The sections of the cash flow statement include each of the following
except
direct activities
True or false: The majority of public companies use the direct method
of preparing cash flows from operating activities
FALSE
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Solar Corporation reported net income for the current year of
$75,000. They reported depreciation expense of $12,575. Cash flow from
operating activities is
$87,575
Gratiot Corporation reported income tax expense of $13,500 on its
income statement. It had income taxes payable of $4,000 at the beginning
of the year and $3,475 at the end of the year. How does this affect cash
provided by operating activities in a cash flow statement?
The decrease in income taxes payable $525 is subtracted from net
income using the indirect method.
Solar Corporation reported net income for the current year of
$75,000. The company also reported a loss on the sale of equipment of
$1,000 after receiving $5,000 in proceeds. They purchased equipment for
$25,400. How does this affect the cash flow statement using the indirect
method?
The loss on the sale of equipment of $1,000 is added back to net
income to determine cash flows from operating activities
Solar Corporation reported net income for the current year of
$75,000. The company also reported a gain on the sale of equipment of
$1,275 after receiving $5,000 in proceeds. They purchased equipment for
$25,400. How does this affect the cash flow statement using the indirect
method?
The gain on the sale of equipment of $1,275 is subtracted from net
income to determine cash flows from operating activities.
Forester Company has provided you the following information for the
current year. The beginning and ending balances for Buildings and
equipment were $275,000 and $300,000, Accumulated depreciation was
$40,000 at the beginning of the year and $50,000 at the end of the year.
A storage shed with an original cost of $60,000 and a book value of
$40,000 was sold for $45,000. Which of the following statements is true?
The company purchased $85,000 in buildings and equipment during
the year.
An example of an item that was included in accrual-basis income but
that did not affect operating cash flows includes all of the following except
rent received in advance.
An example of an item that was excluded from accrual-basis income
that affected operating cash flows includes all of the following except
depreciation expense.
If accounts receivable is factored and it fails to qualify as a sale under
GAAP, the proceeds are shown as a(n)__________ cash inflow.
Financing
An increase in prepaid expenses
is deducted from accrual earnings to obtain operating cash flows using
the indirect method.
A decrease in prepaid expenses
is added to accrual earnings to obtain operating cash flows using the
indirect method.
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Which of the following are reasons that the overwhelming majority of
public companies use the indirect method of preparing cash flow statements?
-The indirect method characterizes cash flow in a way that many
analysts find useful.
-The indirect method relies exclusively on data already available in
accrual accounts.
Identify the correct statement regarding how depreciation expense
affects the statement of cash flows
Depreciation expense must be added back to accrual-basis net income
using the indirect method.
Under the indirect method, the gain on sale of equipment is
subtracted from net income to arrive at cash flow from operating
activities.
Which of the following is not generally helpful in reconciling
differences that result from year-to-year changes in comparative balance sheet
accounts not coinciding with the changes implied from amounts reported on the
cash flow statements?
IRS tax code
Holt Company's uses the indirect method to prepare a cash flow
statement. Adjustments to reconcile net income to cash provided by operations
include a $15,000 addition for change in inventory. Holt's comparative
balance sheet, however, shows a $20,000 decrease. What could explain the
$5,000 discrepancy?
The write-down of inventory
The ______ method of translating financial statements generates a
potential discrepancy between the change in the inventory amount presented in
the balance sheet and the cash flow statement inventory change figure.
current rate
Cash flows that result when a company sells its own stock or bonds,
pays dividends, or issues or repays debt are
financing activities.
The section on the cash flow statement that arises from transactions
related to the production and delivery of goods and services to customers is
called the _________activities section.
operating
Debt prepayments and extinguishment costs should be classified as
_______ cash flows.
financing
If accounts receivable are factored and the transfer qualifies as a sale,
the proceeds are shown as a(n)
operating cash inflow
Which of the following would result in changes in asset balances
unrelated to cash?
