Chapter 12 & 13
The order of presentation of activities on the statement of cash flows is
Operating, Investing, and Financing
The account, Stock Investments, is
a long-term investment account
If the equity method is being used, cash dividends received
are credited to the Stock Investments account
If a company has both inflow and outflow cash related to property, plant, and equipment, the
cash inflow and cash outflow should be reported separately in the investing activities section
Land acquired from the issuance of common stock is reported
in a separate schedule at the bottom of the statement of cash flows
Corporations invest in other companies for all of the following reasons except to
increase trading of the other companies' stock
When a company holds stock of several different corporations, the group of securities is identified as a(n)
investment portfolio
The cost method of accounting for long-term investment in stock should be employed when the
investor has significant influence on the investee and the stock held by the investor are marketable equity securities
If a company acquires a 40% common stock interest in another company,
the equity method is usually applicable
Which of the following is the correct matching concerning an investor's influence on the operations and financial affairs of an investee?
% of Investor Ownership: between 20% and 50% Presumed Influence: Significant
Corporations purchase investments in debt or stock securities generally for one of two reasons.
False
In accounting for stock investments of less than 20%, the equity method is used.
False
Noncash investing and financing activities must be reported in the body of a statement of cash flows.
False
When debt investments are sold, the gain or loss is the difference between the net proceeds from the sale and the fair value of the bonds.
False
A reason some companies purchase investments is because they generate a significant portion of their earnings from investment income
True
Consolidated financial statements are appropriate when an investor controls an investee by ownership of more than 50% of the investee's common stock.
True
Free cash flow equals cash provided by operations less capital expenditures and cash dividends.
True
If an investor owns between 20% and 50% of an investee's common stock, it is presumed that the investor has significant influenced on the investee.
True
The sale of land for cash would be classified as a cash inflow from an investing activity.
True
To be classified as a short-term investment, the investment must be readily marketable and intended to be converted into cash within the next year or operating cycle.
True
Investing activities include
collecting cash on loans made
In accounting for stock investments between 20% and 50%, the ____ method is used.
equity
Pension funds and mutual funds regularly invest in debt and stock securities to
generate earnings
When an investor owns between 20% and 50% of the common stock of a corporation, it is generally presumed that the investor
has significant influence on the investee and that the equity method should be used to account for the investment
Financing activities involve
issuing debt
If an investor owns less than 20% of the common stock of another corporation as a long-term investment,
it is presumed that the investor has relatively little influence on the investee
Financing activities involve
long-term liability and stockholders' equity items
If the cost method, is used to account for long-term investment in common stock,
net income of the investee is not considered earned by the investor until dividends are declared by the investee
Generally, the most important category on the statement of cash flows from
operating activities
The primary purpose of the statement of cash flows is to
provide information about the cash receipts and cash payments during a period
The statement of cash flows
summarises the operating, financing, and investing activities of an entity
Under the equity method of accounting for long-term investments in common stock, when a dividend is received from the investee company,
the Stock Investments account is decreased
The statement of cash flows is prepared from all of the following except
the adjusted trial balance
In addition to the three basic financial statements, which of the following is also a required financial statement?
the statement of cash flows
Cash flow from investing activities is considered the most important category on the statement of cash flows because it is considered the best measure of expected income.
False