QUESTION: 1613

When preparing a direct method statement of cash flows, the principal component of cash flow from operating activities is

the decrease in accounts receivable.
cash collections.
cash received from short- and long-term borrowings.
the increase in accounts payable.
net income plus depreciation expense.

Answer(s): B

Explanation:

Cash collections is the beginning point and principal component of cash flow from operating activities.

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QUESTION: 1614

Cash received from the sale of fixed assets is an example of:

cash flows from investing activities
cash flows from operating activities
cash flows from financing activities
cash flows from noncash investing and financing activities

Answer(s): A

Explanation:

Investing activities usually involve activities that affect long-term assets.

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QUESTION: 1615

Which of the following is/are FALSE under GAAP?

The change in cash balances in consecutive Balance sheets equals the operating cash flow of the firm over that period.
II. The investing, financing and operating cash flows must together balance out to zero, to preserve the relationship, cash in = cash out.
III. Dividends received from investments in the stocks of other firms are classified under investing cash flows.
IV. Interest paid on debt financing is classified as operating cash flow.
I, II & III
II & IV
I, II & IV
I, II, III & IV

Answer(s): A

Explanation:

The change in cash balances of a firm can come about due to investing and financing cash flows, in addition to operating cash flows. Therefore, (I) is false. The relationship cash in = cash out is incorrect since the difference between the two goes into changing the cash balance of the firm. Hence, the operating, investing and financing cash flows need not balance out. It is very important to remember the following points about dividends and interests:
1. Dividends received from stock investments are considered operating cash flows.
2. Dividends paid on equity are considered financing cash flows.
3. Interest payments on debt are considered operating cash flows.
4. Interest received from debt investments are considered operating cash flows.

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QUESTION: 1616

All of the following would be considered financing activities except for:

dividends payable.
notes payable to bank.
current portion of long-term debt.
loans receivable (ex. from officers).

Answer(s): D

Explanation:

Investing activities include lending funds and collecting the principal on these loans.

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QUESTION: 1613

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QUESTION: 1614

Explanation:

QUESTION: 1615

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QUESTION: 1616

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