CH 1.5

Question 1

Statement of cash flow includes (3)

Answer 1

1. operating, 2. investing, and 3. financing activities

Question 2

Purpose of the statement of cash flows (3)

Answer 2

1. liquidity, ability to generate cash flow2. solvency, ability to meet obligations3. financial flexibility

Question 3

cash flow statement example

Answer 3

operating activitiesinvesting activitiesfinancing activities= net increase/decrease beginning cash= ending cash

Question 4

operating activities cash inflows (3)

Answer 4

1) Cash receipts from the sale of goods and services (including collections ofaccounts receivable)2) Cash receipts from royalties, fees, commissions, and other revenue3) Cash received in the form of interest or dividends

Question 5

operating activities cash outflows (4)

Answer 5

1) Cash payments to suppliers for goods and services2) Cash payments to employees3) Cash payments to government for taxes, duties, fines, and other fees orpenalties4) Payments of interest on debt

Question 6

Investing Activities cash outflows (3)

Answer 6

1) Cash payments to acquire (cash receipts from sale of) property, plant andequipment; intangible assets; and other long-lived assets2) Cash payments to acquire (cash receipts from sale and maturity of) equity anddebt instruments of other entities for investing purposes3) Cash advances and loans made to other parties (cash receipts from repaymentof advances and loans made to other parties)

Question 7

Financing Activities cash inflows

Answer 7

1) Cash proceeds from issuing shares and other equity instruments (obtainingresources from owners).2) Cash proceeds from issuing loans, notes, bonds, and other short-term orlong-term borrowings.

Question 8

Financing Activities cash outflows

Answer 8

1) Cash repayments of amounts borrowed2) Payments of cash dividends3) Cash payments to acquire or redeem the entity’s own shares4) Cash payments

Question 9

Noncash Investing and Financing Activities are reported…..

Answer 9

must be disclosed in the notes, outside the body ofthe statement of cash flows1) Conversion of debt to equity2) Acquisition of assets either by assuming directly related liabilities or by means ofa capital lease3) Exchange of a noncash asset or liability for another

Question 10

Indirect Method of Presenting Operating Cash Flows is also called

Answer 10

reconciliation method

Question 11

Indirect Method of Presenting Operating Cash Flows adjusts for… (4)

Answer 11

1. Noncash revenue and expenses that were included in net income2. Items included in net income whose cash effects relate to investing or financing cash flows,3. All deferrals of past operating cash flows, changes in inventory and deferred income4. All accruals of expected future operating cash flows, changes in AR and AP

Question 12

Indirect method cash flow adjustment:increase in ARdecrease in AR

Answer 12

increase subtracteddecrease added(its an asset, receivables increases net income) Must be considered a wash for cash flow reporting

Question 13

Indirect method cash flow adjustment:increase in APdecrease in AP

Answer 13

increase addeddecrease subtracted(its a liability, purchases decreases net income) Must be considered a wash for cash flow reporting

Question 14

Indirect method cash flow adjustment:increase in Inventorydecrease in Inventory

Answer 14

increase subtracteddecrease added(its an asset, purchases decrease net income) Must be considered a wash for cash flow reporting

Question 15

Indirect method cash flow adjustment:assets

Answer 15

increase subtracteddecrease added

Question 16

Indirect method cash flow adjustment:liabilities

Answer 16

increase addeddecrease subtracted

Question 17

Indirect method cash flow adjustment:depreciation expense

Answer 17

is added,its a non-cash expense that reduces net income

Question 18

Indirect method cash flow adjustment:gain on sale of machine

Answer 18

is subtracted,included in net income, but it is related to investing activities.

Question 19

Order of cash flow reporting….

Answer 19

operatinginvestingfinancing(subtotal each)

Question 20

Indirect method cash flow adjustment:non-cash losses and expenses in net income

Answer 20

added to net income

Question 21

Indirect method cash flow adjustment:non-cash gains and revenues in net income

Answer 21

subtracted from net income

Question 22

Indirect method cash flow adjustment:investing related losses in net income

Answer 22

added to net income

Question 23

Indirect method cash flow adjustment:investing related gains

Answer 23

subtracted from net income