Reading 34: Understanding the Cash Flow Statement LOSa习题精 contrast, investing, financing, activities, 2010

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Session 8: Financial Reporting and Analysis: The Income Statement, Balance Sheet, and Cash Flow Statement
Reading 34: Understanding the Cash Flow Statement

LOS a, (Part 1): Compare and contrast cash flows from operating, investing, and financing activities.

Which of the following items would NOT be included in cash flow from investing?

A) Proceeds related to acquisitions.

B) Buying or selling a building.

C) Selling stock of the company.

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Selling stock of the company would be a financing cash flow.

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Which of the following is least likely a cash flow in the calculation of cash flow from operations under U.S. GAAP?

A) Interest income.

B) Dividends received.

C) Dividends paid.

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According to SFAS 95, dividends paid are treated as cash flow from financing.

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Which of the following does NOT represent a cash flow relating to operating activity?

A) Cash received from customers.

B) Dividends paid to stockholders.

C) Interest paid to bondholders.

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Dividends paid to stockholders are considered cash flow relating to financing activity. However, U.S. GAAP requires interest paid to bondholders to be considered an operating activity.

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Interest payments, either as part of a coupon payment or to creditors, are always considered which type of cash flow?

A) Financing.

B) Investing.

C) Operating.

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Any type of interest payment is always going to be considered an operating cash flow.

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Which of the following is NOT a cash flow from operation?

A) dividends paid to shareholders.

B) interest payments.

C) dividends received.

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Dividends paid are a financing cash flow. Dividends received and interest paid are both operating cash flows.

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Holden Company’s fixed asset footnote included the following:

• During 20X7, Holden sold machinery for a gain of $100,000. The machinery had an original cost of $500,000 and its accumulated depreciation was $240,000.
• At the end of 20X7, Holden purchased machinery at a cost of $1,000,000. Holden paid $400,000 cash. The balance was financed by the seller at 8% interest.
• Depreciation expense was $2,080,000 for the year ended 20X7.

Calculate Holden’s cash flow from investing activities for the year ended 20X7.

A) $40,000 outflow.

B) $360,000 inflow.

C) $300,000 outflow.

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Given the gain of $100,000 and book value of the machinery sold of $260,000 ($500,000 original cost – $240,000 accumulated depreciation), the proceeds from the sale of the machinery were $360,000 ($100,000 gain + $260,000 book value). For 20X7, CFI was an outflow of $40,000 ($360,000 sale proceeds – $400,000 machinery purchase). The $600,000 financed by the seller is a non-cash transaction and is reported in the notes to the cash flow statement.

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Which of the following would NOT be a component of cash flow from investing?

A) Purchase of equipment.

B) Dividends paid.

C) Sale of land.

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Dividends paid is not a component of cash flow from investing, it is a component of cash flow from financing. The other items are all components of cash flow from investing.

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What are the main components of cash flow from operations?

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

B) Capitalization activities, sale of assets, and purchasing securities.

C) Repayment of bonds, issuance of common stock, and stock splits.

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The main components of cash flow from operations are changes in working capital items (accounts receivable, inventory, accounts payable), and items that flow through the income statement. Capitalization activities, sale of assets and purchases of securities would all be part of cash flows from investing. Repayment of bonds and issuance of common stock would also be part of cash flows from financing. The stock split would be a non-cash activity.

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Which of the following should be classified as cash flows from investing (CFI) by Elegant, Inc., which reports under U.S. GAAP?

A) Interest received by Elegant, Inc. on a bond Elegant, Inc. purchased from an outside investor.

B) Dividends received by Elegant, Inc. from an investment in another firm.

C) Elegant's payment to purchase equipment to be used in its business.

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Purchases of equipment are considered to be cash flows from investing. Interest paid or received and dividends received are considered to be cash flows from operations under U.S. GAAP.

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Which of the following items is NOT found in the financing cash flow part of the statement of cash flows?

A) Change in long-term debt.

B) Dividends paid.

C) Change in retained earnings.

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Changes in retained earnings are not included in the calculation of financing cash flows.