ACCT 301 CH 23 True/False

Question 1

The primary purpose of the statement of cash flows is to provide cash-basis information about the company’s operating, investing, and financing activities.

Answer 1

False

Question 2

The statement of cash flows provides information to help investors and creditors assess the cash and noncash investing and financing transactions during the period.

Answer 2

True

Question 3

Companies classify some cash flows relating to investing or financing activities as operating activities.

Answer 3

True

Question 4

The first step in the preparation of the statement of cash flows is to determine the net cash flow from operating activities.

Answer 4

False

Question 5

The net increase (decrease) in cash reported on the statement of cash flows should reconcile the beginning and ending cash balances reported in the comparative balance sheets.

Answer 5

True

Question 6

Under the accrual basis of accounting, net income is usually the same as net cash flow from operating activities.

Answer 6

False

Question 7

A company can convert net income to net cash flow from operating activities through either the direct method or the indirect method.

Answer 7

True

Question 8

The direct method, also called the reconciliation method, reports cash receipts and cash disbursements from operating activities.

Answer 8

False

Question 9

The indirect method adjusts net income for items that affected reported net income but did not affect cash.

Answer 9

True

Question 10

The FASB encourages the use of the indirect method over the direct method.

Answer 10

False

Question 11

When accounts receivable decrease during a period, cash-basis revenues are higher than revenues reported on an accrual basis.

Answer 11

True

Question 12

When prepaid expenses decrease during a period, expenses on the accrual-basis are lower than they are on a cash-basis.

Answer 12

False

Question 13

Income from an investment in common stock using the equity method is added to net income in computing net cash provided from operating activities.

Answer 13

False

Question 14

Cash receipts from customers are computed by adding a decrease in accounts receivable to revenue from sales.

Answer 14

True

Question 15

Cash payments for operating expenses are computed by subtracting an increase in prepaid expenses and a decrease in accrued expenses payable from operating expenses.

Answer 15

False

Question 16

A company should add back bond premium amortization to net income to arrive at net cash flow from operating activities.

Answer 16

False

Question 17

Companies report the cash flows from purchases and sales of trading securities as cash flows from operating activities.

Answer 17

True

Question 18

Noncash investing and financing activities are disclosed either in a separate schedule or in a separate note to the financial statements.

Answer 18

True

Question 19

When numerous adjustments are necessary, companies often use a cash flow worksheet instead of preparing a statement of cash flows.

Answer 19

False

Question 20

The issuance of stock dividends is entered on the cash flow worksheet, but is not reported in the statement of cash flows.

Answer 20

True