Cash Flow

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Chapter 5
Statement of Cash Flows

Learning Objectives

1.Identify the purposes of the statement of cash flows 2.Classify activities affecting cash as operating, investing, or financing activities 3.Compute and interpret cash flows from financing activities 4.Compute and interpret cash flows from investing activities 5.Use the direct method to calculate cash flows from operations 6.Use the indirect method to explain the difference between net income and net cash provided by (used for) operating activities 7.Understand why we add depreciation to net income when using the indirect method for computing cash flow from operating activities 8.Show how the balance sheet equation provides a conceptual framework the statement of cash flows

True False

1.The statement of cash flows reports on where cash came from and how it was used. a.True
b.False

L.O.:1Type:EasySolution:a

2.Like the income statement, the statement of cash flows covers a period of time. a.True
b.False

L.O.:1Type:EasySolution:a

3.A firm may have a significant amount of net income, as computed by accountants on the accrual basis, and yet have a severe decline in cash. a.True
b.False

L.O.:1Type:EasySolution:a

4.A statement of cash flows covers a date in time rather than a period of time. a.True
b.False

L.O.:1Type:EasySolution:b

5.One of the purposes of a statement of cash flows is to determine a company's ability to pay its debts when they become due. a.True
b.False

L.O.:1Type:EasySolution:a

6.Investing activities involve obtaining resources as a borrower and repaying creditors. a.True
b.False

L.O.:2Type:EasySolution:b

7.The issuance of long-term debt results in a cash outflow as reported in the financing section. a.True
b.False

L.O.:2Type:ModerateSolution:b

8.The purchase of another company's stock is an example of an investing activity. a.True
b.False

L.O.:2Type:EasySolution:a

9.Cash flows from financing activities includes borrowing cash through a lender. a.True
b.False

L.O.:2Type:EasySolution:a

10.Cash flows from operating activities includes the receipt of
interest income.
a.True
b.False

L.O.:2Type:ModerateSolution:a

11.Cash flows from financing activities includes the payment of interest on a note payable. a.True
b.False

L.O.:2Type:ModerateSolution:b

12.A transaction in which long-term debt of $35,000 is converted to common stock would be reported in the financing section of the cash flow statement. a.True
b.False

L.O.:2Type:ModerateSolution:b

13.Dividends received from a subsidiary would be classified as an investing activity on a statement of cash flows. a.True
b.False

L.O.:2Type:ModerateSolution:b

14.Issuing equity securities is an operating activity on the statement of cash flows. a.True
b.False

L.O.:2Type:ModerateSolution:b

15.Operating activities on a statement of cash flows relate to acquiring assets such as buildings and equipment. a.True
b.False

L.O.:2Type:ModerateSolution:b

16.Cash received from customers is a financing activity on the statement of cash flows. a.True
b.False

L.O.:2Type:EasySolution:b

17.Cash dividends paid to stockholders are an operating activity on the statement of cash flows. a.True
b.False

L.O.:2Type:EasySolution:b

18.The receipt of loan repayments is an investing activity on the statement of cash flows. a.True
b.False

L.O.:2Type:ModerateSolution:a

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