

Which of the following transactions/events commonly give rise to cash outflows of business entities? (Select all that apply.) Depreciation is accrued periodically. Treasury stock is purchased. Inventory is purchased. Common stock is sold to investors.

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 a reconciliation of operating income to operation cash flows noncash investing and financing activities a reconciliation of operating income to net income

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

The difference between net income and cash from operating activities must be reconciled under only the indirect method. only the direct method. both the direct and indirect method.

both the direct and indirect method.

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 operating activities cash flows from discontinued operations cash flows from continuing operations cash flows from investing activities cash flows from financing activities

cash flows from discontinued operations cash flows from continuing operations

Which of the following are included in the statement of cash flows? (Select all that apply.) cash flows from investing activities cash flows from financing activities noncash investing and financing activities cash flows from discontinued operations cash flows from operating activities cash flows from continuing operations

cash flows from investing activities cash flows from financing activities noncash investing and financing activities cash flows from operating activities

Which of the following are valid categories in the statement of cash flows? (Select all that apply.) cash flows from financing activities cash flows from continuing operations cash flows from investing activities cash flows from discontinued operations cash flows from operating activities

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

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. cash balance for the prior year cash balance for the current year change in the cash balance

change in the cash balance

Greer Company prepares its statement of cash flows using the direct method. Greer should present the reconciliation between net income and cash from operating activities in a supplemental or separate schedule. only if a comparison to prior year financial results is needed. in the first section of the statement of cash flows.

in a supplemental or separate schedule.

Cash flows from operating activities are both inflows and outflows of cash that result from activities reported in the income statement. balance sheet. retained earnings statement.

income statement.

Mark wishes to evaluate Jones Company's current operating performance. Mark will find the most pertinent information in Jones Company's income statement. balance sheet. statement of cash flows.

income statement.

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 direct comprehensive income

indirect

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

indirect

Cash flows from ______ activities are both outflows and inflows of cash caused by the acquisition and disposal of long-term assets.

investing

Which of the following types of noncash transactions are reported in the statement of cash flows? (Select all that apply.) noncash operating activities all noncash activities that affect net income noncash financing activities noncash investing activities

noncash financing activities noncash investing activities

Activities that do not directly increase or decrease cash but that are still reported in the statement of cash flows are classified as: noncash investing and financing activities cash from investing activities cash from financing activities

noncash investing and financing activities

The purchase and sale of cash equivalents typically are _____ on a statement of cash flows not reported reported as financing activity reported as operating activity reported as investing activity

not reported

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

operating

Common types of cash outflows from investing activities include (Select all that apply.) payments to acquire nontrade receivables. purchases of property, plant, and equipment. payment of trade payables. purchases of investment securities.

payments to acquire nontrade receivables. purchases of property, plant, and equipment. purchases of investment securities.

Common types of cash inflows from investing activities include (Select all that apply.) sale of property, plant, and equipment. sale of investment securities. collection of nontrade receivables. collection of trade receivables.

sale of property, plant, and equipment. sale of investment securities. collection of nontrade receivables.

Which of the following are required characteristics of cash equivalents? (Select all that apply.) no risk short-term high interest rate high liquidity low risk

short-term high liquidity low risk