Ch17 - Ch17 principle of accouting Ch17 principle of accouting PDF

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Ch17 principle of accouting Ch17 principle of accouting...

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CHAPTER 17 THE STATEMENT OF CASH FLOWS SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S TAXONOMY Item

SO

BT

Item

SO

BT

Item

SO

BT

Item

SO

BT

Item

5 6 6 6 6 6 2 2

C C K C K K K K

33. 34. a,sg 35. a,sg 36.

125. 126. a 127. . . . . . . a 134. a 135. sg 136. sg 137. st 138. sg 139. sg 140. sg 141. sg 142. a,sg 143. a,sg 144. a.sg 145.

SO

BT

True-False Statements 1. 2. 3. 4. 5. 6. 7. 8.

1 1 1 1 1 1 1 2

K K K K K C C K

9. 10. 11. 12. 13. 14. 15. 16.

2 2 2 2 2 2 2 2

K K C C C C C C

17. 18. 19. 20. 21. 22. 23. 24.

2 3 3 3 3 3 4 4

C C C C C C K K

a

25. 26. a 27. a 28. a 29. a 30. sg 31. sg 32. a

sg

sg

2 3 5 6

K C K K

6 6 6 6 6 6 6 6 6 6 6 2 2 2 2 2 3 3,6 6 6 5

AP AP AP C AP AP C AP AP AP AP K K K K C K AP AP AP K

6 6

AP AP

Multiple Choice Questions 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58.

1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2

K K C

59. 60. 61.

2 2 2

C C K

81. 82. 83.

3 3 3

C C C

103. 104. 105.

3 3,6 3,6

K AP C

K K C K C C C C C K C K C

68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80.

2 2 3 3 3 3 3 3 3 3 3 3 3

AP AP AP AP AP AP AP AP K K AP K C

90. 91. 92. 93. 94. 95. 96. 97. 98. 99. 100. 101. 102.

3 3 3 3 3 3 3 3 3 3 3 3 3

K K C C C C C C C C AP C C

112. 113. 114. 115. a 116. a 117. a 118. a 119. a 120. a 121. a 122. a 123. a 124.

3,6 4 4 4 5 5 5 6 6 6 6 6 6

C K C AP C C C C K AP AP AP AP

152. 153.

3 4

AP AP

a

a

Brief Exercises 146. 147. sg st a

2 3

C AP

148. 149.

3 3

AP AP

150. 151.

3 3

K K

This question also appears in the Study Guide. This question also appears in a self-test at the student companion website. This topic is dealt with in an Appendix to the chapter.

a a

154. 155.

17 - 2

Test Bank for Accounting Principles, Eighth Edition

SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S TAXONOMY Exercises 156. 157. 158. 159. 160.

2 2 2 2 3

C C C AP AP

161. 162. 163. 164. 165.

3 3 3,4 3 3

AP C AP AP AP

177. 178. 179.

2 2 3

K K K

180. 181. 182.

3 3 3

K K K

166. 167. a 168. a 169. a 170.

3 4 5 6 6

AP AP AP AP AP

a

171. 172. a 173. a 174. a 175. a

6 6 6 6 6

AP AP AP AP AP

a

6 6 6

K AN K

a

176.

6

AP

189.

6

K

Item

Type

Completion Statements 183. 184. a 185.

3 4 6

K K K

a

186. 187. a 188.

a

SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE Item 1. 2. 3.

TF TF TF

8. 9. 10. 11. 12. 13. 14.

TF TF TF TF TF TF TF

18. 19. 20. 21. 22. 34. 70. 71. 72. 73.

a a

Type

Item 4. 5. 6.

32. 33. 47.

TF TF TF TF TF TF MC MC MC MC

23. 24.

TF TF

25. 35.

TF TF

74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 113. 114. a a

116. 117.

Type TF TF TF

TF TF MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC

Item 7. 37. 38.

Type

Item

Type

Item

Study Objective 1 TF 39. MC 42. MC 40. MC 43. MC 41. MC 44.

