Chapter 12 Quiz
A major disadvantage of the indirect method of reporting cash flows from operating activities is that the difference between the net amount of cash flows from operating activities and net income are not emphasized.
False
A primary objective of the statement of cash flows is to show the income or loss on investing and financing transactions.
False
Any item that appears on the income statement would be considered as either a cash inflow or cash outflow from operating activities.
False
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
Cash provided by operations is generally equal to operating income.
False
For external reporting, a company must prepare either an income statement or a statement of cash flows, but not both.
False
In preparing a statement of cash flows, an increase in the Common Stock and Treasury Stock accounts during a period would be an investing activity.
False
A loss on sale of equipment is added to net income in determining cash provided by operations under the indirect method.
True
A statement of cash flows indicates the sources and uses of cash during a period.
True
In preparing a statement of cash flows, the issuance of debt should be reported separately from the retirement of debt.
True
Noncash investing and financing transactions, such as the exchange of common stock to purchase assets, represent significant investing and financing activities and are reflected either in a schedule separate from the statement of cash flows or in a separate note to the financial statements.
True
Operating activities include the cash effects of transactions that create revenues and expenses.
True
The acquisition of a building by issuing bonds would be considered an investing and financing activity that did not affect cash.
True
The payment of interest on bonds payable is classified as a cash outflow from operating activities.
True
The primary purpose of the statement of cash flows is to provide information about a company's cash receipts and cash payments during an accounting period.
True
The sale of land for cash would be classified as a cash inflow from an investing activity.
True
The statement of cash flows explains the difference between net income, as shown on the income statement, and the net cash flows generated from operations.
True
The statement of cash flows is a required statement that must be prepared along with an income statement, balance sheet, and retained earnings statement.
True
Under the indirect method, gains and losses from the sale of equipment used in operations would be included in the cash flows from operating activities section on the statement of cash flows.
True
Using the indirect method, an increase in accounts receivable during a period is deducted from net income in calculating cash provided by operations.
True
Noncash investing and financing activities must be reported in the body of a statement of cash flows.
False
The activity from the balance sheet to be presented in the financing activities section of the statement of cash flows is based on an analysis of stockholders' equity only.
False
The receipt of dividends from long-term investments in stock is classified as a cash inflow from investing activities.
False
The statement of cash flows classifies cash receipts and payments as operating, nonoperating, and extraordinary activities.
False
The statement of cash flows shows the effects on net income of a company's operating, investing, financing activities for an accounting period.
False
Using the indirect method, an increase in accounts payable during a period is deducted from net income in calculating cash provided by operations.
False
