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BSA 22C > STATEMENT OF CASH FLOWS > Flashcards

STATEMENT OF CASH FLOWS Flashcards

1
Q

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

A

FALSE

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2
Q

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

A

TRUE

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3
Q

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

A

TRUE

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4
Q

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

A

FALSE

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5
Q

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 statements of financial position.

A

TRUE

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6
Q

The basis recommended by the IASB for the statement of cash flows is actually “cash and cash equivalents.”

A

TRUE

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7
Q

IFRS does not allow flexibility regarding the classification of certain items on the statement of cash flows.

A

FALSE

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8
Q

Most companies using IFRS show dividends paid as a financing activity.

A

TRUE

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9
Q

The first step in preparing a statement of cash flows is to determine the change in cash.

A

TRUE

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10
Q

A company reconciles net income to net cash flow from operating activities when using the direct method or the indirect method.

A

TRUE

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11
Q

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

A

FALSE

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12
Q

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

A

FALSE

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13
Q

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

A

FALSE

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14
Q

The IASB encourages the use of the direct method over the indirect method for the presentation of the statement of cash flows

A

TRUE

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15
Q

The IASB does not permit the direct method presentation of the statement of cash flows.

A

FALSE

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16
Q

The most contentious decision that the IASB faced related to cash flow reporting was choosing between the direct method and the indirect method of determining net cash flow from operating activities.

A

TRUE

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17
Q

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

A

FALSE

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18
Q

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

A

TRUE

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19
Q

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

A

FALSE

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20
Q

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

A

FALSE

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21
Q

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

A

TRUE

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22
Q

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

A

FALSE

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23
Q

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

A

TRUE

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24
Q

Significant non-cash transactions are disclosed either in a separate schedule or in the notes to the financial statements.

A

TRUE

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25
Q

IAS 7 indicates that cash flows related to interest received and paid, and dividends received and paid, should be separately disclosed in the statement of cash flows.

A

TRUE

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26
Q

Presently, the IASB and the FASB are involved in a joint project on the presentation and organization of information in the financial statements.

A

TRUE

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27
Q

The IASB favors presentation of operating cash flows using the direct method only, but the FASB does not.

A

FALSE

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28
Q

The majority of IASB members express a preference for not requiring use of the direct method of reporting operating cash flows.

A

TRUE

29
Q

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

A

FALSE

30
Q

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

A

TRUE

31
Q

An objective of the statement of cash flows is to

a. disclose changes during the period in all asset and all equity accounts.
b. disclose the change in working capital during the period.
c. provide information about a company’s operating, investing, and financing activities.
d. None of these answer choices are correct.

A

provide information about a company’s operating, investing, and financing activities.

32
Q

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

a. about the operating, investing, and financing activities of a company during a period.
b. that is useful in assessing cash flow prospects.
c. about the cash receipts and cash payments of a company during a period.
d. about the entity’s ability to meet its obligations, its ability to pay dividends, and its needs for external financing.

A

about the cash receipts and cash payments of a company during a period.

33
Q

Of the following questions, which one would not be answered by the statement of cash flows?

a. Where did the cash come from during the period?
b. What was the cash used for during the period?
c. Were all the cash expenditures of benefit to the company during the period?
d. What was the change in the cash balance during the period?

A

Were all the cash expenditures of benefit to the company during the period?

34
Q

The first step in the preparation of the statement of cash flows requires the use of information included in which comparative financial statements?

a. Statements of cash flows
b. Statements of financial positions
c. Income statements
d. Statements of retained earnings

A

Statements of financial positions

35
Q

Cash equivalents are

a. treasury bills, commercial paper, and money market funds purchased with excess cash.
b. investments with original maturities of three months or less.
c. readily convertible to known amounts of cash.
d. All of these answer choices are correct.

A

All of these answer choices are correct.

a. treasury bills, commercial paper, and money market funds purchased with excess cash.
b. investments with original maturities of three months or less.
c. readily convertible to known amounts of cash.

36
Q

A company borrows $10,000 and signs a 90-day nontrade note payable. In preparing a statement of cash flows (indirect method), this event would be reflected as a(n)

a. addition adjustment to net income in the cash flows from operating activities section.
b. cash outflow from investing activities.
c. cash inflow from investing activities.
d. cash inflow from financing activities.

A

cash inflow from financing activities.

37
Q

Which of the following under IFRS, but not U.S. GAAP is considered to be part of cash and cash equivalents?

a. Treasury bills
b. bank overdrafts
c. commercial paper
d. money market funds

A

bank overdrafts

38
Q

All of the following are required by IFRS for the statement of cash flows except:

a. The operating activities section.
b. The financing activities section.
c. The investing activities section.
d. Significant non-cash transactions.

A

Significant non-cash transactions.

39
Q

Under IFRS where a company uses the indirect method, which of the following would not be reported in the statement of cash flows?

a. Depreciation expense.
b. Retirement of bonds payable.
c. An increase in inventory.
d. Purchase of equipment using a note.