59. 60. 61.

MC MC MC

Type

Item

Type

MC MC MC

45. 46.

MC MC

52. 53. 54.

MC MC MC

66. 67. 68.

MC MC MC

139. 140. 146.

MC MC BE

84. 85. 86. 87. 88. 89. 90. 91. 92. 93.

Study Objective 3 MC 94. MC 104. MC 95. MC 105. MC 96. MC 106. MC 97. MC 107. MC 98. MC 108. MC 99. MC 109. MC 100. MC 110. MC 101. MC 111. MC 102. MC 112. MC 103. MC 141.

MC MC MC MC MC MC MC MC MC MC

142. 147. 148. 149. 150. 151. 152. 160. 161. 162.

MC BE BE BE BE BE BE Ex Ex Ex

Study Objective 4 115. MC 163. Ex 184. 153. BE 167. Ex Study Objective a5 a 118. MC a168. Ex a 145. MC

C

156. 157. 158. 159. 177. 178.

Ex Ex Ex Ex C C

163. 164. 165. 166. 179. 180. 181. 182. 183.

Ex Ex Ex Ex C C C C C

The Statement of Cash Flows

a

26. TF 27. TF a 28. TF a 29. TF a 30. TF a 36. TF a 104. MC a

a

105. 106. a 107. a 108. a 109. a 110. a 111. a

MC MC MC MC MC MC MC

a

112. 119. a 120. a 121. a 122. a 123. a 124. a

Note: TF = True-False MC = Multiple Choice

Study Objective a6 MC a125. MC a132. MC a126. MC a133. MC a127. MC a134. MC a128. MC a135. MC a129. MC a143. MC a130. MC a144. MC a131. MC a154.

MC MC MC MC MC MC BE

BE = Brief Exercise Ex = Exercise

a

155. 169. a 170. a 171. a 172. a 173. a 174. a

BE Ex Ex Ex Ex Ex Ex

a

175. 176. a 185. a 186. a 187. a 188. a 189. a

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Ex Ex C C C C C

C = Completion

The chapter also contains two sets of ten Matching questions and five Short-Answer Essay questions.

CHAPTER STUDY OBJECTIVES 1. Indicate the usefulness of the statement of cash flows. The statement of cash flows provides information about the cash receipts, cash payments, and net change in cash resulting from the operating, investing, and financing activities of a company during the period. 2. Disting include Investin asset it liability and stockholders' equity items.

ing activities net income. nd long-term in long-term

3. Prepare a statement of cash flows using the indirect method. The preparation of a statement of cash flows involves three major steps: (1) Determine net cash provided/used by operating activities by converting net income from an accrual basis to a cash basis. (2) Analyze changes in noncurrent asset and liability accounts and record as investing and financing activities, or disclose as noncash transactions. (3) Compare the net change in cash on the statement of cash flows with the change in the cash account reported on the balance sheet to make sure the amounts agree. 4. Analyze the statement of cash flows. The statement of cash flows can be used for cashbased ratio analysis. Free cash flow provides information about a company’s cash-generating capabilities. It is calculated as cash from operations less capital expenditures and cash dividends. a

5. Explain how to use a worksheet to prepare the statement of cash flows using the indirect method. When there are numerous adjustments, a worksheet can be a helpful tool in preparing the statement of cash flows. Key guidelines for using a worksheet are (1) List accounts with debit balances separately from those with credit balances. (2) In the reconciling columns in the bottom portion of the worksheet, show cash inflows as debits and cash outflows as credits. (3) Do not enter reconciling items in any journal or account, but use them only to help prepare the statement of cash flows.

