Financial And Managerial Accounting International 2nd Edition By Rich – Test Bank

Chapter 11—The Statement of Cash Flows

TRUE/FALSE

1. The statement of cash flows summarizes the operating, investing, and financing activities of a business for a period of time.

ANS: T PTS: 1 DIF: Easy OBJ: 11-2
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-24-Statement of Cash Flows

2. The Statement of Cash Flows is considered to be a good indicator of current cash inflows and outflows.

ANS: T PTS: 1 DIF: Easy OBJ: 11-1
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-24-Statement of Cash Flows

3. Depreciation is a noncash expense that is subtracted from net income in determining cash provided from operating activities under the indirect method.

ANS: F PTS: 1 DIF: Easy REF: CS11-3
OBJ: 11-4
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-24-Statement of Cash Flows

4. In terms of the statement of cash flows, cash includes actual cash items minus certain cash equivalents such as commercial paper, money market funds, and treasury bills.

ANS: F PTS: 1 DIF: Easy OBJ: 11-2
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-24-Statement of Cash Flows

5. To be classified as a cash equivalent, an item must be readily convertible to a known amount of cash and have an original maturity to the investor of three months or more.

ANS: F PTS: 1 DIF: Easy OBJ: 11-2
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-24-Statement of Cash Flows

6. An investment in common stock is not considered to be a cash equivalent.

ANS: T PTS: 1 DIF: Easy REF: CS11-4
OBJ: 11-5
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-24-Statement of Cash Flows

7. For the statement of cash flows, companies are required to classify their cash activities into three categories: operating, investing, and financing.

ANS: T PTS: 1 DIF: Easy OBJ: 11-2
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-24-Statement of Cash Flows

8. Operating activities involve the acquiring and selling of goods and services for cash or on account.

ANS: T PTS: 1 DIF: Easy OBJ: 11-4
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-24-Statement of Cash Flows

9. Cash flows from selling machinery would be classified as investing activities.

ANS: T PTS: 1 DIF: Easy REF: CS11-1
OBJ: 11-1
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-24-Statement of Cash Flows

10. Cash flows from purchases, sales, and maturities of investments are classified as financing activities.

ANS: F PTS: 1 DIF: Easy REF: CS11-4
OBJ: 11-5
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-24-Statement of Cash Flows

11. Issuing stock increases the company’s cash flows from investing activities.

ANS: F PTS: 1 DIF: Easy REF: CS11-5
OBJ: 11-6
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-24-Statement of Cash Flows

12. Cash flows from operating activities often relate to an increase or decrease in either a current asset or a current liability.

ANS: T PTS: 1 DIF: Easy OBJ: 11-3
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-24-Statement of Cash Flows

13. Companies can use two different methods to report the amount of cash flow from their investing and financing activities.

ANS: F PTS: 1 DIF: Easy OBJ: 11-5 | 11-6
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-24-Statement of Cash Flows

14. The indirect method of reporting cash flows from operating activities involves reconciling net income and cash flows from operations.

ANS: T PTS: 1 DIF: Easy OBJ: 11-4
NAT: AICPA FN-Reporting | AACSB Analytic | ACBSP-APC-24-Statement of Cash Flows

15. Under the indirect method, the first line in the operating activities section of the statement of cash flows is the net income or loss for the period.

ANS: T PTS: 1 DIF: Easy REF: CS11-3
OBJ: 11-4
NAT: AICPA FN-Reporting | AACSB Communication | ACBSP-APC-24-Statement of Cash Flows