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Statement of cash flows

1. 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.

Depreciation expense
operating activity
financing activity
investing activity

2. Dairy Delights reported the following information for its most recent fiscal year. Accounts payable increased $3,900; inventory decreased $2,700; net income was $6,600; and depreciation expense was $1,500. On the statement of cash flows, net cash flow from operating activities should be reported as

$1,500
$6,900
$9,300
$14,700

3. Under which format(s) of the statement of cash flows would you expect to find a line titled "Net Cash Flow from Operating Activities?"

Indirect Method Format Direct Method Format

Yes Yes
Yes No
No Yes
No No

4. 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?
$70,000 inflow
$80,000 outflow
$120,000 outflow
$60,000 outflow

5. The indirect format of the cash flow statement reconciles

assets to liabilities and owners' equity
accrual basis net income to cash from operations
accrual basis net income to change in cash balance
sales revenues to accrual basis net income

6. Which of the following is a false statement?

a company can have a net income for the period but have a net decrease in cash from operations
a company that consistently reports net cash inflow from investing activities has many growth opportunities
a company that reports a net loss for the period may not necessarily report a net cash outflow from operating activities
depreciation expense is added back to net income to arrive at cash from operations

7. 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

8. The following information is available to prepare a statement of cash flows:

Cash paid to owners for dividends
$1,000
Cash received from customers from prior credit sales
8,600
Cash paid for long-term assets
3,300
Cash paid for income taxes
2,700

What are the cash flows from operations under the direct method?

$11,300
$ 5,900
$ 5,300
$ 2,600

9. 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.

Payment of a cash dividend
operating activity
financing activity
investing activity

10. 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

11. 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. 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

13. 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.

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

14. The direct and indirect formats are methods of preparing the

operating activities section of a statement of cash flows
investing activities section of a statement of cash flows
income statement
balance sheet

15. A statement of cash flows has been prepared. The sum of the three major components (operating activities, investing activities, financing activities) will add up to an amount equal to

the ending cash balance reported on the balance sheet
net income for the period on the accrual basis
the ending amount of working capital
the net change in the cash account during the year

16. When determining cash flows from operating activities using the indirect format, depreciation expense is subtracted from netincome.

True
False

17. Red River Manufacturing reported a substantial net loss for the most recent accounting period. Its net cash flows for the same period

must have been negative
must have been positive
could have been either negative or positive
cannot be measured

18. The sale of equipment is a financing activity.

True
False

19. 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 interest revenue on note receivable in the collection of principal from a note receivable
operating activity
financing activity
investing activity

20. A firm that has negative cash flows from operating activities and positive cash flows from investing and financing activities is experiencing prosperous growth.

True
False

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Questions

1. 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.

Depreciation expense
operating activity
financing activity
investing activity

It's a non cash expenses and is added to the net profit- Operating activity.

2. Dairy Delights reported the following information for its most recent fiscal year. Accounts payable increased $3,900; inventory decreased $2,700; net income was $6,600; and depreciation expense was $1,500. On the statement of cash flows, net cash flow from operating activities should be reported as

$14,700

=Net Income+ Depreciation+Increase in Accounts payable + Decrease in Inventory
=6600+1500+3900+2700
=$14700

3. Under which format(s) of the statement of cash flows would you expect to find a line titled "Net Cash Flow from Operating Activities?"

In Both
Indirect Method Format Direct Method Format

Yes Yes

4. 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?
$70,000 inflow
5. The indirect format of the cash flow statement ...

Solution Summary

Solution explains Statement of cash flows

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