the statement of cash flows questions

8/12/2019 The Statement of Cash Flows Questions

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THE STATEMENT OF CASH FLOWS

1-Which of the following statements regarding the statement of cashflows is FALSE?

A)Investors can use the statement of cash flows to help determinethe amount of leverage a company is using in its financialstructure.

B)Management can use the statement of cash flows to helpdetermine dividend policy.

C)Creditors can use the statement of cash flows to assess acompanys ability to generate positive cash flows in the future.

D) Investors can use the statement of cash flows to assess thelielihood a company will see e!ternal financing.

"-#egarding the investment decision maing process$ the statementof cash flows can NOTbe used to help determine whether%

A) net profit margins are improving.

B) a firm is liely to need e!ternal financing.

C) e!isting debts can be paid off as they mature.

D) a firms dividend policy is sustainable.

&-Which of the following is a primary purpose of the statement ofcash flows?

A)'rovide information about a companys operating$ investing$ andfinancing activities over an accounting period.

B) (ssess the profitability of a company over an accounting period.

C) )etermine the efficiency of a companys use of woring capitalover an accounting period.

D)'rovide a snapshot of a companys financial position at a givenpoint in time.

*-Which of the following is NOTa reason that cash flow informationis important to investment decision-maing? Cash flow informationallows decision maers to determine whether%


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A) regular operations generate enough cash to continue business.

B) regular operations generate enough income to pay off e!isting

debt prior to maturity.

C) unforeseen obligations can be met.

D) new business opportunities that may arise can be taenadvantage of by the company.

+-Which of the following would NOTbe a component of cash flowfrom investing?

A),ale of land.

B) )ividends paid.

C)'urchase of securities.

D)

'urchase of euipment.

-What is the difference between the direct and the indirect methodof calculating cash flow from operations?

A)

/he direct method starts with sales and follows cash as it flowsthrough the income statement$ while the indirect method startswith net income and ad0usts for non-cash charges and other

items.

B)

/he indirect method starts with gross income and ad0usts tocash flow from operations$ while the direct method starts withgross profit and flows through the income statement to calculatecash flows from operations.

C)alance sheet items are not included in the cash flow fromoperations for the direct method$ while they are included for the

indirect method.


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D)/he direct method will result in a lower or higher cash flow figurefor operating activities as it details all of the income statementitems$ while the indirect method only uses net income.

2-What are the main components of cash flow from operations?

A) Capitali3ation activities$ sale of assets$ and purchasingsecurities.

B))ividends$ long-term debt$ and ownership funds.

C) Changes in accounts receivable$ inventory$ accounts payable$and items that flow through the income statement.

D) #epayment of bonds$ issuance of common stoc$ and stocsplits.

4-/he most common method for constructing a statement of cashflows is the%

A) direct top-down approach.

B) indirect top-down approach.

C) indirect bottom-up approach.

D) direct bottom-up approach.

5-Which of the following does NOTrepresent a cash flow relating to

operating activity?

A) Cash received from customers.

B) )ividends paid to stocholders.

C) Interest paid to bondholders.

D) Cash paid for salaries.


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16-Which of the following is TRUEabout the consideration ofdepreciation in the operations section of a cash flow statement?

)irect Method Indirect Method

A) )oes not consider ConsidersB) Considers Considers

C) Considers )oes not consider

D) )oes not consider )oes not consider

11-( decrease in inventory over a period of time would beconsidered a7n8%

A) ad0usting entry.

B) non-cash charge to income.

C) use of cash.

D) source of cash.

1"-9ohn ,tone$ C:($ is an investment advisor speciali3ing in thepreparation of company and industry reports for high net worthcustomers at ;earmon rothers. Currently$ ,tone is preparing areport on ,oft Corporation$ a rapidly growing software company. /hee!plosive growth of this company was financed primarily by an initialpublic offering in which &$666$666 shares were issued at a price of


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Soft Corporation Balance Sheets

as of December 31

(in millions)

(ctual "66* 'ro0ected "66+

Cash


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for Years Ended December 31

(in millions except per share data)

(ctual "66* 'ro0ected "66+

,ales


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nder the indirect method$ what will ,tone find ,oft Corporation=spro0ected net change in cash to be for the year ending )ecember&1$ "66+?

A)


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1*-Use the following information to calculate cash flows from operationsusing the indirect method.

