Question 1

Only the financing activities section of a statement of cash flows differs between the direct and indirect methods.

Accepted Answer

Both the operating and financing activities sections differ between the direct and indirect methods in a statement of cash flows. The operating activities section differs in the way cash flows from operating activities are calculated and presented, while the financing activities section differs in the way cash flows from financing activities are presented.

Question 2

The direct method of preparing the statement of cash flows:
A)has an identical operating activities section as the indirect method.
B)is used by a vast majority of companies.
C)is preferred by FASB.
D)is much easier for companies to compute.

Accepted Answer

The direct method of preparing the statement of cash flows is not preferred by FASB. In fact, FASB allows companies to use either the direct or indirect method, but the indirect method is more commonly used because it is easier and less time-consuming to prepare. However, some companies may choose to use the direct method because it provides more detailed information about the sources and uses of cash.

Question 3

Under the direct method of preparing the statement of cash flows,which statement is CORRECT regarding the calculation of computing cash collected from interest revenue?
A)Sales plus a decrease in interest receivable
B)Interest revenue plus a decrease in interest receivable
C)Interest revenue plus an increase in interest receivable
D)Interest revenue less a decrease in interest receivable

Accepted Answer

The correct calculation to compute cash collected from interest revenue under the direct method is to add interest revenue and subtract the decrease in interest receivable. Therefore, the correct option is B - Interest revenue plus a decrease in interest receivable.

Question 4

Under the direct method of preparing the statement of cash flows,cash receipts from operating activities do NOT include:
A)collection of note receivable.
B)collections from customers.
C)receipt of interest on investments.
D)receipt of dividends on investments.

Accepted Answer

Collection of note receivable is a cash inflow from investing activities, not operating activities. The direct method only includes cash receipts from operating activities, such as collections from customers, receipt of interest on investments, and receipt of dividends on investments.

Question 5

An increase in Interest Payable during the reporting period indicates that the cash paid for interest exceeded Interest Expense on the income statement.

Accepted Answer

An increase in Interest Payable indicates that the interest expense recognized on the income statement exceeded the cash paid for interest during the period.

Question 6

Under the direct method of preparing the statement of cash flows,cash payments from operating activities do NOT include:
A)payments to suppliers.
B)payments to employees.
C)payment of dividends.
D)payment of interest.

Accepted Answer

The direct method of preparing the statement of cash flows involves directly reporting cash inflows and outflows from operating activities. Cash payments to suppliers, employees, and interest payments are all examples of cash outflows that would be reported under the direct method. However, payment of dividends is a cash outflow related to financing activities, not operating activities, and would not be included in the operating activities section of the statement of cash flows.

Question 7

Depreciation expense is listed on the direct-method statement of cash flows because it affects income.

Accepted Answer

Depreciation expense is not listed on the direct-method statement of cash flows because it is a noncash expense that does not affect cash flows directly. It is only added back to net income in the indirect-method statement of cash flows to reconcile the difference between net income and cash flows from operating activities.

Question 8

Cinderella Company reports net income of $100,000 and Depreciation Expense of $50,000 for the year ending December 31,2015.There were no gains or losses from the sale of long-term assets.They also have the partial balance sheets shown below:
  Using the indirect method,prepare the operating activities section of the statement of cash flows for the year ending December 31,2015

Accepted Answer

The answer of Cinderella Company reports net income of $100,000...

Question 9

A company reports the following balances:  During 2016,net income of $30,000 was reported.No treasury stock was sold during 2016.No common stock was retired during 2016.What financing activities are reported on the statement of cash flows prepared with the indirect method for the year ending December 31,2016?
A)Sale of treasury stock $5,000 and Payment of dividends $20,000
B)Purchase of treasury stock $5,000,Payment of dividends $20,000 and Sale of common stock $20,000
C)Sale of treasury stock $5,000,Sale of common stock $10,000
D)Payment of dividends $10,000,Sale of common stock $20,000,and Purchase of treasury stock $5,000

Accepted Answer

The answer of A company reports the following balances: ...

