Chapter 13

Question 1

operating activities

Answer 1

income statement items

cash inflows:
from sale of goods or services
from interest received and dividends received

cash outflows:
to suppliers for inventory
to employees for wages
to government for taxes
to lenders for interest
to other for expense

Question 2

investing activities

Answer 2

changes in investments and non-current assets

cash inflows:
from sale of property, plant, and equipment
from sale of investments in debt or equity securities of other entities
from collection of principal on loans to other entities

cash outflows:
to purchase property, plant and equipment
to purchase investments in debt or equity securities of other entities
to make loans to other entities

Question 3

financing activities

Answer 3

changes in non-current liabilities and equity

cash inflows:
from sale of ordinary shares
from issuance of long debt

cash outflows
to shareholders as dividends
to redeem long term debt or reacquire ordinary shares

Question 4

three sources of information

Answer 4

1. statements of financial position
2. current income statement
3. additional information

Question 5

the indirect method adjust

Answer 5

net income for items that do not affect cash

Question 6

direct method shows

Answer 6

operating cash receipts and payments

Question 7

companies favor the indirect method for two reasons

Answer 7

1. easier and less costly to prepare

2. focuses on differences between net income and net cash flow from operating activities

Question 8

free cash flow

Answer 8

describes the cash remaining from operations after adjustment for capital expenditures and dividends