Chapter 12

A company loaned $1,000,000 with interest at 7% to another company. The interest revenue from this loan would be reported on the statement of cash flows as a: A) cash inflow from operating activities. B) cash inflow from investing activities. C) cash inflow from financing activities. D) noncash investing and/or financing activity.

A

Which of the following statements about cash flows from investing activities is correct? A) The proceeds from sales of investments are reported as cash inflows from investing activities. B) Cash flows from investing activities are calculated by making adjustments to net income. C) Cash paid to acquire long-lived assets is reported as a cash inflow from investing activities. D) Cash received from issuing a long-term payable is reported as a cash inflow from investing activities.

A

Which of the following statements is correct? A) Accrual-based net income can be manipulated because it is based on estimates. B) Cash flows are easily manipulated because they are based on estimates. C) Accrual-based net income is not easily manipulated because valuation for such items as bad debts and inventory are precise and based on objectively verifiable information. D) Cash flows are not easily manipulated because they are generated by internal transactions and do not involve external parties.

A

Which of the following would be included in cash flows from operating activities? A) Cash received from customers B) Cash received from an issuance of bonds C) Cash dividends paid to stockholders D) Cash used for purchases of equipment

A

Which of the following statements about the statement of cash flows is not correct? A) The statement of cash flows can be used to assess the likelihood of a company paying dividends. B) Net cash flow is the best measure of profitability since it does not rely on estimates. C) A company can have positive net income but at the same time have negative cash flow. D) The statement of cash flows is the only financial statement that reports business activities.

B

Which of the following journal entries has an effect on cash provided by (used in) operating activities? A) Bad debts expense B) Depreciation expense C) Sale of an investment D) Payment of interest on long-term notes payable

D

Which of the following would be classified as an operating activity on the statement of cash flows using the direct method? A) Cash dividends paid B) Cash received from selling equipment C) Cash paid to retire bonds payable at maturity D) Cash received from accounts receivable collections

D

Maya Company's purchase of 100 shares of Labrador Inc. common stock would be reported as a financing activity on its statement of cash flows.

False

The payment of interest on bonds is classified as a cash outflow from operating activities on the statement of cash flows.

True

The statement of cash flows cannot be used to determine: A) changes in working capital. B) expenditures on long-term assets. C) profitability as measured by specific revenues and expenses. D) reliance on external financing.

C

Which of the following would be included in cash flows from investing activities? A) Cash collected from customers B) Cash received from an issuance of bonds C) Cash dividends paid D) Cash used to purchase equipment

D

Depreciation Expense is not reported on the statement of cash flows when prepared using the direct method.

True

Cash flows from investing activities include cash: A) inflows and outflows reflecting revenues and expenses reported on the income statement. B) inflows from the issuance of bonds. C) inflows from the sale of long-term investments. D) inflows from the sale of a company's own stock to its stockholders.

C

A company purchased money market funds with cash during the current year. Which of the following statement is correct? A) This transaction will result in a decrease in cash from operating activities. B) This transaction will result in a decrease in cash from investing activities. C) This transaction will result in a decrease in cash from financing activities. D) This transaction will not cause a change in cash from operating, investing, or financing activities.

D

Cash flows from investing activities include all of the following except a(n): A) purchase of an automobile. B) sale of a trademark. C) purchase of stock of another company. D) issuance of bonds.

D

Which of the following statements about the statement of cash flows is not correct? A) It does not replace the income statement. B) It provides details as to how cash changed during a period. C) It provides information about cash receipts and cash payments over a period of time. D) It measures profitability. Answer: D

D

A healthy company typically shows positive cash flows in the financing activities section of the statement of cash flows.

False

In the decline phase, the company continues to enjoy positive operating cash flows but stops spending cash on investing activities and instead uses its cash for financing activities such as repaying lenders and returning excess cash to shareholders.

False

Investing activities include receiving cash from the sale of land and also the resulting gain or loss on the sale.

False

The receipts of dividends and interest are both reported as cash inflows from investing activities on the statement of cash flows

False

Under the indirect method, changes in current assets are used in determining cash flows from operating activities and changes in current liabilities are used in determining cash flows from financing activities.

False

Treasury stock purchases made with cash are classified as cash outflows from financing activities on the statement of cash flows.

True

The payment of salaries and wages would be reported as an operating activity on the statement of cash flows.

True

Cash flows from operating activities include all of the following except: A) a purchase of land. B) collections from customers on account. C) payments to employees for hours worked. D) receipt of cash dividends.

A

Cash and cash equivalents include assets that: A) have stable long-term value. B) are short-term, highly liquid, and purchased by the entity within three months of maturity. C) consistently grow in value over the long run. D) are expected to be used up within a year.

B

Suppose a company generally records revenues and expenses before receiving or making cash payments. Which of the following statements is not correct? A) If revenues are falling, a net loss could result even though the company reports a net cash inflow from operating activities. B) If revenues are rising, net income could result even though the company reports a net cash outflow from operating activities. C) Net income and net cash flows provided by operating activities will always agree. D) The income statement doesn't explain changes in cash because it focuses on just the operating results of the business.

C

Which of the following would be reported as a cash outflow from investing activities? A) Donating an old piece of equipment to charity B) Repaying the principal of a bond C) Buying another company's bonds with cash D) Acquiring an investment security by issuing company stock

C

Which of the following would not be included in the cash and cash equivalents amount reported on the balance sheet? A) Money market funds B) Checking accounts C) Treasury bills D) Notes receivable due in 90 days

D

When preparing the operating activities section of the statement of cash flows using the direct method, a gain or loss from selling equipment is reported in the operating activities section of the statement of cash flows.

False

When preparing the operating activities section of the statement of cash flows using the direct method, net income must be adjusted for gains or losses realized when property, plant, and equipment is sold.

False

. The approach to preparing the cash flow statement relies on the following rearrangement of the balance sheet equation: Change in cash = Change in (Liabilities + Stockholders' Equity + Noncash Assets).

False; Assets = Liabilities + Stockholders' Equity Cash + Noncash Assets = Liabilities + Stockholders' Equity Cash = Liabilities + Stockholders' Equity - Noncash Assets Change in cash = Change in (Liabilities + Stockholders' Equity - Noncash Assets)

Major investing and financing activities that do not involve cash do not have to be reported as part of the statement of cash flows.

True

In general, the cash flow from operating activities is considered by many to be the most important component of the statement of cash flows.

True

Using the T-account approach to preparing the statement of cash flows, an increase in Accounts Payable would appear on the debit side of the Cash account.

True

When preparing the operating activities section of the statement of cash flows using the indirect method, an increase in Income Taxes Payable is added to net income.

True

When preparing the operating activities section of the statement of cash flows using the indirect method, a decrease in accounts receivable is subtracted from net income.

False

When preparing the operating activities section of the statement of cash flows using the indirect method, accumulated depreciation is added to net income in the operating section.

False

The reporting of financing activities is identical under the indirect and direct methods for the statement of cash flows on the statement of cash flows.

True

The statement of cash flows explains the difference between the beginning and ending balances of cash and cash equivalents.

True

When the net cash flows from operating, investing, and financing activities are combined to arrive at the overall net change in cash, a net decrease in cash is subtracted from the beginning cash balance to calculate the ending cash balance.

true