Question 1

Why is depreciation expense added back to net income in the operating section of the indirect cash flow statement?

Accepted Answer

A) Depreciation expense represents cash outflows for a firm. 
B) Depreciation expense represents cash inflows for a firm. 
C) Depreciation expense represents a noncash expense that must be moved to the investing section of the cash flow statement. 
D) Depreciation expense represents a noncash expense that must be added to net income to cancel its affect within the net income calculation. 
E) Depreciation expense represents a cash expense that must be added to net income to cancel its affect within the net income calculation. 
A) Depreciation expense represents cash outflows for a firm. 
B) Depreciation expense represents cash inflows for a firm. 
C) Depreciation expense represents a noncash expense that must be moved to the investing section of the cash flow statement. 
D) Depreciation expense represents a noncash expense that must be added to net income to cancel its affect within the net income calculation. 
E) Depreciation expense represents a cash expense that must be added to net income to cancel its affect within the net income calculation.

Question 2

How does the statement of cash flows helps readers understanding?

Accepted Answer

The statement of cash flows reports the

Question 3

Based on the following information, prepare a statement of cash flows for Year 2.Use the indirect method.

Accepted Answer

The answer of Based on the following information, prepare a...

Question 4

Alsup Company had the following transactions during the fiscal year ended December 31, Year 4.
·Accounts receivable decreased from $115,000 on December 31, Year 3, to $100,000
On December 31, Year 4.
·Alsup's Board of Directors declared dividends on December 31, Year 4, of $.05
Per share on the 2.8 million shares outstanding, payable to shareholders of record
On January 31, Year 5.The company did not declare or pay dividends for fiscal year,
Year 3.
·Sold a truck with a net book value of $7,000 for $5,000 cash, reporting a loss of $2,000.
·Paid interest to bondholders of $780,000.
·Cash increased from $106,000 on December 31, Year 3, to $284,000 on December 31, Year 4.

(CMA Dec 95 #2) Refer to the Alsup Company example.Alsup Company uses the direct method to prepare its statement of cash flows at December 31, Year 4.The interest that is paid to bondholders would be reported in the

Accepted Answer

A) Financing Section, as a use or outflow of cash. 
B) Operating Section, as a use or outflow of cash. 
C) Investing Section, as a use or outflow of cash. 
D) Debt Section, as a use or outflow of cash. 
E) Financing Section, as a source or inflow of cash. 
A) Financing Section, as a use or outflow of cash. 
B) Operating Section, as a use or outflow of cash. 
C) Investing Section, as a use or outflow of cash. 
D) Debt Section, as a use or outflow of cash. 
E) Financing Section, as a source or inflow of cash.

Question 5

What is the key difference between the direct method and indirect method for preparing the Statement of Cash Flows?

Accepted Answer

A) presentation of Cash from Operations 
B) presentation of Cash from Investing 
C) presentation of Cash from Financing 
D) presentation of Cash from Investing and Cash from Financing 
E) presentation of Cash from Operations, Cash from Investing and Cash from Financing 
A) presentation of Cash from Operations 
B) presentation of Cash from Investing 
C) presentation of Cash from Financing 
D) presentation of Cash from Investing and Cash from Financing 
E) presentation of Cash from Operations, Cash from Investing and Cash from Financing

Question 6

In a statement of cash flows, proceeds from the issuance of common stock should be classified as cash inflows for

Accepted Answer

A) operating activities. 
B) financing activities. 
C) investing activities. 
D) lending activities. 
E) exchange transactions. 
A) operating activities. 
B) financing activities. 
C) investing activities. 
D) lending activities. 
E) exchange transactions.

Question 7

Firms can use free cash flow to

Accepted Answer

A) repay borrowing. 
B) pay a dividend. 
C) repurchase common shares. 
D) add to cash on the balance sheet. 
E) all of the above. 
A) repay borrowing. 
B) pay a dividend. 
C) repurchase common shares. 
D) add to cash on the balance sheet. 
E) all of the above.