-Impairment of assets
-Write-down of assets
Identify the correct statement regarding preparing cash flow from
operations using the indirect method.
It adjusts for items included in accrual-basis net income that did not
affect operating cash flows.
Which of the following are true of deferred income taxes with regards
to an indirect method cash flow statement?
-A decrease in net deferred tax liabilities must be subtracted from
accrual-basis net income.
-An increase in net deferred tax liabilities must be added to accrualbasis net income in the cash flow statement.
Use of the temporal method of translating financial statements will not
generate a discrepancy between the change in the inventory amount presented
in the balance sheet and the cash flow statement because
-the U.S. dollar value of inventories is not adjusted for changes in
the exchange rate.
-inventory is always translated at the exchange rate in effect when it was
purchased.
Zero-coupon bond settlement should be
allocated between operating and financing cash flows.
Amounts on the balance sheet that do not map directly to corresponding
account changes in the statement of cash flows include all of the following
except
acquisition of treasury stock.
Cash flows that result when a company sells its own stock or bonds,
pays dividends, or issues or repays debt are
financing activities.
A fourth section of the cash flow statements of companies having foreign
operations consists of a single line item that
represents the change in the U.S. dollar equivalent of foreign
currency holdings due to exchange rate fluctuations.
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The operating section on the cash flow statement starts with net income
using the
indirect method.
Categories of cash inflows and outflows of operating activities that are
required to be reported under the direct method include
interest and dividends received.
cash collected from customers.
True or false: Both the direct method and indirect method will arrive
at the same amount for cash flow from operating activities.
True
Cash flows that result from the purchase or sale of productive assets are
investing activities.
An additional section on the cash flow statement having to do with
foreign operations includes
the change in the U.S. dollar equivalent of foreign currency
holdings that occur when exchange rates change.
The direct method and the indirect method are alternative presentations
for presenting cash flows from
operating activities.
Categories of cash inflows and outflows of operating activities that are
required to be reported under the direct method include
interest paid.
interest received.
income taxes paid.
Firms using the direct method of reporting operating activities
must present major classes of gross receipts and disbursements.
Dillon Company reported cost of goods sold of $325,000 for the
current year. The beginning and ending balances in inventory were
$45,500 and $55,000, respectively while the amounts for Accounts payable
were $37,000 and $25,800. How much cash was paid to suppliers during
the year?
$345,700
Under the direct method, the reconciliation of net income to net cash
provided by operating activities would be found
in required supplemental disclosures.
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A fourth section of the cash flow statements of companies having foreign
operations consists of a single line item that
represents the change in the U.S. dollar equivalent of foreign
currency holdings due to exchange rate fluctuations.
The operating section on the cash flow statement starts with net income
using the
indirect method.
Makalan Company reported net sales of $500,000 for the current
year. The beginning and ending balances in accounts receivable were
$62,500 and $75,000, respectively. How much cash was received from
customers during the year?
$487,500
True or false: The reconciliation of net income to net operating cash
flow is a required supplemental disclosure for companies using the indirect
method.
False
An example of an item that was included in accrual-basis income but
that did not affect operating cash flows includes all of the following except
rent received in advance.
Which of the following are reasons that the overwhelming majority of
public companies use the indirect method of preparing cash flow statements?
The indirect method characterizes cash flow in a way that many
analysts find useful.
The indirect method relies exclusively on data already available in
accrual accounts.
Identify the correct statement regarding how depreciation expense
affects the statement of cash flows.
Depreciation expense must be added back to accrual-basis net income
using the indirect method.
Which of the following are true of deferred income taxes with regards
to an indirect method cash flow statement?
A decrease in net deferred tax liabilities must be subtracted from
accrual-basis net income.
An increase in net deferred tax liabilities must be added to accrual-basis
net income in the cash flow statement.
Identify the correct statement regarding preparing cash flow from
operations using the indirect method.
It adjusts for items included in accrual-basis net income that did not
affect operating cash flows.
