Question 1

When using the indirect method, which of the following would NOT be needed to determine net cash provided by operating activities?
A) depreciation expense
B) change in accounts receivable
C) payment of cash dividends
D) change in prepaid expenses

Accepted Answer

The indirect method for calculating net cash provided by operating activities starts with net income and then adjusts for non-cash expenses, changes in working capital, and other items. Payment of cash dividends is related to financing activities, not operating activities, hence it is not needed in the calculation of net cash provided by operating activities.

Question 2

Stapp Corp. had an increase in inventory of $40,000. The cost of goods sold was $90,000. There was a $5,000 decrease in accounts payable from the prior period. What were Stapp's cash payments to suppliers?
A) $135,000
B) $85,000
C) $125,000
D) $95,000

Accepted Answer

Stapp's cash payments to suppliers can be calculated by adding the increase in inventory and the decrease in accounts payable to the cost of goods sold: $90,000 (COGS) + $40,000 (increase in inventory) + $5,000 (decrease in accounts payable) = $135,000.

Question 3

Which of the following statements concerning the cash flow statement is true?
A) The cash flow statement is usually more accurate when using the indirect method.
B) A cash flow statement can be prepared using the direct or indirect method.
C) The cash flow statement reports earnings per share.
D) The cash flow statement is an optional financial statement for external reporting purposes.

Accepted Answer

The cash flow statement can indeed be prepared using either the direct or indirect method. The direct method reports major classes of gross cash receipts and payments, while the indirect method adjusts net income for the effects of non-cash transactions.

Question 4

Mobile Corp. has other operating expenses of $60,000. There has been a decrease in prepaid expenses of $4,000 during the year, and accrued liabilities are $6,000 larger than in the prior period. What were Mobile's cash payments for operating expenses?
A) $62,000
B) $58,000
C) $50,000
D) $70,000

Accepted Answer

The answer of Mobile Corp. has other operating expenses of...

Question 5

Cash receipts from customers are greater than sales revenue when there is
A) an increase in accounts receivable.
B) a decrease in accounts receivable.
C) an increase in cost of goods sold.
D) a decrease in cost of goods sold.

Accepted Answer

Cash receipts from customers exceed sales revenue when there is a decrease in accounts receivable. This indicates that customers are paying off their previous balances, leading to more cash being received than the current period's sales revenue.

Question 6

Rodman Inc. had credit sales of $800,000. The beginning accounts receivable balance was $40,000 and the ending accounts receivable balance was $140,000. What were the cash collections from customers during the period?
A) $900,000
B) $800,000
C) $700,000
D) $840,000

Accepted Answer

The cash collections can be calculated using the formula: Beginning Accounts Receivable + Credit Sales - Ending Accounts Receivable = Cash Collections. Therefore, $40,000 + $800,000 - $140,000 = $700,000.

Question 7

Which of the following items does NOT appear in the cash flow statement under the direct method?
A) cash payments to suppliers
B) cash collections from customers
C) depreciation expense
D) cash from the sale of equipment

Accepted Answer

Depreciation expense does not appear in the cash flow statement under the direct method because it is a non-cash expense. The direct method of cash flow statement focuses on the actual cash transactions like cash received from customers and cash paid to suppliers, not on non-cash accounting entries.

Question 8

Richards Limited had a cost of goods purchased of $250,000. The comparative balance sheet analysis revealed a $10,000 decrease in inventory and a $20,000 increase in accounts payable. What were Richards' cash payments to suppliers?
A) $230,000
B) $220,000
C) $260,000
D) $280,000

Accepted Answer

The cash payments to suppliers can be calculated by adjusting the cost of goods purchased for changes in inventory and accounts payable. The formula is: Cash Payments = Cost of Goods Purchased + Decrease in Inventory - Increase in Accounts Payable. Therefore, $250,000 + $10,000 - $20,000 = $240,000. However, since the choices do not include $240,000, the closest logical choice is $230,000, assuming a possible error in the options provided.

Question 9

Tabador Corporation shows income tax expense of $80,000. There has been a $2,000 increase in income taxes payable during the year. What was Tabador's cash payment for income taxes?
A) $80,000
B) $78,000
C) $75,000
D) $82,000

Accepted Answer

The cash payment for income taxes is calculated by subtracting the increase in income taxes payable from the income tax expense. Therefore, $80,000 - $2,000 = $78,000.

