ACC 12

The statement of cash flows a. must be prepared on a daily basis. b. summarizes the operating, financing, and investing activities of an entity. c. is another name for the income statement. d. is a special section of the income statement.

Which one of the following items is not generally used in preparing a statement of cash flows? a. Adjusted trial balance. b. Comparative balance sheets. c. Current income statement. d. Additional information.

The primary purpose of the statement of cash flows is to a. provide information about the investing and financing activities during a period. b. prove that revenues exceed expenses if there is a net income. c. provide information about the cash receipts and cash payments during a period. d. facilitate banking relationships.

If a company reports a net loss, it a. may still have a net increase in cash. b. will not be able to pay cash dividends. c. will not be able to get a loan. d. will not be able to make capital expenditures.

In addition to the three basic financial statements, which of the following is also a required financial statement? a. The Cash Budget. b. Statement of Cash Flows. c. Statement of Cash Inflows and Outflows. d. The Cash Reconciliation.

The statement of cash flows will not report the a. amount of checks outstanding at the end of the period. b. sources of cash in the current period. c. uses of cash in the current period. d. change in the cash balance for the current period.

All of the following statements are true regarding cash flow presentations except a. the balance sheet provides only limited information about a company's cash flows. b. the balance sheet provides information about how property, plant, and equipment were financed. c. the income statement does not show how much cash was generated by operating activities. d. if cash from operations is compared to net income, information about the quality of reported net income is revealed.

The acquisition of land by issuing common stock is a. a noncash transaction that is not reported in the body of a statement of cash flows. b. a cash transaction and would be reported in the body of a statement of cash flows. c. a noncash transaction and would be reported in the body of a statement of cash flows. d. only reported if the statement of cash flows is prepared using the direct method.

The order of presentation of activities on the statement of cash flows is a. operating, investing, and financing. b. operating, financing, and investing. c. financing, operating, and investing. d. financing, investing, and operating.

Financing activities involve a. lending money. b. acquiring investments. c. issuing debt. d. acquiring long-lived assets.

Investing activities include a. collecting cash on loans made. b. obtaining cash from creditors. c. obtaining capital from owners. d. repaying money previously borrowed.

Generally, the most important category on the statement of cash flows is cash flows from a. operating activities. b. investing activities. c. financing activities. d. significant noncash activities.

The category that is generally considered to be the best measure of a company's ability to continue as a going concern is a. cash flows from operating activities. b. cash flows from investing activities. c. cash flows from financing activities. d. usually different from year to year.

Cash receipts from interest and dividends are classified as a. financing activities. b. investing activities. c. operating activities. d. either financing or investing activities.

Assume that the Fitzgerald Corporation uses the indirect method to depict cash flows. Indicate where, if at all, a stock dividend declared and issued would be classified on the statement of cash flows. a. Operating activities section. b. Investing activities section. c. Financing activities section. d. Does not represent a cash flow.

Assume that the Fitzgerald Corporation uses the indirect method to depict cash flows. Indicate where, if at all, accounts receivable collected would be classified on the statement of cash flows. a. Operating activities section. b. Investing activities section. c. Financing activities section. d. Does not represent a cash flow.

Assume that the Fitzgerald Corporation uses the indirect method to depict cash flows. Indicate where, if at all, inventory purchased with cash would be classified on the statement of cash flows. a. Operating activities section. b. Investing activities section. c. Financing activities section. d. Does not represent a cash flow.

Assume that the Fitzgerald Corporation uses the indirect method to depict cash flows. Indicate where, if at all, long-term debt retired with cash would be classified on the statement of cash flows. a. Operating activities section. b. Investing activities section. c. Financing activities section. d. Does not represent a cash flow.

If a company has both an inflow and outflow of cash related to property, plant, and equipment, the ______________ in the investing activities section. a. two cash effects must be netted and presented as one item b. cash inflow and cash outflow must be reported separately c. cash outflow is only is presented d. cash inflow and cash outflow can either be reported separately or presented as one item

Of the items below, the one that appears first on the statement of cash flows is a. noncash investing and financing activities. b. net increase (decrease) in cash. c. cash at the end of the period. d. cash at the beginning of the period.