Question 10

Early Years Corporation reports a $17,000 increase in Inventory and a $30,000 increase in Accounts Payable for the year.If the Cost of Goods Sold is $400,000 for the year,the cash paid to Early Years' suppliers for inventory is:
A)$353,000.
B)$370,000.
C)$387,000.
D)$447,000.

Accepted Answer

The answer of Early Years Corporation reports a $17,000 increase...

Question 11

Northwest Builders,Inc.reported Cost of Goods Sold for the current year of $320,000.During the same period,the Inventory account decreased $15,000 and the Accounts Payable account increased $25,000.The amount of cash paid to suppliers for inventory is:
A)$280,000.
B)$295,000.
C)$305,000.
D)$335,000.

Accepted Answer

Cost of Goods Sold = Beginning Inventory + Purchases - Ending Inventory$320,000 = Beginning Inventory + Purchases - ($15,000)Purchases = $320,000 + $15,000 = $335,000Cash paid to suppliers = Purchases - Increase in Accounts PayableCash paid to suppliers = $335,000 - $25,000 = $310,000

Question 12

Anew Health Care Company reports net income of $200,000 and Depreciation Expense of $20,000 for the year ending December 31,2015.No long-term assets were sold or exchanged during 2015.They also have the following data available:  Using the indirect method,what is the net cash provided (or used)from operating activities for the year ending December 31,2015?
A)$70,000
B)$90,000
C)$120,000
D)$190,000

Accepted Answer

To calculate the net cash provided (or used) from operating activities, we need to adjust the net income by adding back the depreciation expense and then making adjustments for changes in current assets and current liabilities using the indirect method.

Starting with net income of $200,000, we add back depreciation expense of $20,000 to get a subtotal of $220,000.

Next, we make adjustments for changes in current assets and current liabilities using the following formula:

Net cash provided by operating activities = Subtotal + Decrease in current assets - Increase in current liabilities

Applying this formula to the available data:

Net cash provided by operating activities = $220,000 + $50,000 (decrease in accounts receivable) - $180,000 (increase in accounts payable)

= $220,000 + $50,000 - $180,000

= $90,000

Therefore, the correct choice is B) $90,000.

Question 13

Serfleck Company reports the following data for the year ending December 31,2015:  There were no retirements of common stock in 2015.On the statement of cash flows(indirect method),what is the net cash provided by financing activities for the year ending December 31,2015?
A)$45,000
B)$55,000
C)$60,000
D)$70,000

Accepted Answer

The answer of Serfleck Company reports the following data for...

Question 14

Under the direct method of preparing the statement of cash flows,which statement is CORRECT regarding the method of computing cash payments to suppliers for inventory?
A)Cost of goods sold less a decrease in inventory plus an increase in accounts payable
B)Cost of goods sold plus an increase in inventory less an increase in accounts payable
C)Cost of goods sold plus an increase in inventory plus an increase in accounts payable
D)Cost of goods sold plus a decrease in inventory plus an increase in accounts payable

Accepted Answer

To compute cash payments to suppliers for inventory using the direct method, you start with the cost of goods sold (COGS), add any increase in inventory (since an increase in inventory means you've bought more than you sold), and subtract any increase in accounts payable (since an increase in accounts payable means you've bought on credit and haven't paid cash yet). This approach adjusts COGS for changes in inventory and accounts payable to reflect actual cash payments.

Question 15

Scheeler Company has the following comparative balance sheet data available:
  Additional information:
1.The company reports net income of $100,000 and Depreciation Expense of $20,000 for the year ending December 31,2015.
2.Dividends declared and paid in 2015,$70,000.
3.Equipment with a cost of $20,000,with Accumulated Depreciation of $10,000 was sold for $3,000.
4.New equipment was purchased for cash.
Using the indirect method,prepare the statement of cash flows for the year ending December 31,2015.

Accepted Answer

The answer of Scheeler Company has the following comparative balance...

Question 16

Under the direct method of preparing the statement of cash flows,all of the following would be reported under operating activities EXCEPT:
A)collections from customers.
B)interest received on notes receivable.
C)dividends received on investments in stock.
D)cash proceeds on sale of long-term investments.

