1. 16.1 What function does the statement of cash flows serve, as one of the four basic financial
statements?
2. 16.1 Is it possible for a company to have significant net income in the same time period that net cash
flows are negative? Explain.
3. 16.2 What categories of activities are reported on the statement of cash flows? Does it matter in what
order these sections are presented?
4. 16.2 Describe three examples of operating activities, and identify whether each of them represents cash
collected or cash spent.
986 Chapter 16 Statement of Cash Flows

5. 16.2 Describe three examples of investing activities, and identify whether each of them represents cash
collected or cash spent.
6. 16.2 Describe three examples of financing activities, and identify whether each of them represents cash
collected or cash spent.
7. 16.3 Explain the difference between the two methods used to prepare the operating section of the
statement of cash flows. How do the results of these two approaches compare?
8. 16.3 Why is depreciation an addition in the operating section of the statement of cash flows, when
prepared by the indirect method?
9. 16.3 When preparing the operating section of the statement of cash flows, using the indirect method,
how must gains and losses be handled? Why?
10. 16.3 If a company reports a gain/(loss) from the sale of assets, as part of the net income on the income
statement, and the net book value of those assets on the date of the sale is known, can the amount of the cash
proceeds from the sale be determined? If so, how?
11. 16.3 Note payments reduce cash and are related to long-term debt. Do these facts automatically lead to
their inclusion as elements of the financing section of the statement of cash flows? Explain.
12. 16.4 Is there any significance that can be attributed to whether net cash flows are generated from
operating activities, versus investing and/or financing activities? Explain.
13. 16.4 Would there ever be activities that relate to operating, investing, or financing activities that would
not be reported in their respective sections of the statement of cash flows? Explain. If a company had any such
activities, how would they be reported in the financial statements, if at all?
14. 16.5 What insight does the calculation of free cash flow provide about the company’s cash flow
position?
15. 16.6 Why is using the direct method to prepare the operating section of the statement of cash flows
more challenging for accountants than preparing the balance sheet, income statement, and retained earnings
statement?