Which of the following transactions does not affect cash during a period? a. Write-off of an uncollectible account. b. Collection of an accounts receivable. c. Sale of treasury stock. d. Redeeming bonds before maturity.

Significant noncash transactions would not include a. conversion of bonds into common stock. b. asset acquisition through bond issuance. c. treasury stock acquisition. d. exchange of plant assets.

Preferred stock issued in exchange for land would be reported in the statement of cash flows in a. the cash flows from financing activities section. b. the cash flows from investing activities section. c. a separate schedule or note to the financial statements. d. the cash flows from operating section.

In preparing a statement of cash flows, a conversion of bonds into common stock will be reported in a. the financing section. b. the "extraordinary" section. c. a separate schedule or note to the financial statements. d. the stockholders' equity section.

On the statement of cash flows, the cash flows from operating activities section would include a. receipts from the issuance of capital stock. b. receipts from the sale of investments. c. payments for the acquisition of investments. d. cash receipts from sales activities.

Cash flows from operating activities, as reported on the statement of cash flows under the indirect method, would include a. receipts from the sale of investments. b. net income. c. payments for dividends. d. receipts from the issuance of capital stock.

The issuance of debt to purchase assets would be classified as a(n) a. operating activity. b. investing activity. c. financing activity. d. none of these answers are correct.

The payment of a cash dividend would be classified as a(n) a. operating activity. b. investing activity. c. financing activity. d. significant noncash activity.

Which of the following activities would be classified as an investing activity? a. Cash received from interest revenue. b. Cash paid (loaned) to a borrower as a loan. c. Cash received from dividend revenue. d. Cash paid to reacquire capital stock.

Which of the following is the first step in preparing the statement of cash flows? a. Determine the net cash provided by operating activities. b. Determine the net income. c. Determine net cash provided by investing and financing activities. d. Determine the net increase (decrease) in cash.

In order to determine net cash provided by operating activities, a company must convert net income from an accrual basis to a cash basis under a. the direct method only. b. the indirect method only. c. both the direct method and the indirect method. d. neither the direct nor the indirect method.

Cash from investing becomes positive and cash from financing becomes more negative during the a. introductory phase. b. growth phase. c. maturity phase. d. decline phase.

Cash generated from operations exceeds investing needs, and the company can begin retiring debt during the a. introductory phase. b. growth phase. c. maturity phase. d. decline phase.

Collections on accounts receivable will lag behind sales, and accrual sales during a period will exceed cash collections during the a. introductory phase. b. growth phase. c. maturity phase. d. decline phase.

A company would be expected to generate small amounts of cash from operations during the a. introductory phase. b. growth phase. c. maturity phase. d. decline phase.

The phase in the product life cycle when a company is purchasing fixed assets and beginning to produce and sell is the a. introductory phase. b. growth phase. c. maturity phase. d. decline phase.

Cash from operations and net income are approximately the same during the a. introductory phase. b. growth phase. c. maturity phase. d. decline phase.

Which of the following is not typically a characteristic experienced by a company during the introductory phase of the corporate life cycle? a. Cash used in operations will exceed cash generated by operations. b. Considerable cash will be used to purchase productive assets. c. Cash from investing is positive. d. Cash from financing is positive.

Which of the following is not typically a characteristic experienced by a company during the growth phase of the corporate life cycle? a. Cash from operations on the statements of cash flows will be less than net income on the income statement. b. Collections on accounts receivable will lag behind sales. c. Cash from investing is positive. d. Cash from financing is positive.

Which of the following would not create a cash flow? a. Sale of equipment at book value. b. Purchase of a delivery truck. c. Payment of a cash dividend. d. The company converts bonds into common stock.

The information to prepare the statement of cash flows comes from all of the following sources except a. comparative balance sheets. b. additional transaction data about cash provided or used during the period. c. adjusted trial balance. d. current income statement.

Which one of the following items is not necessary in preparing a statement of cash flows? a. Determine the change in cash. b. Determine the cash provided by operations. c. Determine cash from financing and investing activities. d. Determine the cash in each of the bank accounts.