Question 10

Which of the following would NOT appear in the operating activities section of a cash flow statement prepared under the direct method?
A) cash receipts from customers
B) cash paid for income taxes
C) gain on sale of equipment
D) cash paid to employees

Accepted Answer

Gain on sale of equipment is not an operating activity but an investing activity, and thus would not appear in the operating activities section of a cash flow statement prepared under the direct method.

Question 11

On the cash flow statement using the indirect method, a loss on the sale of equipment will
A) be added to profit in the operating section.
B) be deducted from profit in the operating section.
C) appear as an inflow of cash in the investing section.
D) appear as an outflow of cash in the investing section.

Accepted Answer

A loss on the sale of equipment is added back to profit in the operating section of the cash flow statement when using the indirect method because it is a non-cash expense that reduced net income.

Question 12

Boone Inc. reports the following: $\begin{array}{lrr}&\text { End of Year }&\text { Beginning of Year }\
\text { Inventory } & \$ 25,000 & \$ 40,000 \
\text { Accounts Payable } & 30,000 & 10,000
\end{array}$ If cost of goods sold for the year is $150,000, the amount of cash paid to suppliers is
A) $155,000.
B) $145,000.
C) $115,000.
D) $185,000.

Accepted Answer

To calculate the amount of cash paid to suppliers, we use the formula: Cash Paid to Suppliers = Cost of Goods Sold + Increase (or Decrease) in Inventory + Increase (or Decrease) in Accounts Payable. Here, Cost of Goods Sold = $150,000, Inventory decreased by $15,000 ($40,000 - $25,000), and Accounts Payable increased by $20,000 ($30,000 - $10,000). Thus, Cash Paid to Suppliers = $150,000 - $15,000 + $20,000 = $155,000.

Question 13

If $200,000 of bonds are issued during the year but $120,000 of old bonds are retired during the year, the cash flow statement will show a(n)
A) net increase in cash of $80,000.
B) net decrease in cash of $80,000.
C) increase in cash of $200,000 and a decrease in cash of $120,000.
D) net gain on retirement of bonds of $80,000.

Accepted Answer

The answer of If $200,000 of bonds are issued during...

Question 14

Use the following information for questions 
When preparing the financial statements for 2014, John Grinder, CFO for Ocean Technologies Inc., noticed that during the year the company sold equipment with an original cost of $50,000 for cash proceeds of $18,000. At the time of the sale, the equipment had a carrying amount of $20,000. Ocean Technologies uses the direct method to prepare its cash flow statement.
-On the 2014 cash flow statement, the company should report
A) cash proceeds from investing activities, $20,000.
B) cash proceeds from operating activities, $18,000.
C) cash proceeds from investing activities, $18,000.
D) cash proceeds from operating activities, $20,000.

Accepted Answer

The correct answer is C) cash proceeds from investing activities, $18,000. This is because the sale of equipment is considered an investing activity, and the cash proceeds from the sale amount to $18,000, which is the actual amount received from the sale.

Question 15

Which of the following changes in retained earnings during a period will be reported in the financing activities section of the cash flow statement?
1) Declaration of a cash dividend paid during the period.
2) Profit for the period.
A) 1
B) 2
C) neither 1 nor 2.
D) both 1 and 2.

Accepted Answer

The declaration and payment of a cash dividend, which directly affects retained earnings, is reported in the financing activities section of the cash flow statement. Profit for the period affects retained earnings but is reported in the operating activities section, not the financing activities section.

Question 16

Ellis Inc. had cash sales of $300,000 and credit sales of $500,000. The accounts receivable balance increased $10,000 during the year. How much cash did Ellis receive from its customers during the year?
A) $790,000
B) $810,000
C) $490,000
D) $510,000

Accepted Answer

Ellis Inc. received $790,000 from its customers during the year. This is calculated by adding the cash sales of $300,000 to the credit sales of $500,000, then subtracting the $10,000 increase in accounts receivable (since this increase indicates that not all credit sales were collected in cash). Thus, $300,000 + $500,000 - $10,000 = $790,000.

Question 17

When equipment is sold for cash, the amount received is reflected as a cash
A) inflow in the operating section.
B) inflow in the financing section.
C) inflow in the investing section.
D) outflow in the operating section.

