Statement of Cash Flows

Question 1

statement of cash flows is made up of 3 sections:

Answer 1

1. operating
2. investing
3. financing

Question 2

operating activities are prepared by the…

Answer 2

direct or indirect method

Question 3

what are investing activities?

Answer 3

inflows and outflows related to long-lived property used in operations and in assets held for
investment purposes

Question 4

TRUE OR FALSE

use of the indirect or direct method is irrelevant for investing activities

Answer 4

TRUE

Question 5

what are some examples of investing activities?

Answer 5

-collection of principal on loans made by entity
-acquisition and disposal of long-term assets (PPE, intangibles, AFS debt securities, HTM securities)
-proceeds from a corporate owned life insurance policy
-major repairs (capitalized) to plant or equipment

Question 6

what are financing activities?

Answer 6

involve issuing and repaying debt or equity include obtaining resources from owners and providing them with a return on (of) their investment

Question 7

what are some examples of financing activities?

Answer 7

-proceeds from issuing equity instruments
-issuance of common and preferred stock
-treasury stock transactions
-dividends payment
-borrowing and repaying debt (principal payments)

Question 8

what are operating activities?

Answer 8

include the cash flows related to the production of income

Question 9

what is the direct method of operating activities?

Answer 9

lists the sources and uses of cash related to each account in NI, including non-cash items

Question 10

what is the indirect method of operating activities?

Answer 10

reconciles net income to net cash flows by adjusting for changes in certain balance sheet operating
accounts for non-cash and non-operating items

Question 11

TRUE OR FALSE

cash proceeds are an inflow under investing

Answer 11

true

Question 12

TRUE OR FALSE

under indirect method the loss is added back to NI because it reduced net income reported

Answer 12

true

Question 13

TRUE OR FALSE

gain increased NI, then it is deducted from NI

Answer 13

TRUE

Question 14

TRUE OR FALSE

item decreased NI, item is added back to NI

Answer 14

TRUE

Question 15

non-cash expense (bond discount, depreciation exp.) _______ NI and are __________

Answer 15

decreases; added back

Question 16

________ bond discount (contra account to bonds payable) represents additional interest that was reported on income statement

Answer 16

decrease

Question 17

discount amortization is non-cash item that __________ interest expense, reporting a _________ NI. discount amortization
is ___________ NI during reconciliation

Answer 17

increases, lower, added back to

Question 18

TRUE OR FALSE

principal payments are reported as cash outflow under financing

Answer 18

TRUE

Question 19

under GAAP, statement of cash flows requires
supplementary information that includes:

Answer 19

-the financial accounts (company’s cash equivalents policy)
-any restrictions affecting the accounts (pledged receivables)
-a summary of the non-cash transactions affecting investing and financing activities

Question 20

Cash flow from the external financing of a business are classified as

Answer 20

Financing activities

Includes: cash received from the issuance of common and preferred stock, dividends paid to SH, and the issuance of bonds and other debt

Question 21

Cash flow is related to the acquisition and disposition of assets (other than inventory and assets classified as cash equivalents) are….

Answer 21

Investing activities

Question 22

The indirect method adjusts NI for..

Answer 22

Non cash items

Question 23

The direct method reports..

Answer 23

The amounts actually paid or collected