Question 8

Both U.S.GAAP and IFRS permit considerable flexibility with respect to the display of information in the statement of cash flows.Firms must report cash flows from operations, investing, and financing for the _____.

Accepted Answer

A) current year 
B) current year and the prior year 
C) current year and the prior two years 
D) current year and the prior three years 
E) current year and the prior four years 
A) current year 
B) current year and the prior year 
C) current year and the prior two years 
D) current year and the prior three years 
E) current year and the prior four years

Question 9

Many countries around the world require a

Accepted Answer

A) statement of cash flows. 
B) cash reconciliation statement. 
C) statement of funds flow. 
D) statement of cash created. 
E) statement of cash receipts and disbursements. 
A) statement of cash flows. 
B) cash reconciliation statement. 
C) statement of funds flow. 
D) statement of cash created. 
E) statement of cash receipts and disbursements.

Question 10

Some analysts focus attention on cash flow from operations, thinking it as important as, or more important than, net income as a performance measure.Interpreting cash from operations as a measure of operating performance requires considering cash flows along two dimensions: (1) their timing and (2) their classification and disclosure in the statement and related notes.Explain.

Accepted Answer

INTERPRETATIVE ISSUES INVOLVING THE STAT

Question 11

Under both U.S.GAAP and IFRS, the issue or redemption of debt is a financing activity.

Accepted Answer

A) True 
 B)False

Question 12

The second section of the statement of cash flows shows the amount of cash flow from investing activities.

Accepted Answer

A) True 
 B)False

Question 13

U.S.GAAP requires that the statement of cash flows disclose the amount of cash flows arising fromfinancing activities including

Accepted Answer

A) short-term and long-term borrowing and repaying short-term or long-term borrowing. 
B) issuing of common or preferred stock and reacquiring shares of outstanding common or preferred stock. 
C) payment of dividends to stockholders. 
D) all of the above. 
E) none of the above. 
A) short-term and long-term borrowing and repaying short-term or long-term borrowing. 
B) issuing of common or preferred stock and reacquiring shares of outstanding common or preferred stock. 
C) payment of dividends to stockholders. 
D) all of the above. 
E) none of the above.

Question 14

Firms have some choice as to when they disburse cash.A firm may delay making payments to suppliers, employees, and others during the last several days of an accounting period.When this firm makes the cash payments during the early part of the next period, cash flow from

Accepted Answer

A) operations decreases. 
B) operations increases. 
C) financing decreases. 
D) financing increases. 
E) investing decreases. 
A) operations decreases. 
B) operations increases. 
C) financing decreases. 
D) financing increases. 
E) investing decreases.

Question 15

The indirect method of reporting

Accepted Answer

A) is preferred by the Financial Accounting Standards Board (FAS
B) , Statement of Financial Accounting Standards No.95, "Statement of Cash Flows." 
B) shows a reconciliation between net income and cash flow from operations either at the bottom of the statement of cash flows or in a separate note. 
C) reports the amounts of cash received from customers less cash disbursed to various suppliers, employees, lenders for interest payments, and taxing authorities. 
D) reports the net income for a period and then adjusts the net income to convert revenues to cash received from customers and to convert expenses to cash disbursed to various suppliers of goods and services. 
E) includes all of the above. 
A) is preferred by the Financial Accounting Standards Board (FAS
B) , Statement of Financial Accounting Standards No.95, "Statement of Cash Flows." 
B) shows a reconciliation between net income and cash flow from operations either at the bottom of the statement of cash flows or in a separate note. 
C) reports the amounts of cash received from customers less cash disbursed to various suppliers, employees, lenders for interest payments, and taxing authorities. 
D) reports the net income for a period and then adjusts the net income to convert revenues to cash received from customers and to convert expenses to cash disbursed to various suppliers of goods and services. 
E) includes all of the above.

