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
- 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:
- 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
- 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
- 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.