A

Purchase of equipment using a note.

40
Q

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
a. re-recording all income statement transactions that directly affect cash in a separate cash flow journal.
b. 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.
c. eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash.
d. eliminating all transactions that have no current or future effect on cash, such as depreciation, from the net income computation.

A

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

41
Q

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 ordinary shares for cash.
4. Issuance of a note payable to a bank for cash.
5. Sale of an investment 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?

a. Five items
b. Four items
c. Three items
d. Two items

A

Three items

42
Q

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

a. Declaration and distribution of a share dividend
b. Deposit to a bond sinking fund
c. Sale of a loan receivable
d. Payment of interest to a creditor

A

Deposit to a bond sinking fund

43
Q

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)

a. addition to net income.
b. deduction from net income.
c. investing activity.
d. financing activity.

A

deduction from net income.

44
Q

Crabbe Company reported $80,000 of selling and administrative expenses on its income statement for the past year. The company had depreciation expense and an increase in prepaid expenses associated with the selling and administrative expenses for the year. Assuming use of the direct method, how would these items be handled in converting the accrual based selling and administrative expenses to the cash basis?

Increase in
Depreciation	Prepaid Expenses a.	Deducted From	Deducted From b.	Added To	Added To c.	Deducted From	Added To d.	Added To	Deducted From
A

Deducted From Increase in Depreciation
Added To Prepaid Expenses

45
Q

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

a. the issuance of ordinary shares in exchange for a factory building.
b. share dividends received.
c. a major repair to machinery charged to accumulated depreciation.
d. the factoring of accounts receivable.

A

a major repair to machinery charged to accumulated depreciation.

46
Q

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

a. cash was increased while cost of goods sold was decreased.
b. cost of goods sold on an accrual basis is lower than on a cash basis.
c. acquisition of inventory is an investment activity.
d. inventory purchased during the period was less than inventory sold resulting in a net cash increase.

A

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

47
Q

When preparing a statement of cash flows, a decrease in accounts receivable during a period would cause which one of the following adjustments in determining cash flow from operating activities?

Direct Method	Indirect Method a.	Increase	Decrease b.	Decrease	Increase c.	Increase	Increase d.	Decrease	Decrease
A

Increase
Increase

48
Q

In determining net cash flow from operating activities, a decrease in accounts payable during a period

a. means that income on an accrual basis is less than income on a cash basis.
b. requires an addition adjustment to net income under the indirect method.
c. requires an increase adjustment to cost of goods sold under the direct method.
d. requires a decrease adjustment to cost of goods sold under the direct method.

A

requires an increase adjustment to cost of goods sold under the direct method.

49
Q

When preparing a statement of cash flows, an increase in accounts payable during a period would require which of the following adjustments in determining cash flows from operating activities?
Indirect Method Direct Method
a. Increase Decrease
b. Decrease Increase
c. Increase Increase
d. Decrease Decrease

A

Increase
Decrease

50
Q

When preparing a statement of cash flows, a decrease in prepaid insurance during a period would require which of the following adjustments in determining cash flows from operating activities?

Indirect Method	Direct Method a.	Increase	Decrease b.	Decrease	Increase c.	Increase	Increase d.	Decrease	Decrease
A

Increase
Decrease

51
Q

When preparing a statement of cash flows, the following are used for which method in determining cash flows from operating activities?

Gross A/R  Net A/R a.	Indirect	Direct b.	Direct	Indirect c.	Direct	Direct d.	Neither	Indirect
A

Direct
Indirect

52
Q

Which of the following statements is correct?

a. The indirect method starts with income before income taxes.
b. The direct method is known as the reconciliation method.
c. The direct method is more consistent with the primary purpose of the statement of cash flows.
d. All of these answer choices are correct.

A

The direct method is more consistent with the primary purpose of the statement of cash flows.

53
Q

When using the indirect method to prepare the operating section of a statement of cash flows, which of the following is added to net income to compute cash provided by/used by operating activities?

a. Increase in accounts receivable.
b. Gain on sale of land.
c. Amortization of patent.
d. All of these answer choices are added to net income to arrive at cash flow from operating activities.

A

Amortization of patent.

54
Q

When using the indirect method to prepare the operating section of a statement of cash flows, which of the following is deducted from net income to compute cash provided by/used by operating activities?

a. Decrease in accounts receivable.
b. Gain on sale of land.
c. Amortization of patent.
d. All of these answer choices are deducted from net income to arrive at cash flow from operating activities.

A

Gain on sale of land.

55
Q

Which of the following is false concerning the statement of cash flows?

a. When pension expense exceeds cash funding, the difference is deducted from investing activities on the statement of cash flows.
b. The IASB requires companies to classify all income taxes paid as operating cash outflows.
c. Under IFRS, the purchase of land by issuing ordinary shares will be shown as a cash outflow under investing activities and a cash inflow under financing activities.
d. All of these answer choices are false concerning the statement of cash flows

A

All of these answer choices are false concerning the statement of cash flows

56
Q

Which of the following best represents the group that expressed to the IASB a strong preference in favor of the direct method of the statement of cash flows?

a. Public companies
b. Private companies
c. Commercial lending officers
d. None of these answer choices are correct.