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Test Bank for Accounting Principles, Eighth Edition

The steps in preparing the worksheet are (1) Enter beginning and ending balances of balance sheet accounts. (2) Enter debits and credits in reconciling columns. (3) Enter the increase or decrease in cash in two places as a balancing amount. a

6. Prepare a statement of cash flows using the direct method. The preparation of the statement of cash flows involves three major steps: (1) Determine net cash provided/used by operating activities by converting net income from an accrual basis to a cash basis. (2) Analyze changes in noncurrent asset and liability accounts and record as investing and financing activities, or disclose as noncash transactions. (3) Compare the net change in cash on the statement of cash flows with the change in the cash account reported on the balance sheet to make sure the amounts agree. The direct method reports cash receipts less cash payments to arrive at net cash provided by operating activities.

TRUE-FALSE STATEMENTS 1.

The statement of cash flows is a required statement that must be prepared along with an income statement, balance sheet, and retained earnings statement.

2.

For external reporting, a company must prepare either an income statement or a statement of cash flows, but not both.

3.

A pri inves

4.

A stat

od.

5.

In pre to compute the net change in cash during a period.

ash in order

6.

Cash equivalents are highly-liquid investments that have maturities of less than three months.

7.

The use of cash to purchase highly liquid short-term investments (cash equivalents) would be reported on the statement of cash flows as an investing activity.

8.

In preparing a statement of cash flows, the issuance of debt should be reported separately from the retirement of debt.

9.

Noncash investing and financing activities must be reported in the body of a statement of cash flows.

10.

The statement of cash flows classifies cash receipts and payments as operating, nonoperating, financial, and extraordinary activities.

11.

The sale of land for cash would be classified as a cash inflow from an investing activity.

12.

Cash flow from investing activities is considered the most important category on the statement of cash flows because it is considered the best measure of expected income.

13.

The receipt of dividends from long-term investments in stock is classified as a cash inflow from investing activities.

or loss on

The Statement of Cash Flows

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14.

The payment of interest on bonds payable is classified as a cash outflow from operating activities.

15.

Any item that appears on the income statement would be considered as either a cash inflow or cash outflow from operating activities.

16.

The acquisition of a building by issuing bonds would be considered an investing and financing activity that did not affect cash.

17.

All major financing and investing activities affect cash.

18.

Cash provided by operations is generally equal to operating income.

19.

Using the indirect method, an increase in accounts receivable during a period is deducted from net income in calculating cash provided by operations.

20.

Using the indirect method, an increase in accounts payable during a period is deducted from net income in calculating cash provided by operations.

21.

A loss on sale of equipment is added to net income in determining cash provided by operations under the indirect method.

22.

In p Stoc

and Treasury

23.

Cas in ne

y must invest

24.

Free cash flow equals cash provided by operations less capital expenditures and cash dividends.

a

25.

The use of a worksheet to prepare a statement of cash flows is optional.

a

26.

During the year, Income Tax Expense amounted to $30,000 and Income Taxes Payable increased by $3,000; therefore, the cash paid for income taxes was $27,000.

a

27.

In preparing net cash flow from operating activities using the direct method, each item in the income statement is adjusted from the accrual basis to the cash basis.

a

28.

Using the direct method, major classes of investing and financing activities are listed in the operating activities section.

a

29.

During a period, cost of goods sold + an increase in inventory + an increase in accounts payable = cash paid to suppliers.

a

30.

Operating expenses + an increase in prepaid expenses – a decrease in accrued expenses payable = cash payments for operating expenses.

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Test Bank for Accounting Principles, Eighth Edition

Additional True-False Questions 31.

The statement of cash flows classifies cash receipts and cash payments into two categories: operating activities and nonoperating activities.

32.

Financing activities include the obtaining of cash from issuing debt and repaying the amounts borrowed.

33.

The adjusted trial balance is the only item needed to prepare the Statement of Cash Flows.

34.

Under the indirect method, retained earnings is adjusted for items that affected reported net income but did not affect cash.

a

35.

The reconciling entry for depreciation expense in a worksheet is a credit to Accumulated Depreciation and a debit to Operating-Depreciation Expense.

a

36.

Under the direct method, the formula for computing cash collections from customers is sales revenues plus the increase in accounts receivable or minus the decrease in accounts receivable.

