CH23 Statement of Cashflows Self-Assessment Quiz

Question 1

Mott Company sold some of its plant assets during 2014. The original cost of the plant assets was $1,500,000 and the accumulated depreciation at date of sale was $1,300,000. The proceeds from the sale of the plant assets were $310,000. The information concerning the sale of the plant assets should be shown on Mott’s statement of cash flows (indirect method) for the year ended December 31, 2014, as a (n)

addition of $310,000 to net income.

subtraction from net income of $110,000 and a $200,000 increase in cash flows from financing activities.

subtraction from net income of $110,000 and a $310,000 increase in cash flows from investing activities.

addition to net income of $110,000 and a $310,000 increase in cash flows from investing activities.

Answer 1

subtraction from net income of $110,000 and a $310,000 increase in cash flows from investing activities.

Question 2

All of the following adjustments would be deducted in determining net cash flow from operating activities except:

gain on sale of plant assets.

amortization of bond premium.

increase in accrued liabilities.

decrease in deferred income tax liability.

Answer 2

increase in accrued liabilities.

Question 3

Payment of a stock dividend is classified as a financing activity.

True
False

Answer 3

False

Stock dividends would be disclosed under significant noncash transactions.

Question 4

If a plant asset is sold for cash and a loss results, which sections are affected in the statement of cash flows under the indirect method?

Operating and investing.

Operating and financing.

Financing only.

Investing only.

Answer 4

Operating and investing.

Question 5

When preparing a statement of cash flows (indirect method), an increase in ending inventory over beginning inventory will result in an adjustment to reported net earnings because

cash was increased while cost of goods sold was decreased.

cost of goods sold on an accrual basis is lower than on a cash basis.

inventory purchased during the period was less than inventory sold resulting in a net cash increase.

acquisition of inventory is an investment activity.

Answer 5

cost of goods sold on an accrual basis is lower than on a cash basis.

Question 6

Net cash flow from operating activities is determined by eliminating

earned revenues from net income.

noncash expenses and noncash revenues from net income.

incurred expenses from net income.

cash expenses and cash revenues from net income.

Answer 6

noncash expenses and noncash revenues from net income.

Question 7

To arrive at net cash provided by operating activities, it is necessary to report revenues and expenses on a cash basis. This is done by

eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash.

eliminating all transactions that have no current or future effect on cash, such as depreciation, from the net income computation.

re-recording all income statement transactions that directly affect cash in a separate cash flow journal.

estimating the percentage of income statement transactions that were originally reported on a cash basis and projecting this amount to the entire array of income statement transactions.

Answer 7

eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash.

Question 8

Which method adjusts net income to net cash flows from operating activities?

Adjustment.

Accrual.

Indirect.

Direct.

Answer 8

Indirect.

Question 9

Xanthe Corporation had the following transactions occur in the current year:

1. Cash sale of merchandise inventory.
2. Sale of delivery truck at book value.
3. Sale of Xanthe common stock for cash.
4. Issuance of a note payable to a bank for cash.
5. Sale of a security held as an available-for-sale investment.
6. Collection of loan receivable.

How many of the above items will appear as a cash inflow from investing activities on a statement of cash flows for the current year?

Answer 9

3

Question 10

Which of the following would be classified as a financing activity on a statement of cash flows?

Deposit to a bond sinking fund

Sale of a loan receivable

Payment of interest to a creditor

Declaration and distribution of a stock dividend

Answer 10

Deposit to a bond sinking fund

Question 11

The amortization of bond premium on long-term debt should be presented in a statement of cash flows (using the indirect method for operating activities) as a(n)

financing activity.

addition to net income.

deduction from net income.

investing activity.

Answer 11

deduction from net income.

Question 12

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

True
False

Answer 12

False

Question 13

An increase in short-term notes receivable will be added to net income under the indirect method of preparing the statement of cash flows.

True
False

Answer 13

False

Increases in current assets are deducted from net income in the operating activities section.

Question 14

Under the direct method, a loss on the sale of long-term investments would be shown in the operating activities section.

True
False

Answer 14

False

Under the direct method, a loss on the sale of long-term investments would not be shown on a statement of cash flows.

Question 15

The method of calculating net cash flow from operating activities that results in the presentation of a condensed cash receipts and cash disbursements statement is the:

reconciliation method.
cash flow method.
indirect method.
direct method.

Answer 15

direct method.

Question 16

The method of calculating net cash flow from operating activities that adjusts net income for items that affected reported net income but not cash is the:

indirect method.
direct method.
income statement method.
adjustment method.

Answer 16

indirect method.

Question 17

The reconciliation of net income to net cash flow from operating activities is reported under:

neither the direct nor the indirect method.

the direct method only.

both the direct method and the indirect method.

the indirect method only.

Answer 17

both the direct method and the indirect method.

Question 18

When preparing a statement of cash flows (indirect method), which of the following is not an adjustment to reconcile net income to net cash provided by operating activities?

A change in income taxes payable

All of these are answers are correct

A change in interest payable

A change in dividends payable

Answer 18

A change in dividends payable

Question 19

Under the direct method, cash payments to suppliers equals cost of goods sold:

minus a decrease in inventory and accounts payable.

plus an increase in inventory and minus an increase in accounts payable.

plus an increase in inventory and accounts payable.

minus an increase in inventory and plus a decrease in accounts payable.

