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Cash Flows Common Problems Review Questions

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  1. An agency operates an investment pool where investment earnings are included in operating income on the operating statement. Should the cash flows related to these operations be classified as an operating activity on the cash flow statement?
    1. Yes, since the agency's investment earnings are considered part of its operations, they are classified as operating activities on the operating statement
    2. No, investment earnings should be classified in the Investing Activities category
    3. No, investment earnings should be reviewed to determine whether the investments are designed to fund capital or related acquisitions.
  2. An agency provides loans to local governments for capital projects. How are the cash flows disclosed in the statement of cash flows if the agency considers these loan programs part of their operations?
    1. Disclosed in the capital and related financing section of the statement of cash flows with a related amount shown as a classification difference in the reconciliation section.
    2. Disclosed in the operating section of the cash flow statement since the loans fit the definition of program loans. No disclosure is required in the reconciliation section.
    3. Disclosed in the investing section of the cash flow statement with a related disclosure in the reconciliation section.
    4. No disclosure is required because the loan program does not benefit the financing agency.
  3. An agency provides low-interest mortgages to local citizens to buy houses. How are the cash flows disclosed in the statement of cash flows if the agency considers these loan programs part of their operations?
    1. Cash flows are shown in the investing section, with a related disclosure in the reconciliation section.
    2. No disclosure is required because the loan program does not benefit the financing agency.
    3. Disclosed in the operating section of the cash flow statement since the loans fit the definition of program loans. No disclosure is required in the reconciliation section.
    4. Disclosed in the capital and related financing section of the statement of cash flows with a related amount shown as a classification difference in the reconciliation section.
  4. Noncash activities include:
    1. Acquiring a new building by exchanging a tract of land.
    2. Retiring debt by issuing additional debt
    3. Signing a contract to purchase a car through a long-term payment plan.
    4. All of the above
    5. a and c
  5. An operating lease should be disclosed as a noncash transaction if:
    1. Operating leases should never be disclosed as noncash transactions.
    2. The lease term exceeds one year
    3. The item leased is a controlled item in the State Property Accounting System
    4. The lease term includes a prepayment penalty
    5. b and c above
  6. Cash flows from operating activities are reported twice on the statement of cash flows.
    1. True
    2. False
  7. The amount reported as ending cash and equivalents should match the sum of which of the following balance sheet accounts?
    1. Accounts Payable
    2. Unrestricted Cash
    3. Investments
    4. Restricted Cash
    5. Restricted Cash Equivalents
    6. All of the above
    7. b, d, and e
    8. b and c

Next: What does the future hold for the Statement of Cash Flows?