Answers to Item

1. 2. 3. 4. 5. 6.

Ans.

T F F T F T

10. 11. 12.

F T F

16. 17. 18.

T F F

22. 23. 24.

F T T

a

28. 29. a 30. a

F F F

34. 35. a 36. a

F T F

MULTIPLE CHOICE QUESTIONS 37.

The statement of cash flows should help investors and creditors assess each of the following except the a. entity's ability to generate future income. b. entity's ability to pay dividends. c. reasons for the difference between net income and net cash provided by operating activities. d. cash investing and financing transactions during the period.

38.

The statement of cash flows a. must be prepared on a daily basis. b. summarizes the operating, financing, and investing activities of an entity. c. is another name for the income statement. d. is a special section of the income statement.

The Statement of Cash Flows

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39.

Which one of the following items is not generally used in preparing a statement of cash flows? a. Adjusted trial balance b. Comparative balance sheets c. Current income statement d. Additional information

40.

The primary purpose of the statement of cash flows is to a. provide information about the investing and financing activities during a period. b. prove that revenues exceed expenses if there is a net income. c. provide information about the cash receipts and cash payments during a period. d. facilitate banking relationships.

41.

If a company reports a net loss, it a. may still have a net increase in cash. b. will not be able to pay cash dividends. c. will not be able to get a loan. d. will not be able to make capital expenditures.

42.

In addition to the three basic financial statements, which of the following is also a required financial statement? a. the "Cash Budget" b. t c. t d. t

43.

The a. b. sources of cash in the current period. c. uses of cash in the current period. d. change in the cash balance for the current period.

44.

Cash equivalents do not include a. short-term corporate notes. b. treasury bills. c. money market funds. d. 2-year certificates of deposit.

45.

Which of the following characteristics does not apply to cash equivalents? a. Short-term b. Highly-liquid c. Readily convertible into cash d. Sensitive to interest rate changes

46.

Cash equivalents are generally investments with maturities of a. $1,000 or more. b. three months or less. c. at least six months. d. one year or the operating cycle, whichever is less.

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Test Bank for Accounting Principles, Eighth Edition

47.

The best measure of a company's ability to generate sufficient cash to continue as a going concern is net cash provided by a. financing activities. b. investing activities. c. operating activities. d. processing activities.

48.

The acquisition of land by issuing common stock is a. a noncash transaction which is not reported in the body of a statement of cash flows. b. a cash transaction and would be reported in the body of a statement of cash flows. c. a noncash transaction and would be reported in the body of a statement of cash flows. d. only reported if the statement of cash flows is prepared using the direct method.

49.

The order of presentation of activities on the statement of cash flows is a. operating, investing, and financing. b. operating, financing, and investing. c. financing, operating, and investing. d. financing, investing, and operating.

50.

Financing activities involve a. lending money. b. acquiring investments. c. is d. ac

51.

Inves a. co b. ob c. obtaining capital from owners. d. repaying money previously borrowed.

52.

Generally, the most important category on the statement of cash flows is cash flows from a. operating activities. b. investing activities. c. financing activities. d. significant noncash activities.

53.

The category that is generally considered to be the best measure of a company's ability to continue as a going concern is a. cash flows from operating activities. b. cash flows from investing activities. c. cash flows from financing activities. d. usually different from year to year.

54.

Cash receipts from interest and dividends are classified as a. financing activities. b. investing activities. c. operating activities. d. either financing or investing activities.

The Statement of Cash Flows

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55.

Each of the following is an example of a significant noncash activity except a. conversion of bonds into common stock. b. exchanges of plant assets. c. issuance of debt to purchase assets. d. stock dividends.

56.

If a company has both an inflow and outflow of cash related to property, plant, and equipment, the a. two cash effects can be netted and presented as one item in the investing activities section. b. cash inflow and cash outflow should be reported separately in the investing activities section. c. two cash effects can be netted and presented as one item in the financing activities section. d. cash inflow and ...