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ACC 560 WeeK 10 Quiz 13
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TRUE-FALSE STATEMENTS
1. The statement of cash flows is a required statement that must be prepared along with an income statement, balance sheet, and retained earnings statement.
2. For external reporting, a company must prepare either an income statement or a statement of cash flows, but not both.
3. A primary objective of the statement of cash flows is to show the income or loss on investing and financing transactions.
4. A statement of cash flows indicates the sources and uses of cash during a period.
5. A statement of cash flows should help investors and creditors assess the entity’s ability to generate future income.
6. The information in a statement of cash flows helps investors and creditors assess the company’s ability to pay dividends and meet obligations.
7. Financial statement readers can determine future investing and financing transactions by examining a company’s statement of cash flows.
8. In preparing a statement of cash flows, the issuance of debt should be reported separately from the retirement of debt.
9. Noncash investing and financing activities must be reported in the body of a statement of cash flows.
10. The statement of cash flows classifies cash receipts and payments as operating, nonoperating, financial, and extraordinary activities.
11. The sale of land for cash would be classified as a cash inflow from an investing activity.
12. 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.
13. The receipt of dividends from long-term investments in stock is classified as a cash inflow from investing activities.
14. The payment of interest on bonds payable is classified as a cash outflow from operating activities.
15. Any item that appears on the income statement would be considered as either a cash inflow or cash outflow from operating activities.
16. The acquisition of a building by issuing bonds would be considered an investing and financing activity that did not affect cash.
17. All major financing and investing activities affect cash.
18. Cash provided by operations is generally equal to operating income.
19.Using the indirect method, an increase in accounts receivable during a period is deducted from net income in calculating cash provided by operations.
20. Using the indirect method, an increase in accounts payable during a period is deducted from net income in calculating cash provided by operations.
21. A loss on sale of equipment is added to net income in determining cash provided by operations under the indirect method.
22. 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.
23. Cash provided by operating activities fails to take into account that a company must invest in new fixed assets just to maintain its current level of operations.
24. Free cash flow equals cash provided by operations less capital expenditures and cash dividends.
a25. The use of a worksheet to prepare a statement of cash flows is optional.
a26. During the year, Income Tax Expense amounted to $30,000 and Income Taxes Payable increased by $4,000; therefore, the cash paid for income taxes was $26,000.
a27. The loss on disposal of plant assets is a debit to the operating section of the cash account.
a28. The change in cash is equal to the change in liabilities less the change in equity plus the change in noncash assets.
a29. During a period, cost of goods sold + an increase in inventory + an increase in accounts payable = cash paid to suppliers.
a30. Operating expenses + an increase in prepaid expenses – a decrease in accrued expenses payable = cash payments for operating expenses.
31. The statement of cash flows classifies cash receipts and cash payments into two categories: operating activities and nonoperating activities.
32. Financing activities include the obtaining of cash from issuing debt and repaying the amounts borrowed.
33. The adjusted trial balance is the only item needed to prepare the Statement of Cash Flows.
34. Under the indirect method, retained earnings is adjusted for items that affected reported net income but did not affect cash.
a35. The reconciling entry for depreciation expense in a worksheet is a credit to Accumulated Depreciation and a debit to Operating-Depreciation Expense.
a36. Under the direct method, the formula for computing cash collections from customers is sales revenues plus the increase in accounts receivable or minus the decrease in accounts receivable.
MULTIPLE CHOICE QUESTIONS
37. The statement of cash flows should help investors and creditors assess each of the following except the
a. entity’s ability to generate future income.
b. entity’s ability to pay dividends.
c. reasons for the difference between net income and net cash provided by operating activities.
d. cash investing and financing transactions during the period.
38. 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.
39. Which one of the following items is notgenerally used in preparing a statement of cash flows?
a. Adjusted trial balance
b. Comparative balance sheets
c. Current income statement
d. Additional information
40. 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.
41. 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.
42. In addition to the three basic financial statements, which of the following is also a required financial statement?
a. the “Cash Budget”
b. the Statement of Cash Flows
c. the Statement of Cash Inflows and Outflows
d. the “Cash Reconciliation”
43. The statement of cash flows will notreport 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.
44. The statement of cash flows reports each of the following except
a. cash receipts from operating activities.
b. cash payments from investing activities.
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