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True or False
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1
Cash flows is a term that describes both cash receipts and cash payments.
A)True
B)False
2
One of the purposes of the statement of cash flows is to assess the company's ability to meet its obligations and pay dividends.
A)True
B)False
3
One of the purposes of the statement of cash flows is to help creditors and investors in assessing both the cash and noncash aspects of the company's investment and financing transactions for the period.
A)True
B)False
4
The summary of transactions involving issuing common stock for cash is shown as a financing activity in the statement of cash flows.
A)True
B)False
5
The summary of transactions for issuing bonds is shown as an investing activity in the statement of cash flows.
A)True
B)False
6
The cash sale of a plant asset for an amount greater than its book value would be shown in the statement of cash flows as a financing activity.
A)True
B)False
7
The sale of an investment for less than its cost would be shown in the statement of cash flows as an operating activity.
A)True
B)False
8
Transactions involving sales and the cost of goods sold are summarized as operating activities.
A)True
B)False
9
Since interest expense is not related to operating activities, but is a consequence of borrowing money, it shown as part of the net cash flow from financing activities in the statement of cash flows.
A)True
B)False
10
The practice of summarizing operating results in terms of cash receipts and cash payments is the cash basis of accounting.
A)True
B)False
11
The practice of recognizing revenue when earned and recognizing expense when incurred is the accrual basis of accounting.
A)True
B)False
12
Treasury bills, money market funds, and commercial paper are considered to be cash equivalents.
A)True
B)False
13
Marketable securities, such as investments in the stocks of other companies, qualify as cash equivalents.
A)True
B)False
14
A transaction in which an asset that cost $45,000, had a book value of $4,000, and was sold for $3,000, would appear in the statement of cash flows as an investing activity of $4,000.
A)True
B)False
15
A statement of cash flows can be prepared from the year-end income statement and balance sheet.
A)True
B)False
16
If the ending balance of accounts receivable is less than the beginning balance, the net amount of cash received from customers the period related to sales activities was greater than the amount of reported net sales.
A)True
B)False
17
If the ending balance of the Interest Receivable account is greater than the beginning balance of the Interest Receivable account, the net amount of cash received from interest revenue was less than the amount of interest revenue reported in the income statement.
A)True
B)False
18
If the Interest Revenue account has an ending balance of $4,600, the Interest Receivable account increased $800, then the total amount of cash flow from interest revenues was $5,400.
A)True
B)False
19
If inventory increased by $5,000, accounts payable decreased by $8,000, and the cost of goods sold was $125,000, the cash payment for purchases was $128,000.
A)True
B)False
20
If the beginning balance of the Prepaid Insurance account was $3,200, the ending balance of the account was $5,000, and insurance expense recognized for the period was $4,000, then the cash outflow from the purchase of insurance policies was $2,200.
A)True
B)False
21
When the statement of cash flows is completed, the net cash flows from operating activities should be equal to the net income shown in an accrual-basis income statement.
A)True
B)False
22
When marketable securities are sold at a gain, the entire sales price is reported as a cash flow from an investing activity.
A)True
B)False
23
When marketable securities are sold a loss, the book value of the marketable securities is shown as the cash flow from an investing activity in the statement of cash flows.
A)True
B)False
24
When a plant asset is sold for an amount in excess of its book value, the book value is shown as a cash flow from an investing activity in the statement of cash flows.
A)True
B)False
25
When a plant asset with a book value of $14,000 is sold for $12,000, the cash flow from investing activities in the statement of cash flows will show an inflow from investing activities of $12,000.
A)True
B)False
26
The cash flow from paying an account payable is not shown as a cash outflow from a financing activity, but the payment of a short-term note unrelated to purchasing merchandise is.
A)True
B)False
27
If the Dividends Payable account had a beginning balance of $45,000, cash dividends of $80,000 were declared, and the ending balance of Dividends Payable is $14,000, the cash flow from financing activities related to dividends were $111,000.
A)True
B)False
28
Issuing bonds and selling common stock are financing activities.
A)True
B)False
29
The ending balance of cash and cash equivalents shown in the statement of cash flows does not have to agree with the balance of cash and cash equivalents reported in the balance sheet.
A)True
B)False
30
A format of reporting net cash flows from operating activities that reconciles this figure with the amount of net income shown in the income statement is called the indirect method.
A)True
B)False
31
The indirect method and direct method of preparing a statement of cash flows will show different net cash flows for the three categories of operating activities, investing activities, and financing activities.
A)True
B)False
32
In the indirect method of reporting cash flows from operating activities, gains on the sales of assets are deducted from the reported net income.
A)True
B)False
33
An increase in the balance of accounts receivable is deducted from reported net income, using the indirect method of reporting cash flows from operations, because of the timing difference of recognizing income.
A)True
B)False
34
The purpose of adding depreciation to reported net income under the indirect method of reporting cash flows from operations in a statement of cash flows is to eliminate noncash expenditures from the accrual-basis net income in order to convert the accrual-basis net income to cash provided by operating activities.
A)True
B)False
35
Under the indirect method of preparing a statement of cash flows, an increase in the Inventory account should be added to the reported net income in the determination of cash flows from operating activities.
A)True
B)False
36
Under the indirect method of preparing a statement of cash flows, a decrease in prepaid expenses should be added to the reported net income in the determination of cash flows from operating activities.
A)True
B)False
37
Under the indirect method of preparing a statement of cash flows, an increase in accounts payable should be added to the reported net income in the determination of cash flows from operating activities.
A)True
B)False
38
Under the indirect method of preparing a statement of cash flows, an increase in accrued expenses payable should be deducted from the reported net income in the determination of cash flows from operating activities.
A)True
B)False
39
The indirect method of preparing net cash flows from operating activities is recommended by the Financial Accounting Standards Board (FASB).
A)True
B)False
40
When the direct method is used to present the cash flows from operating activities, a supplementary schedule showing the computation of cash flows from operating activities by the indirect method is required.
A)True
B)False
41
A company purchased a building by issuing a check for $45,000 and a mortgage note for $225,000. The mortgage note will be shown in a supplementary schedule to the statement of cash flows.
A)True
B)False
42
After the basic obligations of the business have been met, the portion of the annual net cash flows from operating activities that remains available for discretionary purposes is called free cash flow.
A)True
B)False
43
One common method of computing free cash flow is to deduct from the net cash flows from operating activities any net cash used for investments in plant assets and any dividends paid.
A)True
B)False
44
A cash budget is a secondary financial statement.
A)True
B)False
45
The strategy of charging a higher price for a product or service during periods of high demand, and a lower price during periods of slack demand is called peak pricing.
A)True
B)False
46
Deferring income taxes is not a popular cash management strategy.
A)True
B)False
47
It is important to recognize that peak pricing is appropriate in every circumstance to improve cash flows.
A)True
B)False
48
The variety and relative quantities of goods and services that a company offers for sale is called the company's product variety.
A)True
B)False
49
Paint and paintbrushes sold in a hardware store are complementary products.
A)True
B)False
50
A worksheet for a statement of cash flows is used to identify the net changes in balances sheet accounts and categorize them as sources or uses of cash from operating activities, investing activities, or financing activities.
A)True
B)False
51
In a worksheet for a statement of cash flows, the difference in the dollar amount of identified sources and uses of cash should be equal to the net debit change or net credit change in the Cash and Cash Equivalents account.
A)True
B)False





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