Module 4 - Statement of Cash Flows and Shareholder's Equity

Question 1

What is the purpose of the Statement of Cashflow?

5 objectives

Answer 1

• Assess company’s ability to generate cash
• Assess company’s ability to meet financial obligations or pay dividends
• Identify potential needs for additional financing
• identify difference between net income and cash flows
• assess effects of cash and noncash investing and financing transactions

Question 2

Cash flow is reported by method and category. Name the 2 methods and 3 categories associated with reporting cash flow.

Answer 2

Direct: Procedure for recording all cash transactions, inflows and outflows for the year

Indirect: Procedure for adjusting net income for those items that do not affect cash flow from an accrual method to a cash basis.

Both divide cash flow into 3 categories:

1. Operating
2. Investing
3. Financing

Question 3

what is the purpose of the statement of shareholder’s equity?
(6 items)

Answer 3

• Reflect changes in equity section of the balance sheet
• Identify number of shares of treasury stock
• Identify cash dividends declared
• Identify number of shares outstanding and new shares issued
• show proceeds from stock issued
• Meet FASB requirements

Question 4

What is the purpose of the statement of cash flows?
A. To increase the ability for a company to generate cash
B. To identify the difference between net income and cash flows
C. To disclose the company’s amount of profit and loss
D. To determine values of sales incentive/ Bonus plans

Answer 4

B. To identify the difference between net income and cash flows.

Question 5

Which method of reporting cash flow adjusts each item on the income statement from an accrual basis to cash?

A. Investing
B. Indirect
C. Operating
D. Direct

Answer 5

B. Indirect

Question 6

Purchase or sale of assets should be classified on the statement of cash flows as which of the following activities?

A. Operating
B. Financing
C. Reconciliation
D. Investing

Answer 6

D. Investing

Question 7

Which of the following is included in operating cash inflows?
A. Money the company receives from the issuance of bonds.
B. Proceeds from borrowing money from banks
C. Interest received
D. Money received from the sale of property

Answer 7

C. Interest received

Question 8

Which of the statements below applies to the statement of shareholder’s equity?

A. It reflects changes in the equity section of the balance sheet
B. It identifies number of units sold
C. It identifies divestiture of assets used in production of goods or services
D. It identifies investments in property, plan and equipment.

Answer 8

A. It reflects changes in the equity section of the balance sheet