AC 352 - Chapter 4 Quiz

Analyzing the statement of cash flows helps determine the future external financing needs of a business firm. - True - False

- True

Cash flow from operations represents the "cash" income from the company's business operations. - True - False

- True

Cash outflows result from increases in asset accounts and decreases in liability and equity accounts. - True - False

- True

The analyst of financial statements should consider cash flows over a period of time, looking at patterns of performance and exploring underlying causes of strength and weakness. - True - False

- True

The statement of cash flows shows the changes in the balance sheet accounts between periods. - True - False

- True

Cash from sales of property, plant and equipment is considered an operating activity on the cash flow statement - True - False

- False

Proceeds from borrowing are a financing cash outflow. - True - False

- False

The amounts on a cash flow statement cannot be manipulated. - True - False

- False

What is the preferred method to generate cash in a firm? a. Operating activities. b. Investing activities. c. Financing activities. d. Investing and financing activities.

a. Operating activities.

The following item would be classified as an operating activity on the statement of cash flows: a. Payments for inventory. b. Acquisitions of equipment. c. Proceeds from borrowing. d. Payments on loans.

a. Payments for inventory.

Which item may be of concern when analyzing cash flow from financing activities? a. Increasing inventories. b. Borrowing each year to repay debt from prior years. c. Repayment of debt. d. Payments of dividends.

b. Borrowing each year to repay debt from prior years.

Which item is a noncash item that would be added to net income to convert it to cash flow from operating activities? a. Accounts receivable. b. Depreciation. c. Accounts payable. d. Inventory.

b. Depreciation.

The following item would be classified as a financing activity on the statement of cash flows: a. Payments for inventory. b. Payment of dividends. c. Acquisition of land. d. Sales of goods.

b. Payment of dividends.

What is implied if the inventory account has increased? a. Cash flow from financing activities has decreased relative to net income. b. Cash flow from operating activities has increased relative to net income. c. Cash flow from operating activities has decreased relative to net income. d. Cash flow from financing activities has increased relative to net income.

c. Cash flow from operating activities has decreased relative to net income.

Which of the following items would be a way to manipulate the cash flow from operating activities amount on the statement of cash flows? a. Adding depreciation back to net income to determine cash flow from operating activities. b. Including interest expense and tax expense in the calculation of cash flow from operating activities. c. Recording an item that should be recorded as an operating activity as an investing activity. d. The cash flow statement cannot be manipulated.

c. Recording an item that should be recorded as an operating activity as an investing activity.

The following item would be classified as an investing activity on the statement of cash flows: a. Proceeds from borrowing. b. Sale of goods. c. Sale of property. d. Payment to lenders.

c. Sale of property.

How is the statement of cash flows connected to the balance sheet? a. The statement of cash flows shows changes in the asset and liability accounts to explain cash from operating activities. b. The changes in all revenue and expense accounts are calculated and then listed as cash inflows or outflows. c. The changes in all of the balance sheet accounts are calculated and then listed as inflows or outflows, except for cash. d. Changes in asset accounts are recorded as operating activities, changes in liability accounts are recorded as financing activities and changes in equity accounts are recorded as investing activities.

c. The changes in all of the balance sheet accounts are calculated and then listed as inflows or outflows, except for cash.

Which of the following would increase cash from operating activities? a. Increasing accounts receivable. b. Increasing inventories. c. Decreasing accounts payable. d. Decreasing accounts receivable.

d. Decreasing accounts receivable.

Why are gains and losses from asset sales removed from net income when calculating the cash flows from operating activities? a. Selling assets is a noncash item. b. Gains and losses from asset sales are a financing activity. c. Gains and losses are not removed from net income when calculating the cash flows from operating activities d. The entire proceeds from sales of long-lived assets are included in investing activities.

d. The entire proceeds from sales of long-lived assets are included in investing activities.