True or false: The majority of public companies use the direct method
of preparing cash flows from operating activities.
False
Solar Corporation reported net income for the current year of
$75,000. The company also reported a gain on the sale of equipment of
$1,275 after receiving $5,000 in proceeds. They purchased equipment for
$25,400. How does this affect the cash flow statement using the indirect
method?
The gain on the sale of equipment of $1,275 is subtracted from net
income to determine cash flows from operating activities.
Solar Corporation reported net income for the current year of
$75,000. They reported depreciation expense of $12,575. Cash flow from
operating activities is
$87,575.
Gratiot Corporation reported income tax expense of $13,500 on its
income statement. It had income taxes payable of $4,000 at the beginning
of the year and $3,475 at the end of the year. How does this affect cash
provided by operating activities in a cash flow statement?
The decrease in income taxes payable $525 is subtracted from net
income using the indirect method.
An example of an item that was excluded from accrual-basis income
that affected operating cash flows includes all of the following except
depreciation expense.
Forester Company has provided you the following information for the
current year. The beginning and ending balances for Buildings and
equipment were $275,000 and $300,000, Accumulated depreciation was
$40,000 at the beginning of the year and $50,000 at the end of the year.
A storage shed with an original cost of $60,000 and a book value of
$40,000 was sold for $45,000. Which of the following statements is true?
The company purchased $85,000 in buildings and equipment during
the year.
Solar Corporation reported net income for the current year of
$75,000. The company also reported a loss on the sale of equipment of
$1,000 after receiving $5,000 in proceeds. They purchased equipment for
$25,400. How does this affect the cash flow statement using the indirect
method?
The loss on the sale of equipment of $1,000 is added back to net
income to determine cash flows from operating activities.
Which of the following items would be subtracted from accrual-basis
net income in determining cash flows from operating activities using the indirect
method?
an increase in inventory
A decrease in prepaid rent
is added to net income to arrive at operating cash outflow.
An example of an item that was included in accrual-basis income but
that did not affect operating cash flows includes all of the following except
rent received in advance.
Under the indirect method, the gain on sale of equipment is
subtracted from net income to arrive at cash flow from operating
activities.
A decrease in prepaid expenses
is added to accrual earnings to obtain operating cash flows using the
indirect method.
Dexter Corporation reported net income for the current year of
$85,000. An examination of their balance sheet showed the following:
Accounts receivable increased by $7,500, inventory decreased by $3,250
and Accounts payable increased by $1,200. Using only this information,
what is their cash flows from operating activities using the indirect method?
$81,950
An increase in inventory
decreases operating cash flows using the indirect method.
Candlewax Company has net income of $175,000 in the current
year. It also reported the following: increase in Accounts receivable of
$5,000, decrease in Accounts payable of $2,500 and an increase in
Accrued expenses of $1,300. Cash flow from operating activities is
$168,800.
A decrease in accrued expenses
is shown as a deduction from accrual earnings to arrive at operating
cash flows using the indirect method.
An increase in prepaid expenses
is deducted from accrual earnings to obtain operating cash flows using
the indirect method.
Which of the following is true regarding a change in Accounts
payable as it relates to the indirect method of a cash flow statement?
A decrease in Accounts payable must be subtracted from accrual-basis
earnings to arrive at cash flows from operations.
An increase in accrued expenses
is shown as an addition to accrual earnings to arrive at operating cash
flows using the indirect method.
Which of the following items would be added to accrual-basis net
income in determining cash flows from operating activities using the indirect
method?
an increase in accounts payable
An increase in income tax payable
is added to net income in calculating operating cash flows using the
indirect method.
A cash flow statement prepared under the direct method
results in the same amounts for cash provided by operating, investing,
and financing activities as the indirect method.
Firms using the method of preparing cash flow statements must
separately disclose the amount of interest paid.
indirect
Which of the following is not generally helpful in reconciling
differences that result from year-to-year changes in comparative balance sheet
accounts not coinciding with the changes implied from amounts reported on the
cash flow statements?