If accounts receivable have increased during the period a. revenues on an accrual basis are less than revenues on a cash basis. b. revenues on an accrual basis are greater than revenues on a cash basis. c. revenues on an accrual basis are the same as revenues on a cash basis. d. expenses on an accrual basis are greater than expenses on a cash basis.

If accounts payable have increased during a period a. revenues on an accrual basis are less than revenues on a cash basis. b. expenses on an accrual basis are less than expenses on a cash basis. c. expenses on an accrual basis are greater than expenses on a cash basis. d. expenses on an accrual basis are the same as expenses on a cash basis.

Which one of the following affects cash during a period? a. Recording depreciation expense. b. Declaration of a cash dividend. c. Write-off of an uncollectible account receivable. d. Payment of an accounts payable.

In calculating cash flows from operating activities using the indirect method, a gain on the sale of equipment is a. added to net income. b. deducted from net income. c. ignored because it does not affect cash. d. not reported on a statement of cash flows.

In calculating cash flows from operating activities using the indirect method, a loss on the sale of equipment is a. added to net income. b. deducted from net income. c. ignored because it does not affect cash. d. not reported on a statement of cash flows.

Starting with net income and adjusting it for items that affected reported net income but which did not affect cash is called the a. direct method. b. indirect method. c. working capital method. d. cost-benefit method.

In calculating net cash provided by operating activities using the indirect method, an increase in prepaid expenses during a period is a. deducted from net income. b. added to net income. c. ignored because it does not affect income. d. ignored because it does not affect expenses.

Using the indirect method, patent amortization expense for the period a. is deducted from net income. b. causes cash to increase. c. causes cash to decrease. d. is added to net income.

In developing the cash flows from operating activities, most companies in the United States a. use the direct method. b. use the indirect method. c. present both the indirect and direct methods in their financial reports. d. prepare the operating activities section on the accrual basis.

Which of the following would be subtracted from net income using the indirect method? a. Depreciation expense. b. An increase in accounts receivable. c. An increase in accounts payable. d. A decrease in prepaid expenses.

Which of the following would be added to net income using the indirect method? a. An increase in accounts receivable. b. An increase in prepaid expenses. c. Depreciation expense. d. A decrease in accounts payable.

Which of the following would not be an adjustment to net income using the indirect method? a. Depreciation Expense. b. An increase in Prepaid Insurance. c. Amortization Expense. d. An increase in Land.

In calculating cash flows from operating activities using the indirect method, a loss on the sale of equipment will appear as a(n) a. subtraction from net income. b. addition to net income. c. addition to cash flow from investing activities. d. subtraction from cash flow from investing activities.

Which of the following adjustments to convert net income to net cash provided by operating activities is not added to net income? a. Gain on Disposal of Equipment. b. Depreciation Expense. c. Patent Amortization Expense. d. Depletion Expense.

Using the indirect method, if equipment is sold at a gain, the a. sale proceeds received are deducted in the operating activities section. b. sale proceeds received are added in the operating activities section. c. amount of the gain is added in the operating activities section. d. amount of the gain is deducted in the operating activities section.

On the statement of cash flows using the indirect method, patent amortization expense will a. be added to net income in the operating section. b. be deducted from net income in the operating section. c. appear as an inflow of cash in the investing section. d. appear as an outflow of cash in the investing section.

The indirect and direct methods of preparing the statement of cash flows are identical except for the a. significant noncash activity section. b. operating activities section. c. investing activities section. d. financing activities section.

If $2,500,000 of bonds are issued during the year but $4,000,000 of old bonds are retired during the year, the statement of cash flows will show a(n) a. net increase in cash of $1,500,000. b. net decrease in cash of $1,500,000. c. increase in cash of $2,500,000 and a decrease in cash of $4,000,000. d. net loss on retirement of bonds of $1,500,000.

Which of the following changes in retained earnings during a period will be reported in the financing activities section of the statement of cash flows? 1. Declaration and payment of a cash dividend during the period. 2. Net income for the period. a. 1. b. 2. c. Neither 1 nor 2. d. Both 1 and 2.

The statement of cash flows a. is prepared instead of an income statement under generally accepted accounting principles. b. is used to assess an entity's ability to pay dividends and meet obligations. c. is prepared from comparative income statements. d. reflects earnings per share figures on a cash basis and on an accrual basis in the body of the statement.

