Module Exam III Chapters 16 and 17
True / False Questions
1. The primary purpose of the statement of cash flows is to report all major cash receipts
(inflows) and cash payments (outflows) during a period.
True False
2. The statement of cash flows reports and proves the net change in cash for a reporting
period.
True False
3. To be classified as a cash equivalent, the only criterion an item must meet is that it
must be readily convertible to a known amount of cash.
True False
4. The statement of cash flows explains the difference between the beginning and ending
balances of cash and cash equivalents.
True False
5. Internal users of the statement of cash flows often use cash flow information to plan
day-to-day operating activities and make long-term investment and financing decisions.
True False
6. A cash equivalent must be readily convertible to a known amount of cash, and must be
sufficiently close to its maturity so its market value is unaffected by interest rate
changes.
True False
7. Business activities that generate or use cash are classified as operating, investing, or
financing activities on the statement of cash flows.
True False
8. Financing activities include (a) the purchase and sale of long-term assets, (b) the
purchase and sale of short-term investments, and (c) lending and collecting on loans.
True False
9. Cash paid for merchandise is an operating activity.
True False
10. The purchase of stock in another company is classified as a financing activity.
True False
11. Use the following income statement and information about selected current assets and
current liabilities to calculate the net cash provided or used by operating activities using
the direct method.
Selected beginning and ending balances of current asset and current liability accounts, all
of which relate to operating activities, are as follows:

12. Based on the following income statement and balance sheet for Rashid Corporation,
determine the cash flows from operating activities using the indirect method.

13. Financial statement analysis is the application of analytical tools to general-purpose
financial statements and related data for making business decisions.
True False
14. Financial statement analysis lessens the need for expert judgment.
True False
15. Financial statement analysis may be used for personal investment decisions.
True False
16. The evaluation of company performance and financial condition includes evaluation
of (1) past and current performance, (2) current financial position, and (3) future
performance and risk.
True False
17. External users of accounting information make the strategic and operating decisions
of a company.
True False
18. One purpose of financial statement analysis for internal users is to provide
information helpful in improving the company’s efficiency and effectiveness in providing
products and services.
True False
19. Evaluation of company performance does not include analysis of (1) past and current
performance, (2) current financial position, and (3) future performance and risk.
True False
20. A company’s board of directors analyzes financial statements to assess future
company prospects for making operating decisions.
True False
21. Financial analysis only refers to the communication of relevant financial information
to decision makers.
True False
22. Profitability is the ability to generate future revenues and meet long-term obligations.
True False
23. Comparative statements for Kool Corporation are shown below:
Calculate trend percentages for all income statement amounts shown and comment on the
results. Use 2010 as the base year. Comment on the results.
24. Calculate the percent increases for each of the following selected balance sheet items.

25. The comparative balance sheet for Golden Co. is shown below. Express the balance
sheet in common-size percents.