General Purpose FS - Stmt of Cash Flows - Wiley

Question 1

What is the basic purpose of the statement of cash flows?

Answer 1

The basic purpose is to provide information about the cash receipts and cash payments for an entity to help investors, creditors, and others.

Question 2

When is a statement of cash flows required?

Answer 2

For all business enterprises that report both financial position (balance sheet) and results of operations (income statement) for a period

Question 3

What is reported on the statement of cash flows?

Answer 3

1. Information about the cash receipts and cash payments for an entity
2. The difference between net income and net operating cash flows
3. Information about investing and financing activities that do not involve cash inflows or outflows

Question 4

What is the reporting basis of the statement of cash flows?

Answer 4

The reporting basis is cash and cash equivalents.

Question 5

List the required categories for the statement of cash flows.

Answer 5

1. Net cash inflow or outflow from operating activities
2. Net cash inflow or outflow from investing activities
3. Net cash inflow or outflow from financing activities
4. Effects of foreign currency translation
5. Reconciliation of net cash inflows/outflows with the reported change in cash and cash equivalents on the balance sheet
6. Noncash investing and financing activities

Question 6

Name the four major sections in the direct method cash flow statement.

Answer 6

1. Operating cash flows
2. Investing cash flows
3. Financing cash flows
4. Reconciliation of net income and net operating cash flows

Question 7

What is the cash flow category for collections of principal amounts on loans made to other entities?

Answer 7

The category is investing

Question 8

Name the two formats permitted for the statement of cash flows.

Answer 8

1. Indirect

2. Direct

Question 9

What is the indirect method on the statement of cash flows?

Answer 9

It reconciles net income to cash flows from operating activities.

Question 10

What is the direct method on the statement of cash flows?

Answer 10

This method presents actual inflows and outflows from cash operations. It must also disclose the indirect method (reconciliation of net income to cash flows from operations) as a supporting schedule.

Question 11

What is the cash flow category for interest paid and received?

Answer 11

This category is operating activities.

Question 12

What is comprehensive income?

Answer 12

Net income + Other comprehensive income items

Question 13

Where is the cash effect on foreign currency translation reported?

Answer 13

It is reported as a separate part of the reconciliation of the change in cash and cash equivalents during the period.

Question 14

Where are noncash investing and financing activities reported?

Answer 14

They are reported on the face of the statement of cash flows or as a separate disclosure.

Question 15

What are some examples of cash inflows classified as investing activities?

Answer 15

1. Sale of long-term assets
2. Collection of loan principal
3. Disposal of held-to-maturity (HTM) and available-for-sale (AFS) debt and equity securities.
4. Sale of productive assets (not inventory)

Question 16

What are some examples of cash outflows classified as investing activities?

Answer 16

1. Purchase of long-term assets
2. Lending to others
3. Investment in debt and equity securities held to maturity and available for sale
4. Purchase of productive assets (not inventory)

Question 17

What are some examples of cash inflows classified as financing activities?

Answer 17

1. Sale of own stock

2. Proceeds from borrowing

Question 18

What are some examples of cash outflows classified as financing activities?

Answer 18

1. Repurchase of own stock
2. Paying back lenders (principal only)
3. Payment of dividends

Question 19

What is the cash flow category for purchases of trading securities?

Answer 19

The category is operating.

Question 20

What is the cash flow category for purchases of securities available-for-sale?

Answer 20

The category is investing.

Question 21

What is the cash flow category for dividends paid?

Answer 21

The category is financing.

Question 22

What is the cash flow category for loans made to other entities?

Answer 22

The category is investing.

Question 23

What is the cash flow category for principal payments on short-term and long-term loans from financial institutions made to acquire inventory for resale?

Answer 23

The category is financing

Question 24

What is the cash flow category for principal payments on short-term and long-term loans (from financial institutions or dealers) made to acquire plant assets?

Answer 24

The category is financing.

Question 25

What is the purpose of the operating section of the statement of cash flows under the indirect method?

Answer 25

The purpose is to adjust accrual net income to net cash flow from operating activities.

Question 26

What is the purpose of the operating section of the statement of cash flows under the direct method?

Answer 26

The purpose is to show all cash inflows and outflows for operating activities.

Question 27

Using the indirect method for reporting cash flows from operations, should an increase in accounts receivable be added to or subtracted from accrual-based net income?

Answer 27

An increase in accounts receivable should be subtracted.

Question 28

Using the indirect method for reporting cash flows from operations, should a decrease in inventory be added to or subtracted from accrual-based net income?

Answer 28

A decrease in inventory should be added.

Question 29

Using the indirect method for reporting cash flows from operations, should an increase in accounts payable be added to or subtracted from accrual based net income?

Answer 29

An increase in accounts payable should be added.

Question 30

Using the indirect method for reporting cash flows from operations, should a decrease in unearned revenue be added to or subtracted from accrual-based net income?

Answer 30

A decrease in unearned revenue should be subtracted.