In preparing the statement of cash flows, determining the net increase or decrease in cash requires the use of a. the adjusted trial balance. b. the current period's retained earnings statement. c. a comparative balance sheet. d. a comparative income statement.

To determine the net cash provided (used) by operating activities, it is necessary to analyze a. the current year's income statement. b. a comparative balance sheet. c. additional information. d. All of these answer choices are correct.

Which of the following would not be needed to determine net cash provided by operating activities? a. Depreciation expense. b. Change in accounts receivable. c. Payment of cash dividends. d. Change in prepaid expenses.

When equipment is sold for cash, the amount received is reflected as a cash a. inflow in the operating section. b. inflow in the financing section. c. inflow in the investing section. d. outflow in the operating section.

The statement of cash flows will not provide insight into a. why dividends were not increased. b. whether cash flow is greater than net income. c. the exact proceeds of a future bond issue. d. how the retirement of debt was accomplished.

If a gain of $45,000 is incurred in selling (for cash) office equipment having a book value of $180,000, the total amount reported in the cash flows from investing activities section of the statement of cash flows is a. $135,000. b. $180,000. c. $225,000. d. $45,000.

When using the indirect method to compute cash provided by operating activities a. income taxes paid may be ignored. b. amortization expense is added to net income. c. decreases in inventory are subtracted from net income. d. increases in accounts receivable are added to net income.

A transaction involving a gain on the sale of equipment affects cash provided (used) by a. financing and investing activities. b. operating and financing activities. c. operating and investing activities. d. operating, financing, and investing activities.

All of the following adjustments are added to net income in computing net cash provided by operating activities except a. amortization expense. b. a decrease in accounts receivable. c. an increase in accounts payable. d. an increase in prepaid expenses.

All of the following adjustments would be deducted in determining net cash provided by operating activities except a(n) a. increase in inventories. b. depreciation expense. c. gain on disposal of plant assets. d. decrease in accrued expenses payable.

Each of the following is an adjustment to convert net income to net cash provided by operating activities except a. adding back noncash expenses. b. adding gains and deducting losses. c. analyzing changes to noncash current asset and current liability accounts. d. All of these answer choices are adjustments.

The current cash debt coverage is computed by dividing a. average current liabilities by cash provided by operating activities. b. cash provided by operating activities by average current liabilities. c. ending current liabilities by cash provided by operating activities. d. cash provided by operating activities by ending current liabilities.

The current cash debt coverage is used to evaluate a. solvency. b. profitability. c. liquidity. d. earning power.

The cash debt coverage is computed by dividing net cash provided by operating activities by a. average current liabilities. b. net sales. c. average long-term liabilities. d. average total liabilities.

Free cash flow provides an indication of a company's ability to a. generate cash to invest in new capital expenditures. b. generate net income. c. generate cash to pay dividends. d. both (a) and (c).

All of the following statements about free cash flow are false except a. significant free cash flow indicates less potential to finance new investment. b. free cash flow is most commonly calculated by subtracting capital expenditures from cash provided by operations and then adding cash dividends. c. free cash flow is not reported on the statement of cash flows. d. significant free cash flow indicates less potential to pay additional dividends.

Typically a value below what amount for the current cash debt coverage ratio should be further investigated? a. 2.0. b. 1.4. c. 0.6. d. 0.4.

Which of the following items does not appear in the statement of cash flows under the direct method? a. Cash payments to suppliers. b. Cash collections from customers. c. Depreciation Expense. d. Cash from the sale of equipment.

Which of the following would not appear in the operating activities section of a statement of cash flows prepared under the direct method? a. Cash receipts from customers. b. Cash paid for income taxes. c. Gain on sale of equipment. d. Cash paid to employees.

Which of the following statements concerning the statement of cash flows is true? a. The statement of cash flows is usually more accurate when using the indirect method. b. If the direct method is used, a supplementary schedule reconciling the net income to net cash from operating activities must still be provided. c. The statement of cash flows reflects both earnings per share and cash per share. d. The statement of cash flows is an optional financial statement for external reporting purposes.