Answer 19

plus an increase in inventory and minus an increase in accounts payable.

Question 20

The operating activities section of a statement of cash flows would include cash spent to acquire new equipment.

True
False

Answer 20

False

Question 21

IFRS allows both interest paid and interest received to be classified as either operating or investing cash flows

True
False

Answer 21

False

Under IFRS, interest paid can be classified as either an operating or a financing cash flow.

Question 22

Which of the following statements is incorrect about cash flow accounting with respect to IFRS and U.S. GAAP treatments?

Both U.S. GAAP and IFRS consider bank overdrafts (in certain situations) to be part of cash and cash equivalents.

IFRS encourages companies to disclose the aggregate amount of cash flows that are attributable to the increase in operating capacity separately from those cash flows that are required to maintain operating capacity.

IFRS requires that noncash investing and financing activities be excluded from the statement of cash flows.

Similar to U.S. GAAP, the cash flow statement can be prepared using either the indirect or direct method under IFRS.

Answer 22

Both U.S. GAAP and IFRS consider bank overdrafts (in certain situations) to be part of cash and cash equivalents.

A major difference between U.S. GAAP and IFRS is that in certain situations bank overdrafts are considered part of cash and cash equivalents under IFRS (which is not the case in U.S. GAAP). Under U.S. GAAP, bank overdrafts are classified as financing activities.

Question 23

Unlike U.S. GAAP, IFRS does not specify that companies must classify cash flows as operating, investing, or financing.

True
False

Answer 23

False

Both IFRS and U.S. GAAP specify that companies must classify cash flows as operating, investing, or financing.

Question 24

Which of the following items might be classified differently in a statement of cash flows prepared using IFRS rather than GAAP?

Interest expense paid on bonds.

Dividends paid to preferred shareholders.

Interest revenue received from notes receivable.

All of these answer choices are correct.

Answer 24

All of these answer choices are correct.

Question 25

Which of the following is false with regard to IFRS and the statement of cash flows?

The IASB is strongly in favor of requiring use of the direct method for operating activities.

In certain circumstances under IFRS, bank overdrafts are considered part of cash and cash equivalents.

IFRS requires that noncash investing and financing activities be excluded from the statement of cash flows.

Answer 25

The IASB is strongly in favor of requiring use of the direct method for operating activities.

Question 26

The primary purpose of the statement of cash flows is to provide information

about the cash receipts and cash payments of an entity during a period.

that is useful in assessing cash flow prospects.

about the entity’s ability to meet its obligations, its ability to pay dividends, and its needs for external financing.

about the operating, investing, and financing activities of an entity during a period.

Answer 26

about the cash receipts and cash payments of an entity during a period.

Question 27

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

True
False

Answer 27

True

Question 28

An objective of the statement of cash flows is to

disclose the change in working capital during the period.

None of these answers are correct.

disclose changes during the period in all asset and all equity accounts.

provide information about the operating, investing, and financing activities of an entity during a period.

Answer 28

provide information about the operating, investing, and financing activities of an entity during a period.

Question 29

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

True
False

Answer 29

False

Indirect method is also called reconciliation method, not direct method.

Question 30

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

True
False

Answer 30

True

Question 31

An increase in inventory balance would be reported in a statement of cash flows using the indirect method (reconciliation method) as a(n)

cash outflow from financing activities.

cash outflow from investing activities.

addition to net income in arriving at net cash flow from operating activities.

deduction from net income in arriving at net cash flow from operating activities.

Answer 31

deduction from net income in arriving at net cash flow from operating activities.

Question 32

The information to prepare the statement of cash flows comes from all of the following sources except:

retained earnings statement.

comparative balance sheets.

current income statement.

selected transaction data.

Answer 32

retained earnings statement.

Question 33

When preparing a statement of cash flows (indirect method), which of the following is not an adjustment to reconcile net income to net cash provided by operating activities?

A change in income taxes payable

A change in dividends payable

All of these are adjustments.

A change in interest payable

Answer 33

A change in dividends payable

Question 34

A statement of cash flows typically would not disclose the effects of

a purchase and immediate retirement of treasury stock.

stock dividends declared.

cash dividends paid.

capital stock issued at an amount greater than par value.

Answer 34

stock dividends declared.

Question 35

Which of the following activities would be classified as an investing activity?

Cash paid to purchase land to be held for future use.

Cash received from interest revenue.

Cash paid on account.

Cash received for dividends.

Answer 35

Cash paid to purchase land to be held for future use.

Question 36

Acquiring land and a building by issuing common stock would be reported as:

an investing activity.

a financing activity.

both an investing activity and a financing activity.

a noncash investing and financing activity.

Answer 36

a noncash investing and financing activity.

Acquiring assets by issuing equity securities would be reported as a noncash investing and financing activity.

Question 37

The payment of a cash dividend would be classified as a(n):

operating activity.

investing activity.

financing activity.

significant noncash transaction.

Answer 37

financing activity.

Question 38

The investing activities section of a statement of cash flows would include cash received from dividends on long-term investments in stocks.

True
False

Answer 38

False

Question 39

In a statement of cash flows, the cash flows from investing activities section should report

a major repair to machinery charged to accumulated depreciation.

the issuance of common stock in exchange for a factory building.

stock dividends received.

the assignment of accounts receivable.

Answer 39

a major repair to machinery charged to accumulated depreciation.