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| 1.
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A major purpose of the statement of cash flows is to highlight the major activities that have provided cash and that have used cash during an accounting period. |
| | A) | True |
| | B) | False |
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| 2.
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Under the accrual basis of accounting, a business may show substantial profit on its income statement but have a critical shortage of cash. |
| | A) | True |
| | B) | False |
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| 3.
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If a firm made a short-term investment of $10,000 in Canadian Treasury Bills August 15, and the Bills mature on September 1 of the same year, the firm should consider the Bills to be cash equivalents. |
| | A) | True |
| | B) | False |
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| 4.
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A statement of cash flows is a required statement for every business that includes an income statement and a balance sheet in its financial reports. |
| | A) | True |
| | B) | False |
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| 5.
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Cash flows are classified into four separate types of activities on the statement of cash flows. |
| | A) | True |
| | B) | False |
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| 6.
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When cash dividends are received from an investment on the same day that the investment is sold, the entire amount of cash received on that day should be shown as an investing activity. |
| | A) | True |
| | B) | False |
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| 7.
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The lending of money and the collection of the principal and interest are classified on the statement of cash flows as investing activities. |
| | A) | True |
| | B) | False |
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| 8.
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On the statement of cash flows, financing activities include lending money and collecting the principal, purchasing and selling plant assets, and purchasing and selling investments made in other companies. |
| | A) | True |
| | B) | False |
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| 9.
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When a firm sells a piece of equipment for an amount in excess of book value, the sale of the equipment will be shown on the statement of cash flows as an investing activity that provided cash equal to the book value. |
| | A) | True |
| | B) | False |
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| 10.
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A withdrawal of assets by a sole proprietor or a partner, or the payment of dividends to shareholders, is classified as an investing activity on the statement of cash flows. |
| | A) | True |
| | B) | False |
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| 11.
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If cash dividends of $45,000 were declared, but only $35,000 were paid, the statement of cash flows should disclose $35,000 as a financing activity. |
| | A) | True |
| | B) | False |
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| 12.
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The issuance of common shares for cash is an example of a financing activity. |
| | A) | True |
| | B) | False |
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| 13.
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If 12% bonds are issued and 14% bonds are retired in the same accounting period, the bond issue is treated as a financing activity (cash increased) and the bond retirement is treated as an investing activity (cash decreased). |
| | A) | True |
| | B) | False |
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| 14.
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The first step in preparing a statement of cash flows is to determine the 'bottom line' figure for the statement of cash flows. |
| | A) | True |
| | B) | False |
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| 15.
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The determination of cash inflows and cash outflows can be made by analyzing changes in noncash balance sheet accounts. |
| | A) | True |
| | B) | False |
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| 16.
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The major difference between a statement of cash flows prepared under the direct method and a statement of cash flows prepared under the indirect method is the presentation of the net cash flows from operating activities. |
| | A) | True |
| | B) | False |
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| 17.
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The CICA recommends and encourages the use of the direct method of determining the cash flows provided or used by operations. |
| | A) | True |
| | B) | False |
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| 18.
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If the ending balance of accounts receivable is less than the beginning balance, it normally means that collections from credit sales were greater than credit sales billed during the year (ignoring changes in the allowance for doubtful accounts). |
| | A) | True |
| | B) | False |
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| 19.
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Increases in merchandise inventories are deducted from the cost of goods sold to determine the purchases of merchandise (direct method). |
| | A) | True |
| | B) | False |
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| 20.
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Under the accrual-basis method of accounting, the wages expense for the time period may not be equal to the cash paid for wages during the time period. |
| | A) | True |
| | B) | False |
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| 21.
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In the determination of cash paid for wages and other operating expenses (direct method), a net increase in prepaid insurance should be deducted from the reported amount of operating expenses. |
| | A) | True |
| | B) | False |
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| 22.
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To prepare a statement of cash flows, an increase in accrued liabilities would be added to wages and other operating expenses (excluding amortization) to determine the total cash paid for wages and other operating expenses (direct method). |
| | A) | True |
| | B) | False |
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| 23.
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Under the direct method of determining net cash flow from operations, an increase in interest payable is deducted from interest expense to determine the cash outflow from payments of interest. |
| | A) | True |
| | B) | False |
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| 24.
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All expenses represent an outflow of cash during the accounting period being covered by the statement of cash flows. |
| | A) | True |
| | B) | False |
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| 25.
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On a statement of cash flows prepared under the direct method, the gains and losses from noncurrent assets are never reported on the statement of cash flows. |
| | A) | True |
| | B) | False |
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| 26.
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On a statement of cash flows prepared under the direct method, the gains and losses from the retirement of debt is shown on the statement of cash flows. |
| | A) | True |
| | B) | False |
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| 27.
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The indirect method does not report individual operating cash inflows and outflows, but adjusts net income for operating activities not involving cash, eliminates gains and losses from investing and financing activities, and changes in noncash current assets and noncash current liabilities relating to operating activities. |
| | A) | True |
| | B) | False |
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| 28.
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Under the indirect method, expenses with no cash outflows are added back to net income to determine the net cash flow from operating activities. |
| | A) | True |
| | B) | False |
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| 29.
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Under the indirect method, a transaction in which an asset is sold for more than its book value would be shown as an investing activity equal to the book value. |
| | A) | True |
| | B) | False |
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| 30.
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The declaration of a cash dividend is a financing activity. |
| | A) | True |
| | B) | False |
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| 31.
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Cash flow on total assets is determined by dividing operating cash flow by average total assets. |
| | A) | True |
| | B) | False |
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| 32.
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Retirement of debt by issuing shares is a financing activity. |
| | A) | True |
| | B) | False |
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| 33.
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The purchase of a capital asset is paid for partly in cash and the remainder by writing a long-term note payable. This transaction should be recorded under investing activities and under financing activities. |
| | A) | True |
| | B) | False |
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