A

Commercial lending officers

57
Q

All of the following are arguments in favor of using the indirect (reconciliation) method as opposed to the direct method for reporting a statement of cash flows except:

a. By providing a reconciliation between net income and cash provided by operations, the differences are highlighted.
b. The direct method is nothing more than a cash basis income statement which will confuse and create uncertainty for financial statement users who are familiar with the accrual-based income statements.
c. The direct method would probably lead to additional preparation cost because the financial records are not maintained on a cash basis.
d. The indirect method shows higher quality cash flows from investing and financing activities.

A

The indirect method shows higher quality cash flows from investing and financing activities.

58
Q

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

a. addition to net income in arriving at net cash flow from operating activities.
b. deduction from net income in arriving at net cash flow from operating activities.
c. cash outflow from investing activities.
d. cash outflow from financing activities.

A

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

59
Q

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

a. ordinary shares issued at an amount greater than par value.
b. share dividends declared.
c. cash dividends paid.
d. a purchase and immediate retirement of treasury shares.

A

share dividends declared.

60
Q

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. A change in interest payable
b. A change in dividends payable
c. A change in income taxes payable
d. All of these answer choices are adjustments.

A

A change in dividends payable

61
Q

Declaration of a cash dividend on ordinary shares affects cash flows from operating activities under the direct and indirect methods as follows:
Direct Method Indirect Method
a. Outflow Inflow
b. Inflow Inflow
c. Outflow Outflow
d. No effect No effect

A

No effect
No effect

62
Q

All of the following would appear as significant non-cash transactions in the notes to the financial statements, except:

a. issuance of shares for attomey services
b. issuance of shares to liquidate debt
c. issuance of bonds for land
d. issuance of preference shares

A

issuance of preference shares

63
Q

In 2016, Witherby Inc issued 1,000 ordinary shares of €10 par value for land worth €40,000. If Witherby uses IFRS, how would the company most likely reported the transaction on the statements of cash flows?

a. It is reported as net cash provided by financing activities.
b. It is reported as net cash used by financing activities.
c. It is not presented on the statement of cash flows;it will be presented in the notes to the financial statement as significant non-cash transactions.
d. None of these answer choices are acceptable

A

It is not presented on the statement of cash flows; it will be presented in the notes to the financial statement as significant non-cash transactions.

64
Q

If non-cash investing and financing activities are part cash and part non-cash, which of the following is true?

a. Companies should report only the cash portion on the statement of cash flows and ignore the non-cash component.
b. Companies should report the non-cash component in a separate note and report the cash portion on the statement of cash flows.
c. Companies should report the cash portion lass the cash equivalent of the non-cash component on the statement of cash flows.
d. None of these answer choices are correct.

A

Companies should report the non-cash component in a separate note and report the cash portion on the statement of cash flows.

65
Q

Dolan Company reports its income from investments under the equity method and recognized income of $25,000 from its investment in Moss Co. during the current year, even though no dividends were declared or paid by Moss during the year. On Dolan’s statement of cash flows (indirect method), the $25,000 should

a. not be shown.
b. be shown as cash inflow from investing activities.
c. be shown as cash outflow from financing activities.
d. be shown as a deduction from net income in the cash flows from operating activities section.

A

be shown as a deduction from net income in the cash flows from operating activities section.

66
Q

Which of the following is shown on a statement of cash flows?

a. A share dividend
b. A share split
c. An appropriation of retained earnings
d. None of these answer choices are correct

A

None of these answer choices are correct

67
Q

How should significant non-cash transactions be reported in the statement of cash flows?

a. They should be incorporated in the statement of cash flows in a section labeled, “Significant Noncash Transactions.”
b. Such transactions should be incorporated in the section (operating, financing, or investing) that is most representative of the major component of the transaction.
c. These noncash transactions are not to be incorporated in the statement of cash flows. They appear in a note to the financial statements.
d. They should be handled in a manner consistent with the transactions that affect cash flows.

A

These noncash transactions are not to be incorporated in the statement of cash flows. They appear in a note to the financial statements.

68
Q

All of the following could potentially be classified as either operating or investing cash flows under IFRS, except:

a. Interest received
b. Dividends received
c. Taxes paid that are specifically identified with investing
d. Dividends paid

A

Dividends paid

69
Q

Most of the companies interpret IFRS to mean that significant non-cash transactions should be reported

a. in the cash flow statement.
b. in the notes to the financial statement.
c. in the statement of financial position.
d. in a separate schedule which is part of the statement of cash flows.

A

in the notes to the financial statement.

BSA 22C (12 decks)

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