CHAPTER 17: STATEMENT OF CASH FLOWS

CHAPTER 17: STATEMENT OF CASH FLOWS

THEORIES
4. Supplemental disclosures required only when the statement of cash flows is
prepared using the indirect method include
1. The primary purpose of the statement of cash flows is A. A schedule reconciling net income with net cash flows from operating activities.
A. To help investors, creditors and other users to assess the entity’s ability to B. Significant noncash investing and financing activities.
generate positive future net cash flows. C. Amounts deducted for depreciation and amortization.
B. To provide relevant information about cash receipts and cash payments of an D. Amounts paid for interest and taxes.
entity during a period. ANSWER: D (VALIX, 2015)
C. To assess the ability of the entity to pay dividends to stockholders.
D. To disclose separately noncash investing and financing activities.
ANSWER: B (VALIX, 2015) 5. Which of the following should not be disclosed in the statement of cash flows
using the indirect method?
A. Dividends paid on preference shares
2. An entity shall prepare and present a statement of cash flows as B. Cash flow per share
A. Supporting schedule for amount appearing as cash and cash equivalent C. Income taxes paid
B. Integral part of the entity’s basic financial statements D. Interest paid
C. Supplementary financial statement ANSWER: B (VALIX, 2015)
D. Note to financial statement
ANSWER: B (VALIX, 2015)
6. Which of the following statements regarding operating activities are incorrect?
A. Operating activities are the cash flows derived primarily from the principal
3. Which of the following should be disclosed only when preparing a statement of revenue producing activities of the entity.
cash flows? B. Operating activities generally result from the cash effects of transactions and
A. Conversion of preference share to ordinary share other events that enter into the determination of net income or loss.
B. Conversion of long term debt to ordinary share C. Cash advances and loans made by a financial institution are usually classified as
C. Acquisition of an asset by issuing share capital operating activities since they relate to the main revenue producing activity of
D. All of these are disclosed only that entity.
ANSWER: D (VALIX, 2015) D. Operating activities are the cash effects of transactions involving nonoperating
assets, such as investments, property, plant and equipment, intangible assets
and other noncurrent assets.
ANSWER: D (VALIX, 2015)

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CHAPTER 17: STATEMENT OF CASH FLOWS

7. Cash receipts from royalties, fees, commissions and other revenue are 10. Which of the following statements regarding financing activities are incorrect?
A. Cash inflows from operating activities A. Financing activities are the cash flow derived from equity capital and
B. Cash inflows from investing activities borrowings of the entity.
C. Cash outflows from operating activities B. Financing activities are the cash flows that result from transactions between the
D. Cash outflows for financing activities entity and its owners and between the entity and its creditors.
ANSWER: A (VALIX, 2015) C. Financing activities include the cash flows from transactions involving nontrade
liabilities and equity of an entity
D. Financing activities are the cash flows derived primarily from the principal
8. Cash flows arising from the purchase and sale of trading securities are revenue producing activities of the entity.
A. Not reported in the cash flow statement ANSWER: D (VALIX, 2015)
B. Classified as operating activities
C. Classified as investing activities
11. Cash receipts from issuing shares and other equity instruments are
D. Classified as financing activities
A. Cash inflows from financing activities
ANSWER: B (VALIX, 2015)
B. Cash inflows from investing activities
C. Cash outflows from financing activities
9. In a statement of cash flows, interest payments to lenders and other creditors D. Cash outflows from investing activities
shall be classified as ANSWER: A (VALIX, 2015)
A. Borrowing activities
B. Operating activities
12. Cash payments to owners to acquire or redeem the entity’s shares are
C. Financing activities
A. Cash inflows from investing activities
D. Lending activities
B. Cash inflows from financing activities
ANSWER: B (VALIX, 2015)
C. Cash outflows from investing activities
D. Cash outflows from financing activities
ANSWER: D (VALIX, 2015)

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CHAPTER 17: STATEMENT OF CASH FLOWS

13. In a statement of cash flows, dividend payments to shareholders shall be 16. In the statement of cash flows, interest received and dividend received may be
classified as classified alternatively as cash flow from
A. Cash inflows from financing activities A. Financing activities
B. Cash inflows from investing activities B. Operating activities
C. Cash outflows from financing activities C. Investing activities
D. Cash outflows from investing activities D. Revenue activities
ANSWER: C (VALIX, 2015) ANSWER: C (VALIX, 2015)

14. Which of the following statements regarding investing activities is/are correct? 17. The aggregate cash flows arising from obtaining or losing control of subsidiaries
A. Investing activities include the cash flows from transactions involving nontrade or other businesses shall
liabilities and equity of an entity A. Be classified as operating activities
B. Cash advances and loans made by a financial institution are usually classified as B. Be classified as investing activities
investing activities since they relate to the main revenue producing activity of C. Be classified as financing activities
an entity D. Not be reported
C. Investing activities are the cash effects of transactions involving non-operating ANSWER: B (VALIX, 2015)
assets such, such as investments, property, plant and equipment, intangible
assets and other noncurrent assets.
D. All the statements above are correct. 18. An entity shall report cash flows from operating activities using
ANSWER: C (VALIX, 2015) A. Direct method
B. Indirect method
C. Either direct method or indirect method
15. Cash payments to acquire equity instruments of other entities and interests in
D. Neither direct method nor indirect method
joint venture are
ANSWER: C (VALIX, 2015)
A. Cash inflows from financing activities
B. Cash inflows from investing activities
C. Cash outflows from investing activities 19. An entity shall report separately cash flows arising from investing and financing
D. Cash outflows from financing activities activities using
ANSWER: C (VALIX, 2015) A. Direct method
B. Indirect method
C. Either direct method or indirect method
D. Neither direct method nor indirect method
ANSWER: A (VALIX, 2015)

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CHAPTER 17: STATEMENT OF CASH FLOWS

20. At the beginning of the current year, an entity sold used equipment for a cash
amount that is the same with its carrying amount for both books and tax
purposes. During the year, the entity replaced the equipment by paying cash and
signing a note payable for new equipment. The cash paid for the new equipment
exceeded the cash received for the old equipment. How should these equipment
transactions be reported in the entity’s statement of cash flows?
A. Cash outflow equal to the cash paid less the cash received
B. Cash inflow equal to the cash received and a cash outflow equal to the cash
paid
C. Cash outflow equal to the cash paid and note payable less the cash received
D. Cash inflow equal to the cash received and a cash outflow equal to the cash
paid and note payable
ANSWER: B (VALIX, 2015)

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