Cash Flow

Question 1

In a stmnt of CF what items have to always be disclosed?

Answer 1

Regardless of whether the direct or indirect method is used to determine cash flows from operating activities, the following items are required to be disclosed:
•Amount of income taxes paid during the period
•Amount of interest paid during the period

Question 2

In a statement of cash flows, which of the following items is reported as a cash outflow from financing activities?
I.Payments to retire mortgage notes
II.Interest payments on mortgage notes
III.Dividend payments

Answer 2

Payments to retire mortgages & Dividend payments are cash outflow from financing. Interest payments are operating.

Question 3

With respect to the statement of changes in equity, what are U.S. GAAP and IFRS differences?

Answer 3

*Both GAAP and IFRS (International Financial Reporting Standards) use the term “retained earnings.”

Note:

• IFRS includes a “revaluation surplus” related to revaluation of property, plant, and equipment; mineral resources; and intangible assets.
• IFRS uses different stock account titles than U.S. GAAP. Instead of “Common Stock,” IFRS uses an account titled “Share Capital.”
• IFRS accounts for treasury stock retirements only by charging an excess in purchase price and issue cost to paid-in capital.

Question 4

Polk Co. acquires a forklift from Quest Co. for $30,000. The terms require Polk to pay $3,000 down and finance the remaining $27,000. On March 1, Year 1, Polk pays the $3,000 down and accepted delivery of the forklift. Polk signed a note that requires Polk to pay principal payments of $1,000 per month for 27 months beginning July 1, Year 1. What amount should Polk report as an investing activity in the statement of cash flows for the year ended December 31, Year 1?

Answer 4

Cash payments to purchase equipment are outflows from investing activities. The $3,000 down payment is an investing activity outflow.
The $27,000 financed and the principal payments are financing activities.

Question 5

A company acquired a building, paying a portion of the purchase price in cash and issuing a mortgage note payable to the seller for the balance. In a statement of cash flows, what amount is included in financ­ing activities for the transaction?

Answer 5

The only cash involved in this transaction is the cash paid. It would be included in cash flows from investing activities.

Question 6

How are interest receivd and dividends received treated on CF

Answer 6

They are treated as operating activities

Question 7

Deficits accumulated during the development stage of a company should be:

Answer 7

Deficits are reported as part of stockholders’ equity.

Question 8

Which is the most appropriate financial statement to use to determine if a company obtained financing during a year by issuing debt or equity securities?
A
Balance sheet

B.
Statement of cash flows

C.
Statement of changes in stockholders’ equity

D.
Income statement

Answer 8

statement of cash flows should report the cash effects during a period of an enterprise’s operations, its investing transactions, and its financing transactions.” (Emphasis added)

Hence, one of the key purposes of the statement of cash flows is to disclose how a business financed its operations.

Question 9

Mend Co. purchased a 3-month U.S. Treasury bill. Mend’s policy is to treat as cash equivalents all highly liquid investments with an original maturity of three months or less when purchased. How should this purchase be reported in Mend’s statement of cash flows?
A
As an outflow from operating activities

B.
As an outflow from investing activities

C.
As an outflow from financing activities

D.
Not reported

Answer 9

All cash and cash equivalents are not reported in the statement of CF. This is due to because cash and cash equivalents are apart of cash itself.

Question 10

The primary purpose of a statement of cash flows is to provide relevant information about:

A.
differences between net income and associated cash receipts and disbursements.

B.
an enterprise’s ability to generate future positive net cash flows.

C.
the cash receipts and cash disbursements of an enterprise during a period.

D.
an enterprise’s ability to meet cash operating needs.

Answer 10

the cash receipts and cash disbursements of an enterprise during a period.

Question 11

With respect to the statement of cash flows, what are U.S. GAAP and IFRS differences?

A.
For IFRS, but not for U.S. GAAP, bank overdrafts are presented separately as an operating activity.

B.
For IFRS, but not for U.S. GAAP, interest and dividends received are reported as operating or investing activities.

C.
For IFRS, but not for U.S. GAAP, comparative periods must be presented.

D.
All of the answer choices are differences in U.S. GAAP and IFRS.

Answer 11

IAS 7, Cash Flow Statements, is similar to the GAAP statement except that:
•bank overdrafts are presented as operating activities for IFRS and financing activities in U.S. GAAP,
•interest and dividends received are presented as operating or investing activities for IFRS and only as operating activities in U.S. GAAP, and
•the most recent two years (i.e., comparative periods) must be presented.

Answer:D