Accepted Answer

Cash proceeds on sale of long-term investments would be reported under investing activities, not operating activities, under the direct method of preparing the statement of cash flows.

Question 17

Sweeten Corporation had sales of $900,000.The beginning Accounts Receivable balance was $70,000 and the ending Accounts Receivable balance was $230,000.The cash collected from customers for this reporting period is:
A)$670,000.
B)$740,000.
C)$970,000.
D)$1,060,000.

Accepted Answer

The cash collected from customers can be calculated using the formula:

Cash collected = Sales + Beginning Accounts Receivable - Ending Accounts Receivable

Substituting the values, we get:

Cash collected = $900,000 + $70,000 - $230,000
Cash collected = $740,000

Therefore, the correct choice is B.

Question 18

During 2015,ABC Corporation's Income Tax Expense totaled $20,000 and Income Tax Payable increased by $3,000; therefore,the cash paid for income taxes was $17,000.

Accepted Answer

The cash paid for income taxes is calculated by adjusting the income tax expense by the change in income tax payable. If the payable increased by $3,000, it means $3,000 less was paid in cash, so $20,000 - $3,000 = $17,000 was paid in cash.

Question 19

Zimbalist Corporation reports a decrease in Salaries Payable of $5,000.If Salaries Expense totaled $187,000 for the year,the cash paid to employees is:
A)$177,000.
B)$182,000.
C)$187,000.
D)$192,000.

Accepted Answer

The decrease in Salaries Payable indicates that the company paid more cash than the Salaries Expense recorded. Therefore, the cash paid is $187,000 (Salaries Expense) + $5,000 (decrease in Salaries Payable) = $192,000.

Question 20

The indirect method of preparing the statement of cash flows provides the clearest picture of the cash inflows and cash outflows from investing activities.

Accepted Answer

The indirect method focuses on adjusting net income for non-cash transactions and changes in working capital to arrive at cash flow from operating activities, not directly detailing cash flows from investing activities.

Quiz 12: The Statement of Cash Flows

Only the financing activities section of a statement of cash flows differs between the direct and indirect methods.

The direct method of preparing the statement of cash flows:

Under the direct method of preparing the statement of cash flows,which statement is CORRECT regarding the calculation of computing cash collected from interest revenue?

Under the direct method of preparing the statement of cash flows,cash receipts from operating activities do NOT include:

An increase in Interest Payable during the reporting period indicates that the cash paid for interest exceeded Interest Expense on the income statement.

Under the direct method of preparing the statement of cash flows,cash payments from operating activities do NOT include:

Depreciation expense is listed on the direct-method statement of cash flows because it affects income.

Early Years Corporation reports a $17,000 increase in Inventory and a $30,000 increase in Accounts Payable for the year.If the Cost of Goods Sold is $400,000 for the year,the cash paid to Early Years' suppliers for inventory is:

Northwest Builders,Inc.reported Cost of Goods Sold for the current year of $320,000.During the same period,the Inventory account decreased $15,000 and the Accounts Payable account increased $25,000.The amount of cash paid to suppliers for inventory is:

Serfleck Company reports the following data for the year ending December 31,2015: There were no retirements of common stock in 2015.On the statement of cash flows(indirect method) ,what is the net cash provided by financing activities for the year ending December 31,2015?

Under the direct method of preparing the statement of cash flows,which statement is CORRECT regarding the method of computing cash payments to suppliers for inventory?

Under the direct method of preparing the statement of cash flows,all of the following would be reported under operating activities EXCEPT:

Sweeten Corporation had sales of $900,000.The beginning Accounts Receivable balance was $70,000 and the ending Accounts Receivable balance was $230,000.The cash collected from customers for this reporting period is:

During 2015,ABC Corporation's Income Tax Expense totaled $20,000 and Income Tax Payable increased by $3,000; therefore,the cash paid for income taxes was $17,000.

Zimbalist Corporation reports a decrease in Salaries Payable of $5,000.If Salaries Expense totaled $187,000 for the year,the cash paid to employees is:

The indirect method of preparing the statement of cash flows provides the clearest picture of the cash inflows and cash outflows from investing activities.