IRS tax code.
Holt Company's uses the indirect method to prepare a cash flow
statement. Adjustments to reconcile net income to cash provided by operations
include a $15,000 addition for change in inventory. Holt's comparative
balance sheet, however, shows a $20,000 decrease. What could explain the
$5,000 discrepancy?
The write-down of inventory
A decrease in income tax receivable
is added to net income in calculating operating cash flows using the
indirect method.
Which of the following is a reason that some claim to justify their
preference of the direct method over the indirect method for computing net cash
provided by operating activities?
The direct method discloses operating cash flows by category which
facilitates cash flow predictions.
Firms using the indirect method are required to separately disclose the
amount of
interest paid.
Use of the temporal method of translating financial statements will not
generate a discrepancy between the change in the inventory amount presented
in the balance sheet and the cash flow statement because
inventory is always translated at the exchange rate in effect when it was
purchased.
the U.S. dollar value of inventories is not adjusted for changes in
the exchange rate.
Amounts on the balance sheet that do not map directly to corresponding
account changes in the statement of cash flows include all of the following
except
acquisition of treasury stock.
Which of the following would result in changes in asset balances
unrelated to cash?
Write-down of assets
Impairment of assets
Cash flows arising from the acquisitions and divestitures of other
companies are cash flows from
investing activities.
A cash flow statement prepared under the direct method
results in the same amounts for cash provided by operating, investing,
and financing activities as the indirect method.
Examples of noncash financing and investing activities include each of
the following except
acquisition of treasury stock.
The ______ method of translating financial statements generates a
potential discrepancy between the change in the inventory amount presented in
the balance sheet and the cash flow statement inventory change figure.
current rate
Why are changes in inventory due to acquisitions not included as part
of the adjustments to accrual-basis income to arrive at operating cash flows?
Changes due to acquisitions do not create a corresponding accrual
adjustment to cost of goods sold on the income statement.
Identify the correct statement regarding noncash financing and
investing activities.
They are not included in the investing and financing activities sections
of the cash flow statement.
Which of the following is true regarding restricted cash?
It is required to be included in the cash amounts used to determine the
change in cash to which cash flow statement reconciles.
Debt prepayments and extinguishment costs should be classified as
_______ cash flows.
financing
True or false: Changes in working capital accounts provide major
sources and uses of investing cash flows.
False
If accounts receivable are factored and the transfer qualifies as a sale,
the proceeds are shown as a(n)
operating cash inflow.
ASU 2016-18 requires that ______ be included in the cash
amounts used to determine the change in cash to which the cash flow statement
reconciles.
restricted cash
Zero-coupon bond settlement should be
allocated between operating and financing cash flows.
Collections on accounts receivable ______ operating cash flows while
payments on accounts payable decrease _______ cash flows.
increase, operating
If accounts receivable is factored and it fails to qualify as a sale under
GAAP, the proceeds are shown as a(n) cash inflow.
financing
Improper capitalization of operating costs causes
these items to be reported in the investing activities section rather than the
operating activities section.
depreciation expenses in later years that do not reduce cash flow from
operations.
Technological feasibility is established when the company has
completed a detailed program design or a working model.
At the inception of a finance lease,
there is no immediate cash flow effect.
True or false: Changes in working capital accounts provide major
sources and uses of investing cash flows.
False
Improper capitalization ______ boosts operating cash flow because
amounts capitalized are later expensed as depreciation or amortization.
permanently
Identify the correct statement regarding software development costs for
computer software companies.
Once they reach technological feasibility, they are treated as investing
cash outflows.
Each lease payment for an operating lease
is an operating cash flow.
Improper capitalization of operating costs causes
depreciation expenses in later years that do not reduce cash flow from
operations.
these items to be reported in the investing activities section rather than the
operating activities section