Stat. Cash Flows

Question 1

Name the two formats permitted for the statement of cash flows.

Answer 1

Indirect

Direct

Question 2

What is reported on the statement of cash flows?

Answer 2

Information about the cash receipts and cash payments for an entity
The difference between net income and net operating cash flows
Information about investing and financing activities that do not involve cash inflows or outflows

Question 3

What is the cash flow category for collections of principal amounts on loans made to other entities?

Answer 3

The category is investing

Question 4

When is a statement of cash flows required?

Answer 4

For all business enterprises that report both financial position (balance sheet) and results of operations (income statement) for a period

Question 5

Name the four major sections in the direct method cash flow statement.

Answer 5

Operating cash flows
Investing cash flows
Financing cash flows
Reconciliation of net income and net operating cash flows

Question 6

List the required categories for the statement of cash flows.

Answer 6

Net cash inflow or outflow from operating activities
Net cash inflow or outflow from investing activities
Net cash inflow or outflow from financing activities
Effects of foreign currency translation
Reconciliation of net cash inflows/outflows with the reported change in cash and cash equivalents on the balance sheet
Noncash investing and financing activities

Question 7

What is the reporting basis of the statement of cash flows?

Answer 7

The reporting basis is cash and cash equivalents.

Question 8

What is the indirect method on the statement of cash flows?

Answer 8

It reconciles net income to cash flows from operating activities.

Question 9

What is the direct method on the statement of cash flows?

Answer 9

This method presents actual inflows and outflows from cash operations. It must also disclose the indirect method (reconciliation of net income to cash flows from operations) as a supporting schedule.

Question 10

What is the cash flow category for interest paid and received?

Answer 10

This category is operating activities.

Question 11

What is the basic purpose of the statement of cash flows?

Answer 11

The basic purpose is to provide information about the cash receipts and cash payments for an entity to help investors, creditors, and others.

Question 12

Using the indirect method for reporting cash flows from operations, should a decrease in unearned revenue be added to or subtracted from accrual‐based net income?

Answer 12

A decrease in unearned revenue should be subtracted.

Question 13

Using the indirect method for reporting cash flows from operations, should an increase in accounts receivable be added to or subtracted from accrual‐based net income?

Answer 13

An increase in accounts receivable should be subtracted.

Question 14

What is the purpose of the operating section of the statement of cash flows under the direct method?

Answer 14

The purpose is to show all cash inflows and outflows for operating activities.

Question 15

Using the indirect method for reporting cash flows from operations, should a decrease in inventory be added to or subtracted from accrual‐based net income?

Answer 15

A decrease in inventory should be added.

Question 16

Using the indirect method for reporting cash flows from operations, should an increase in accounts payable be added to or subtracted from accrual based net income?

Answer 16

An increase in accounts payable should be added.

Question 17

What is the purpose of the operating section of the statement of cash flows under the indirect method?

Answer 17

The purpose is to adjust accrual net income to net cash flow from operating activities.

Question 18

What is the cash flow category for purchases of trading securities?

Answer 18

The category is operating.

Question 19

What is the cash flow category for principal payments on short‐term and long‐term loans from suppliers made to acquire inventory for resale?

Answer 19

The category is operating.

Question 20

What are some examples of cash outflows classified as financing activities?

Answer 20

Repurchase of own stock
Paying back lenders (principal only)
Payment of dividends

Question 21

What are some examples of cash outflows classified as investing activities?

Answer 21

Purchase of long‐term assets
Lending to others
Investment in debt and equity securities held to maturity and available for sale)
Purchase of productive assets (not inventory)

Question 22

What is the cash flow category for principal payments on short‐term and long‐term loans (from financial institutions or dealers) made to acquire plant assets?

Answer 22

The category is financing.

Question 23

What are some examples of cash inflows classified as investing activities?

Answer 23

Sale of long‐term assets
Collection of loan principal
Disposal of held‐to‐maturity (HTM) and available‐for‐sale (AFS) debt and equity securities
Sale of productive assets (not inventory)

Question 24

Where are noncash investing and financing activities reported?

Answer 24

They are reported on the face of the statement of cash flows or as a separate disclosure.

Question 25

What is the cash flow category for dividends paid?

Answer 25

The category is financing.

Question 26

Where is the cash effect on foreign currency translation reported?

Answer 26

It is reported as a separate part of the reconciliation of the change in cash and cash equivalents during the period.

Question 27

What is the cash flow category for loans made to other entities?

Answer 27

The category is investing.

Question 28

What are some examples of cash inflows classified as financing activities?

Answer 28

Sale of own stock

Proceeds from borrowing

Question 29

What is the cash flow category for principal payments on short‐term and long‐term loans from financial institutions made to acquire inventory for resale?

Answer 29

The category is financing

Question 30

What is the cash flow category for purchases of securities available for sale?

Answer 30

The category is investing.