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

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:

2. 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

3. 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

4. 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.