Multiple Choice Questions
1. Which of the following statements is not true?
a. Even companies that appear financially healthy and profitable can become business failures owing to an inability to generate sufficient cash flow.
b. The statement of cash flows provides information relating to the change in cash and receivable balances between two balance sheet dates.
c. The statement of cash flows reports the impact of a firm’s operating, investing, and financing activities on cash flows during the accounting period.
d. Along with the balance sheet, income statement, and the statement of changes in stock-holders’ equity, the statement of cash flows is a required component of a company’s external financial statements.

2. Which of the following statements regarding financial statements is not true?
a. Balance sheets report the financial position of a company at a particular time.
b. The income statement discloses items that affect how the balance sheet changed but that don’t show up on the statement of cash flows.
c. The statement of cash flows discloses items that affect how the balance sheet changed but that don’t show up in the income statement.
d. Along with the balance sheet, income statement, and the statement of changes in stock-holders’ equity, the statement of cash flows is a required component of a company’s external financial statements.

3. Cash flows from financing activities are equal to:
a. Cash received from the sale of goods and services less cash paid for operating expenses
b. Cash received from the sale of investments and property, plant, and equipment less cash paid for investments and purchases of property, plant, and equipment
c. Cash received from the sale of property, plant, and equipment less cash paid for operating expenses
d. Cash received from the sale of capital stock or the borrowing of funds less cash paid for dividends on stock or repayments of debt or reacquiring capital stock

4. Cash flows from investing activities are equal to:
a. Cash received from the sale of goods and services less cash paid for operating expenses
b. Cash received from the sale of investments and property, plant, and equipment less cash paid for investments and purchases of property, plant, and equipment
c. Cash received from the sale of property, plant, and equipment less cash paid for operating expenses
d. Cash received from the sale of capital stock or the borrowing of funds less cash paid for dividends on stock or repayments of debt or reacquiring capital stock

5. Cash flows from operating activities are equal to:
a. Cash received from the sale of goods and services less cash paid for operating expenses
b. Cash received from the sale of investments and property, plant, and equipment less cash paid for investments and purchases of property, plant, and equipment
c. Cash received from the sale of property, plant, and equipment less cash paid for operating expenses
d. Cash received from the sale of capital stock or the borrowing of funds less cash paid for dividends on stock or repayments of debt or reacquiring capital stock

6. Which of the following statements about the direct and indirect methods of reporting cash flows is not true?
a. Proponents of the direct method point to the straightforward presentation of the cash flows from operating activities.
b. Proponents of the direct method argue that this method provides more useful information for evaluating operating efficiency.
c. Supporters of the indirect method argue that it focuses attention on differences between the cash and accrual basis of accounting, which is very important for decision making.
d. Supporters of the indirect method point out that if the indirect method is used, the direct schedule must still be prepared.

7. The only difference between the direct method and the indirect method statement of cash flows relates to the calculation of cash flows from
a. Investing activities
b. Financing activities
c. Operating activities
d. All three types of activities

8. Clario Corporation’s accounts payable balance decreased during the year from $1.4 million to $1.24 million. Which of the following statements is correct?
a. Cash paid to suppliers was greater than the value of the goods purchased from them.
b. Cash paid to suppliers was less than the value of the goods purchased from them.
c. Cash paid to suppliers was equal to the value of the goods purchased from them.
d. None of the above are true.