Our Lady of Fatima University-San Fernando

MAS 103

True / False Questions

1)In the statement of cash flows, increases in a company's capital stock accounts are treated as a "use" rather than as a "source" of cash.

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.

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.

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

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.

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

7. The issuance of a stock dividend will appear in the financing activities section of the statement of cash flows.

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.

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

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.

11. Negative free cash flow invariably signals poor performance.

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