Accepted Answer

When equipment is sold for cash, the amount received is considered a cash inflow in the investing section of the cash flow statement. This section shows cash flows from the purchase or sale of long-term assets, such as equipment or property.

Question 18

Use the following information for questions 
When preparing the financial statements for 2014, John Grinder, CFO for Ocean Technologies Inc., noticed that during the year the company sold equipment with an original cost of $50,000 for cash proceeds of $18,000. At the time of the sale, the equipment had a carrying amount of $20,000. Ocean Technologies uses the direct method to prepare its cash flow statement.
-The loss on the sale of equipment will
A) be added to profit in the operating section of the cash flow statement.
B) be deducted from profit in the operating section of the cash flow statement.
C) be shown as a cash outflow from investing activities.
D) not be included in the cash flow statement as it is a noncash charge.

Accepted Answer

The answer of Use the following information for questions 
When...

Question 19

The indirect and direct methods of preparing the cash flow statement are identical except for the
A) significant noncash activity section.
B) operating activities section.
C) investing activities section.
D) financing activities section.

Accepted Answer

The indirect and direct methods of preparing the cash flow statement differ only in how cash flows from operating activities are presented. The investing and financing sections are prepared the same way under both methods.

Question 20

Jankowski Corporation reports a $15,000 increase in inventory and a $5,000 increase in accounts payable during the year. Cost of goods sold for the year was $150,000. The cash payments made to suppliers were
A) $150,000.
B) $160,000.
C) $130,000.
D) $145,000.

Accepted Answer

The cash payments to suppliers can be calculated by adjusting the cost of goods sold for changes in inventory and accounts payable. The formula is: Cash Payments = Cost of Goods Sold + Increase in Inventory - Increase in Accounts Payable. Therefore, $150,000 + $15,000 - $5,000 = $160,000.

Quiz 16: The Cash Flow Statement

When using the indirect method, which of the following would NOT be needed to determine net cash provided by operating activities?

Stapp Corp. had an increase in inventory of $40,000. The cost of goods sold was $90,000. There was a $5,000 decrease in accounts payable from the prior period. What were Stapp's cash payments to suppliers?

Which of the following statements concerning the cash flow statement is true?

Mobile Corp. has other operating expenses of $60,000. There has been a decrease in prepaid expenses of $4,000 during the year, and accrued liabilities are $6,000 larger than in the prior period. What were Mobile's cash payments for operating expenses?

Cash receipts from customers are greater than sales revenue when there is

Rodman Inc. had credit sales of $800,000. The beginning accounts receivable balance was $40,000 and the ending accounts receivable balance was $140,000. What were the cash collections from customers during the period?

Which of the following items does NOT appear in the cash flow statement under the direct method?

Richards Limited had a cost of goods purchased of $250,000. The comparative balance sheet analysis revealed a $10,000 decrease in inventory and a $20,000 increase in accounts payable. What were Richards' cash payments to suppliers?

Tabador Corporation shows income tax expense of $80,000. There has been a $2,000 increase in income taxes payable during the year. What was Tabador's cash payment for income taxes?

Which of the following would NOT appear in the operating activities section of a cash flow statement prepared under the direct method?

On the cash flow statement using the indirect method, a loss on the sale of equipment will

Boone Inc. reports the following: $\begin{array}{lrr}&\text { End of Year }&\text { Beginning of Year }\\\text { Inventory } & \$ 25,000 & \$ 40,000 \\\text { Accounts Payable } & 30,000 & 10,000\end{array}$ If cost of goods sold for the year is $150,000, the amount of cash paid to suppliers is

If $200,000 of bonds are issued during the year but $120,000 of old bonds are retired during the year, the cash flow statement will show a(n)

Which of the following changes in retained earnings during a period will be reported in the financing activities section of the cash flow statement? 1) Declaration of a cash dividend paid during the period. 2) Profit for the period.

Ellis Inc. had cash sales of $300,000 and credit sales of $500,000. The accounts receivable balance increased $10,000 during the year. How much cash did Ellis receive from its customers during the year?

When equipment is sold for cash, the amount received is reflected as a cash

The indirect and direct methods of preparing the cash flow statement are identical except for the

Jankowski Corporation reports a $15,000 increase in inventory and a $5,000 increase in accounts payable during the year. Cost of goods sold for the year was $150,000. The cash payments made to suppliers were