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