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web.groovymark@gmail.com
- December 12, 2024
Question 41
How is the sale of equipment reported on the statement of cash flows?
A) Operating Activity
B) Investing Activity
C) Financing Activity
D) Non-cash Activity
Answer: B) Investing Activity
Explanation: The sale of equipment is classified as an investing activity because it involves the disposal of a long-term asset.
Question 42
What should be done with gains on the sale of equipment in the cash flow statement?
A) Deduct from net income
B) Add to net income
C) Ignore in cash flows
D) Report as a non-cash transaction
Answer: A) Deduct from net income
Explanation: Gains on the sale of equipment are added back to net income in the operating section of the cash flow statement.
Question 43
Which activity involves obtaining cash from creditors?
A) Operating Activity
B) Financing Activity
C) Investing Activity
D) Non-operating Activity
Answer: B) Financing Activity
Explanation: Financing activities relate to transactions that affect the company's capital structure, including borrowing and issuing stock.
Question 44
What is the primary purpose of the statement of cash flows?
A) To show profitability over time
B) To report net income
C) To provide information about cash receipts and payments
D) To show the financial position of a company
Answer: C) To provide information about cash receipts and payments
Explanation: The statement of cash flows summarizes the inflows and outflows of cash during a period, highlighting liquidity.
Question 45
Which section of the statement of cash flows reports cash effects of transactions that enter into the determination of net income?
A) Financing Activities
B) Investing Activities
C) Operating Activities
D) Non-operating Activities
Answer: C) Operating Activities
Explanation: Operating activities reflect cash flows from the core operations of a business, including revenue and expenses.
Question 46
What is included in cash flows from investing activities?
A) Cash received from issuing stock
B) Cash paid for inventory
C) Cash received from the sale of fixed assets
D) Cash paid for salaries
Answer: C) Cash received from the sale of fixed assets
Explanation: Investing activities involve cash flows related to the acquisition and disposal of long-term assets.
Question 47
How are cash dividends reported in the statement of cash flows?
A) Operating Activities
B) Investing Activities
C) Financing Activities
D) Non-cash Activities
Answer: C) Financing Activities
Explanation: Cash dividends represent a distribution of earnings to shareholders and are classified under financing activities.
Question 48
Which financial statement summarizes the operating, investing, and financing activities of an entity over a period?
A) Balance Sheet
B) Income Statement
C) Statement of Cash Flows
D) Statement of Stockholders’ Equity
Answer: C) Statement of Cash Flows
Explanation: The statement of cash flows provides an overview of how cash is generated and used in the company's operations.
Question 49
Which activity would result in cash outflow for a company?
A) Issuing new shares
B) Receiving cash from a customer
C) Paying off a loan
D) Selling equipment
Answer: C) Paying off a loan
Explanation: Paying off a loan reduces liabilities and results in a cash outflow for the company.
Question 50
Which type of cash flow activity includes making and collecting loans?
A) Financing Activities
B) Operating Activities
C) Investing Activities
D) Non-operating Activities
Answer: C) Investing Activities
Explanation: Investing activities involve transactions related to long-term assets, including loans and investments.
