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Chpt 23 cash flows
Intermed A 2 chpt 23 cash flows
| Question | Answer |
|---|---|
| Cash equivalents | Sort-term highly liquid investments that are both ( a) readily convertible to know amounts of cash & (b) so near their maturity that they present insignificant risk of changes in interest rates. |
| Direct Method ( also called the Income statement method) | Method of presenting the statement of cash flows which reports cash receipts and cash disbursements from operating activities. |
| Financing activities | Activities that involve liability and stockholder's equity items and include (a) obtaining cash from creditors and repaying the amounts borrowed and (b) obtaining capital from owners & providing them with a return on & return of their investment |
| Indirect method (also called the reconciliation method). | a method of presenting the statement of cash flows that starts with net income and converts it to net cash provided by operating activities |
| Investing activities | Activities that involve long-term assets and include (a) making and collecting loans and (B) acquiring and disposing of investments and productive long-lived assets. |
| Operating activities | The cash effects of transactions that enter into the determination of net income, such as cash receipts from sales of goods and services and cash payments to suppliers and employees for acquisitions of inventory & expenses. |
| Significant noncash transactions | Investing or financing activities that do not involve cash and are material in amount such as refinancing of long term-debt |
| Statement of cash flows | A financial statement that reflects and entity's cash receipts classified by major sources and its cash payments classified by major uses. |
| Extraordinary items that result in cash flows should be reported either as investing or as financing activities | True |
| Direct method is used allowance account should not be netted against accounts receivables | Instead the change in account rec should be analyzed in connection with reporting cash received from customers. |
| Some changes in working capital effect cash but | do not affect net income when the are short-term non trading equity investment or short-term non trade notes payable |
| Net losses if an enterprise reports a net loss instead of net income the net loss must be adjusted for those items that do not result in a cash inflow or out flow | net loss may turn out to be a positive cash flow from operating activities. |
| Disclosures | Significant non cash investing and financing activities (such as purchasing and asset by assuming long-term debt) if material in amount should be disclosed in a separate schedule Not in statement of cash flows |
| 3 major sources of information for cash flow | Comparative balance sheets, current income statement and selected transaction data. |
| 3 steps to prepare cash flow statement | Determine change in cash, 2. Determine net cash flow from operating activities 3 determine cash flows from investing & financing actives. |
| Determine the change in cash | can be determined by difference from beginning and ending cash balance on comparative balance sheets. |
| Determine the net cash flow from operating activities | Is complex as it involves analyzing not only the current year's income statement but also comparative balance sheets as well as selected transaction data. |
| Determine cash flows from investing and financing activities | all other changes in the balance sheet accounts must be analayed to determine their effect on cash. |
| Minimum disclosure requirements for companies using the direct method include | Receipts- Cash collected fr |
| Stock dividends would be disclosed under significant noncash transactions. | true |
| When preparing a statement of cash flows (indirect method), an increase in ending inventory over beginning inventory will result in an adjustment to reported net earnings because | cost of goods sold on an accrual basis is lower than on a cash basis. |
| Net cash flow from operating activities is determined by eliminating | noncash expenses and noncash revenues from net income |
| To arrive at net cash provided by operating activities, it is necessary to report revenues and expenses on a cash basis. This is done by | eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash. |
| Which method adjusts net income to net cash flows from operating activities? | Indirect method |
| Which of the following would be classified as a financing activity on a statement of cash flows? | Deposit to a bond sinking fund |
| The amortization of bond premium on long-term debt should be presented in a statement of cash flows (using the indirect method for operating activities) as a(n) | deduction from net income |
| Increases in current assets are deducted from net income in the operating activities section. | true |
| Under the direct method, a loss on the sale of long-term investments would | not be shown on a statement of cash flows. |
| The method of calculating net cash flow from operating activities that results in the presentation of a condensed cash receipts and cash disbursements statement is the: | direct method |
| The method of calculating net cash flow from operating activities that adjusts net income for items that affected reported net income but not cash is the: | Indirect method |
| The reconciliation of net income to net cash flow from operating activities is reported under: | both the direct method and the indirect method. |
| A loss incurred from the settlement of litigation after the balance sheet date resulting from an event that occurred last year need only be disclosed in the notes to the financial statements. | true |
| When preparing a statement of cash flows (indirect method), which of the following is not an adjustment to reconcile net income to net cash provided by operating activities? | A change in dividends payable . I does not affect net income |
| Which method adjusts net income for items that affected reported net income but did not affect cash? | Indirect |
| According to IFRS, companies can define “cash and cash equivalents” as “net monetary assets”—that is, as “cash and demand deposits and highly liquid investments less short-term borrowings.” | true |
| Both IFRS and GAAP specify that companies must classify cash flows as operating, investing, or financing. | Correct |
| Three sources for information for Cash Flow Statement | Comparative balance sheets, Current income statement, Selected transaction data from general ledger. |
| Comparative balance sheets | provide the amount of the changes in assets, Liabilities and equities from the beginning to the end of the period. |
| Current income statement data | help determine the amount of cash provided by or used by operations during the period |
| Selected Transaction data | from the general ledger provide additional detailed information needed to determine how the company provided or used cash during the period. |
| 3 Steps involved in preparing Statement of Cash Flows | 1. Determine the change in cash. 2. Determine net cash flow from operating activities 3. Determine net cash flows from investing and financing activities. |
| Under the direct method, cash payments to suppliers equals cost of goods sold: | plus an increase in inventory and minus an increase in accounts payable. |
| Under IFRS, interest paid can be classified as either an | operating or a financing cash flow |
| A major difference between U.S. GAAP and IFRS is that in certain situations bank overdrafts are considered part of cash and cash equivalents under IFRS | Under U.S. GAAP, bank overdrafts are classified as financing activities. |
| Which of the following items might be classified differently in a statement of cash flows prepared using IFRS rather than GAAP? | Dividends paid to preferred shareholders. Interest revenue received from notes receivable. Interest expense paid on bonds. |
| In certain circumstances under IFRS, bank overdrafts | are considered part of cash and cash equivalents. |
| he statement of cash flows provides information to help investors and creditors assess the cash and noncash investing and financing transactions during the period. | true |
| Indirect method is sometimes called the | reconciliation method |
| The indirect method adjusts net income for items that affected reported net income but did not affect cash. | true |
| The investing activities section of a statement of cash flows would include cash received from dividends on long-term investments in stocks. | wrong would be reported on operational section |
| In a statement of cash flows, the cash flows from investing activities section should report | A major repair to machinery charged to accumulated depreciation. |
Created by:
smcdo11