Question 16

Ignoring income tax effects, which of the following is correct concerning depreciation?

Accepted Answer

A) Depreciation provides additional cash flow from operating activities than would have been available without the depreciation. 
B) Depreciation builds a cash reserve to fund the replacement of plant, property, and equipment. 
C) Depreciation reduces net income but does not usually require a cash expenditure during the period. 
D) Depreciation is a systematic and rational method for allocating the cost of intangible assets over their useful lives. 
E) Depreciation provides less cash flow from operating activities than would have been available without the depreciation. 
A) Depreciation provides additional cash flow from operating activities than would have been available without the depreciation. 
B) Depreciation builds a cash reserve to fund the replacement of plant, property, and equipment. 
C) Depreciation reduces net income but does not usually require a cash expenditure during the period. 
D) Depreciation is a systematic and rational method for allocating the cost of intangible assets over their useful lives. 
E) Depreciation provides less cash flow from operating activities than would have been available without the depreciation.

Question 17

One can prepare the statement of cash flows

Accepted Answer

A) by examining every transaction affecting the cash account, and classifying each one as an operating activity, investing activity, or financing activity. 
B) using the T-account work sheet after the income statement and balance sheet have been prepared. 
C) using the T-account work sheet before the income statement and balance sheet have been prepared. 
D) by using both options a and b. 
E) by none of the above. 
A) by examining every transaction affecting the cash account, and classifying each one as an operating activity, investing activity, or financing activity. 
B) using the T-account work sheet after the income statement and balance sheet have been prepared. 
C) using the T-account work sheet before the income statement and balance sheet have been prepared. 
D) by using both options a and b. 
E) by none of the above.

Question 18

A firm obtains cash from all of the following except for:

Accepted Answer

A) short-term borrowing. 
B) issuing common shares. 
C) issuing preferred shares. 
D) paying dividends to shareholders. 
E) long-term borrowing. 
A) short-term borrowing. 
B) issuing common shares. 
C) issuing preferred shares. 
D) paying dividends to shareholders. 
E) long-term borrowing.

Question 19

Rapidly growing firms must often _____ to finance their acquisitions of noncurrent assets.

Accepted Answer

A) sell existing noncurrent assets 
B) borrow funds 
C) issue common shares 
D) choices b and c 
E) choices a, b and c 
A) sell existing noncurrent assets 
B) borrow funds 
C) issue common shares 
D) choices b and c 
E) choices a, b and c

Question 20

If a statement of cash flow showed that a firm had a small cash loss from operating activities, a large cash outflow from investing activities, and a large cash inflow from financing activities, you would expect the firm to be at what stage of development?.

Accepted Answer

A) a new, rapidly growing firm 
B) a profitable, growing firm 
C) a mature, stable firm 
D) a firm in early decline 
E) an unprofitable, long-term declining firm 
A) a new, rapidly growing firm 
B) a profitable, growing firm 
C) a mature, stable firm 
D) a firm in early decline 
E) an unprofitable, long-term declining firm

Why is depreciation expense added back to net income in the operating section of the indirect cash flow statement?

How does the statement of cash flows helps readers understanding?

Based on the following information, prepare a statement of cash flows for Year 2.Use the indirect method.

What is the key difference between the direct method and indirect method for preparing the Statement of Cash Flows?

In a statement of cash flows, proceeds from the issuance of common stock should be classified as cash inflows for

Firms can use free cash flow to

Both U.S.GAAP and IFRS permit considerable flexibility with respect to the display of information in the statement of cash flows.Firms must report cash flows from operations, investing, and financing for the _____.

Many countries around the world require a

Under both U.S.GAAP and IFRS, the issue or redemption of debt is a financing activity.

The second section of the statement of cash flows shows the amount of cash flow from investing activities.