Net Income $12,000 Depreciation Expense 1,000 oss on sale of machiner! "00 Increase in #ccounts ecei%a&le 2,000 Decrease in #ccounts 'a!a&le 1,"00 Increase in Income taxes pa!a&le "00 epa!ment of (onds ),000

A) Increase in cash of


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B) Increase in cash of


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14-When using the indirect method for computing cash flow fromoperating activities$ a change in accounts payable will reuire which

of the following?

A)( positive 7negative8 ad0ustment to net income when accountspayable increases 7decreases8.

B)( negative 7positive8 ad0ustment to net income when accountspayable increases 7decreases8.

C)( positive ad0ustment to net income regardless of whetheraccounts payable increases or decreases.

D) ( negative ad0ustment to net income regardless of whetheraccounts payable increases or decreases.

15-(n analyst contemplates using the indirect method to create thepro0ected statement of cash flows. Ee decides to research thedifferences between the direct and indirect methods. Which of thefollowing is NOT included in the statement of cash flows under the

indirect method?

A) )epreciation.

B) 'ayment of dividends.

C) Cash ta!es.

D) Increase in inventories.

"6-sing the following financial data for Bails$ tc.$ calculate the netchange in cash using the indirect method.

Bet Income


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Increase in inventory 2+

Increase in deferred ta!es +6

'urchase of euipment "$666

)ividends paid 1+6

A) )ecrease in cash of


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""-(n indirect statement of cash flows is made up of which of thefollowing categories?

A) @perating activities starting with net income and ad0usting foritems that do not affect cash$ investing activities$ and financingactivities.

B)@perating activities calculated by converting each item on theincome statement from accrual to cash basis$ investingactivities$ and financing activities.

C)@perating activities starting with net income and converting

each item to its cash euivalent$ indirect activities$ and financingactivities.

D) @perating e!penses from the income statement converted tocash euivalents$ investing activities$ and financing activities.

"&-sing the following information$ what is the firm=s cash flow fromoperations?

Bet income


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D) 1++.

"*-;and costing


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Cash from sale of land 1"$666

Gaviers reported cash flow from operations will be%

A) -


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D) 'roceeds related to acuisitions.

"4-Which of the following items would NOTbe used to compute the

cash flow from operations?

A) Change in long-term debt.

B))epreciation.

C) Bet income.

D) Change in inventory levels.

"5-Which of the following items would NOTbe included in cash flowfrom financin!?

A))ividends paid to shareholders.

B) 'urchase of treasury stoc.

C)Aain on sale of stoc of a subsidiary.

D) Issuance of common stoc.

&6-Which of the following is NOT a cash flow in the calculation ofcash flow from operations?

A) )ividends received.B) Interest income.

C) Interest paid.

D) )ividends paid.

&1-( firm has net cash sales of


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A) Investing.

B) @perating.

C) :ree cash flow.

D):inancing.

&+-Interest payments$ either as part of a coupon payment or tocreditors$ are always considered which type of cash flow?

A) Investing.

B):inancing.

C) @perating.

D) :ree cash flow.

&-Which of the following is NOTa category on the statement ofcash flows? Cash flow from%

A) financing.

B) investing.

C) sales.

D) operations.

&2-(ll of the following are cash flows from operations EXCEPT:

A) dividends paid to shareholders.


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B) interest payments.

C) dividends received.

D) interest received.

&4-9odi ;ein$ small business consultant$ is currently woring with #9;andscaping$ a sole proprietorship. ,he is trying to educate theowner on the importance of monitoring cash flows. @peratinginformation as of the end of the most recent month appears below%

Cash from sale of truc of


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C) Change in paid-in capital.

D) Change in long-term debt.

*6-Which of the following changes will increase a firms cash flow7i.e. which changes are a source of cash for the firm8? Increase inaccounts%

A) receivable and decrease in inventory.B) payable and decrease in notes payable.

C) receivable and decrease in notes payable.

D) payable and decrease in inventory.

*1-If 9acson ,i Company issues common stoc$ and uses the

proceeds to purchase fi!ed assets such as euipment%

A)cash flow from financing would decrease and cash flow frominvesting would increase.

B)both cash flow from operations and cash flow from financingwould decrease.

C)both cash flow from operations and cash flow from financingwould increase.

D) cash flow from financing would increase and cash flow frominvesting would decrease.

the statement of cash flows questions

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