Chapter 015, “How Well Am I Doing?” Statement of Cash Flows

| October 3, 2018

2. When computing the net cash provided by operating activities under
the indirect method on the statement of cash flows, a decrease in common stock
would be added to net income.
True False

3. Under the indirect method of determining the net cash provided by
operating activities on the statement of cash flows, increases in current
assets such as prepaid expenses are subtracted from net income.
True False

4. A change in deferred taxes is considered to be an investing
activity on the statement of cash flows.
True False

5. Activities such as the purchase of inventory on account should be
included as part of a company’s financing activities on the statement of cash
flows.
True False

6. Transactions that involve acquiring or disposing of noncurrent
assets are generally classified as investing activities on the statement of
cash flows.
True False

15-5

8. When a company prepares its statement of cash flows under the
indirect method, an increase in depreciation expense will also increase the net
cash provided by operating activities.
True False

9. Free cash flow is net cash provided by operating activities less
capital expenditures and dividends.
True False

10. Positive free cash flow suggests that the company did not generate
enough cash flow from its operating activities to fund its capital expenditures
and dividend payments.
True False

11.
Negative free cash flow
invariably signals poor performance.

True False

12. A newly formed company with enormous growth prospects would be
expected to have positive free cash flow during its start-up phase.
True False

13. For purposes of preparing a the statement of cash flows, cash
equivalents consist of short-term, highly liquid investments such as treasury
bills, commercial paper, and money market funds that are made solely for the
purpose of generating a return on funds that are temporarily idle.

True False

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