U.S.GAAP requires that the statement of cash flows disclose the amount of cash flows arising fromfinancing activities including

Firms have some choice as to when they disburse cash.A firm may delay making payments to suppliers, employees, and others during the last several days of an accounting period.When this firm makes the cash payments during the early part of the next period, cash flow from

The indirect method of reporting

Ignoring income tax effects, which of the following is correct concerning depreciation?

One can prepare the statement of cash flows

A firm obtains cash from all of the following except for:

Rapidly growing firms must often _____ to finance their acquisitions of noncurrent assets.

If a statement of cash flow showed that a firm had a small cash loss from operating activities, a large cash outflow from investing activities, and a large cash inflow from financing activities, you would expect the firm to be at what stage of development?.

Introduction to Business Activities and Overview of Financial Statements and the Reporting Process

The Basics of Record Keeping and Financial Statement Preparation: Balance Sheet

The Basics of Record Keeping and Financial Statement Preparation: Income Statement

Balance Sheet: Presenting and Analyzing Resources and Financing

Income Statement: Reporting Results of Operating Activities

Introduction to Financial Statement Analysis

Revenue Recognition, Receivables, and Advances From Customers

Working Capital

Long-Lived Tangible and Intangible Assets

Notes, Bonds, and Leases

Liabilities: Off-Balance Sheet Financing, Retirement Benefits, and Income Taxes

Marketable Securities and Derivatives

Intercorporate Investments in Common Stock

Shareholders Equity: Capital Contributions and Distributions

Statement of Cash Flows: Another Look

Synthesis and Extensions

Filters

Exam 6: Statement of Cash Flows

Why is depreciation expense added back to net income in the operating section of the indirect cash flow statement?

How does the statement of cash flows helps readers understanding?

Based on the following information, prepare a statement of cash flows for Year 2.Use the indirect method.

What is the key difference between the direct method and indirect method for preparing the Statement of Cash Flows?

In a statement of cash flows, proceeds from the issuance of common stock should be classified as cash inflows for

Firms can use free cash flow to

Both U.S.GAAP and IFRS permit considerable flexibility with respect to the display of information in the statement of cash flows.Firms must report cash flows from operations, investing, and financing for the _____.

Many countries around the world require a

Under both U.S.GAAP and IFRS, the issue or redemption of debt is a financing activity.

The second section of the statement of cash flows shows the amount of cash flow from investing activities.

U.S.GAAP requires that the statement of cash flows disclose the amount of cash flows arising fromfinancing activities including

Firms have some choice as to when they disburse cash.A firm may delay making payments to suppliers, employees, and others during the last several days of an accounting period.When this firm makes the cash payments during the early part of the next period, cash flow from

The indirect method of reporting

Ignoring income tax effects, which of the following is correct concerning depreciation?

One can prepare the statement of cash flows

A firm obtains cash from all of the following except for:

Rapidly growing firms must often _____ to finance their acquisitions of noncurrent assets.

If a statement of cash flow showed that a firm had a small cash loss from operating activities, a large cash outflow from investing activities, and a large cash inflow from financing activities, you would expect the firm to be at what stage of development?.

Introduction to Business Activities and Overview of Financial Statements and the Reporting Process

The Basics of Record Keeping and Financial Statement Preparation: Balance Sheet

The Basics of Record Keeping and Financial Statement Preparation: Income Statement

Balance Sheet: Presenting and Analyzing Resources and Financing

Income Statement: Reporting Results of Operating Activities

Introduction to Financial Statement Analysis

Revenue Recognition, Receivables, and Advances From Customers

Working Capital

Long-Lived Tangible and Intangible Assets

Notes, Bonds, and Leases

Liabilities: Off-Balance Sheet Financing, Retirement Benefits, and Income Taxes

Marketable Securities and Derivatives

Intercorporate Investments in Common Stock

Shareholders Equity: Capital Contributions and Distributions

Statement of Cash Flows: Another Look

Synthesis and Extensions

Filters