Test Bank For Financial And Managerial Accounting for MBAs 4th Edition By M. Coleman Easton

Test Bank For Financial And Managerial Accounting for MBAs 4th Edition By M. Coleman Easton

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Edition: 4th Edition

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Test Bank For Financial And Managerial Accounting for MBAs 4th Edition By M. Coleman Easton

Appendix B: Constructing the Statement of Cash Flows

True/False

Topic: Cash and Cash Equivalents

LO: 1

  1. The statement of cash flows encompasses only a firm’s cash because cash equivalents are really marketable securities, which are short-term investments.

Answer: False

Rationale: Cash equivalents may be marketable securities but because they have very short maturities, they are treated like cash.

Topic: Sections in Statement of Cash Flows

LO 1:

  1. The statement of cash flows separates cash flows into operating, nonoperating, and financing categories.

Answer: False

Rationale: The three sections are operating, investing and financing.

Topic: Sections in Statement of Cash Flows

LO: 3, 4

  1. Information about noncash investing and financing activities must be disclosed in a schedule that is separate from the statement of cash flows.

Answer: True

Rationale: Investors want to know about all the company’s investing and financing, not just those transactions that required an actual cash outlay.

Topic: Direct versus Indirect Statement of Cash Flows

LO: 2

  1. Two different methods of determining and presenting the net cash flow from operating activities are the direct method and the reconciliation method.

Answer: False

Rationale: The two methods are the direct and indirect methods.

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