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Statement of Cash Flows

1. Which of the following is a cash flow from an investing activity?
payment for advertising
cash receipt from a customer for a previous credit sale
cash received from sale of equipment
payment of dividends

2. Sonny's Liquors, Inc. had the following cash flows during March: Paid for inventory $ 20,000

Paid wages to employees 40,000

Received from cash sales 100,000

Paid for equipment 60,000

Received a loan 70,000

What was the cash flow from financing activities? (Points: 2)
$70,000 inflow
$80,000 outflow
$120,000 outflow
$60,000 outflow

3. The primary difference between the cash flows statement and all other primary external financial statements is that the cash flows statement is
not an accrual based statement and all others are
not prepared unless the firm is a manufacturer
an optional statement in the external reporting package
prepared before the end of the year and not after

4. Which of the following best describes the purpose of the statement of cash flows?
identify the revenues and expenses of the accounting period
report the inflows and outflows of cash
balance current period revenues with those of the previous period
report assets, liabilities and owners' equity as of a specific date

5. Activities that involve the production or delivery of goods for sale or the providing of services for sale should be listed under which classification on a statement of cash flows?
financing activities
operating activities
refunding activities
investing activities

6. What type of activity is the paying off of a bank loan?
operating
financing
investing
operating if it was a short-term loan; financing if it was a long-term loan

7. When preparing the operating activities section of the statement of cash flows under the indirect method, which of the following is an addition to net income?
Amortization Expense Increase in current asset accounts
Yes Yes

Amortization Expense Increase in current asset accounts
Yes No

Amortization Expense Increase in current asset accounts
No Yes

Amortization Expense Increase in current asset accounts
No No

8. Which of the following is a TRUE statement regarding the operating activities section of the statement of cash flows when the indirect format is used?
it explains the relationship between cash flows for a period and the results of operations reported on the income statement
it is designed to report to the reader what events caused cash to increase during the period and what events caused cash to decrease during the period
it results in a slightly higher amount of cash from operations being reported because depreciation expense is included
it is easier to understand and interpret correctly than when it is prepared using the direct method

9. Nearly all major corporations use which format for reporting the statement of cash flows?
accrual basis
reconciliation
indirect
direct

10. The Stable Company reports the following information: Accounts payable $ 600
Accounts receivable $ 8,200

Cash 5,000
Mortgage payable 4,400

Retained earnings 7,800
Inventory 9,200

Buildings 17,600
Office supplies 2,600

What is the amount of the firm's current assets?
$13,200
$25,000
$22,400
$42,600

11. For each of the questions 11 through 20, indicate whether the transaction is an operating activity, a financing activity, or an investing activity. Assume all purchase and sale transactions are for cash unless otherwise stated.

Collection of principal from a note receivable
operating activity
financing activity
investing activity

12. Amortization of a patent
operating activity
financing activity
investing activity

13. Purchase of an asset used in the company's daily operations
operating activity
financing activity
investing activity

14. Sale of treasury stock
operating activity
financing activity
investing activity

15. Write-off of a bad debt
operating activity
financing activity
investing activity

16. Depreciation expense
operating activity
financing activity
investing activity

17. Sale of obsolete equipment no longer used in company operations
operating activity
financing activity
investing activity

18. Collection of interest revenue on note receivable in the collection of principal from a note receivable (Points: 2)
operating activity
financing activity
investing activity

19. Borrow cash on a long-term note
operating activity
financing activity
investing activity

20. Payment of a cash dividend
operating activity
financing activity
investing activity

Solution Preview

1. Which of the following is a cash flow from an investing activity?
payment for advertising
cash receipt from a customer for a previous credit sale
cash received from sale of equipment
payment of dividends

Answer: cash received from sale of equipment

Investing Activities Include:
- Purchasing and disposing of investments and productive long-lived assets using cash and
- Lending money and collecting the loans.

2. Sonny's Liquors, Inc. had the following cash flows during March: Paid for inventory $ 20,000

Paid wages to employees 40,000

Received from cash sales 100,000

Paid for equipment 60,000

Received a loan 70,000

What was the cash flow from financing activities? (Points: 2)
$70,000 inflow
$80,000 outflow
$120,000 outflow
$60,000 outflow

Answer: $70,000 inflow

Proceeds from loans are cash flow from financing activities
Financing Activities Include:
- Obtaining cash from issuing debt and repaying the amounts borrowed and
- Obtaining cash from stockholders, repurchasing shares, and paying dividends.

3. The primary difference between the cash flows statement and all other primary external financial statements is that the cash flows statement is
not an accrual based statement and all others are
not prepared unless the firm is a manufacturer
an optional statement in the external reporting package
prepared before the end of the year and not after

Answer: not an accrual based statement and all others are

4. Which of the following best describes the purpose of the statement of cash flows?
identify the revenues and expenses of the accounting period
report the inflows and outflows of cash
balance current period revenues with those of the previous period
report assets, liabilities and owners' equity as of a specific date

Answer: report the inflows and outflows of cash

5. Activities that involve the production or delivery of goods for sale or the providing of ...

Solution Summary

Answers to 20 questions on Statement of Cash Flows: operating, investing, financing activities.

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