Question

1.Which of the following would be an example of an investing activity on the Statement of Cash Flows?

a.issuance of bonds payable

b.purchase of bonds as an investment

c.issuance of common shares

d.collection of rent from tenants

2.Information on a company’s cash flows is used for all of the following, except

a.assess the company’s ability to repay debt in the future.

b.evaluate the potential for the company to be able to pay dividends in the future.

c.evaluate a company’s liquidity (i.e., the value of a company’s liquid assets in comparison to its short-term debt obligations).

d.estimate the company’s future cash requirements.

3.The cash flows to total liabilities ratio measures

a.the percentage of a company’s current liabilities that could be met with one year’s investing cash flows.

b.the percentage of a company’s long-term liabilities that could be met with one year’s operating cash flows.

c.the percentage of a company’s total liabilities that could be met with one year’s operating cash flows.

d.the percentage of a company’s current liabilities that could be met with one year’s financing cash flows.

Answer 1

1. Answer is option B. While issuance of bond payable and common stock is considered as financing activity , collecting rents is a part of operating activity.

2. Answer is option B. Whether company will pay dividend or not depends on the availability of profit and the reinvestment decisions

3. Answer is option C. Only operating cashflow is used because other cashflow are subject to fluctuations but operating cash flow is mostly stable.