Question 1

Rogers Company reported net income of $35,000 for the year. During the year, accounts receivable increased by $7,000, accounts payable decreased by $3,000 and depreciation expense of $8,000 was recorded. Net cash provided by operating activities for the year is

Accepted Answer

Net cash provided by operating activities can be calculated using the indirect method: 
Net Income + Depreciation expense - Increase in accounts receivable + Decrease in accounts payable
$35,000 + $8,000 - $7,000 + $3,000 = $39,000 - $6,000 = $33,000. Therefore, the correct answer is C.

Question 2

Which of the following should be added to net income in calculating net cash flow from operating activities using the indirect method?

Accepted Answer

Depreciation expense is added back to net income in the indirect method of calculating cash flows from operating activities because it is a non-cash expense that reduces net income but does not affect cash flow.

Question 3

If accounts payable have increased during a period

Accepted Answer

An increase in accounts payable indicates that a company has purchased goods or services on credit but has not yet paid for them. This means that expenses have been recognized on an accrual basis even though cash has not been paid out yet. Therefore, expenses on an accrual basis are greater than expenses on a cash basis.

Question 4

On the statement of cash flows, the cash flows from operating activities section would include

Accepted Answer

Cash flows from operating activities section includes transactions related to the company's primary business operations. Payment for interest on short-term notes payable is a part of the operational expenses of the business and hence, would be included in this section. Receipts from the issuance of capital stock, payments for the purchase of investments, and payments for cash dividends would be included in the financing and investing sections of the cash flow statement.

Question 5

A company had net income of $252,000. Depreciation expense is $26,000. During the year, Accounts Receivable and Inventory increased $15,000 and $40,000, respectively. Prepaid Expenses and Accounts Payable decreased $2,000 and $4,000, respectively. There was also a loss on the sale of equipment of $3,000. How much cash was provided by operating activities?

Accepted Answer

To calculate the cash provided by operating activities using the indirect method, we start with net income and adjust it for non-cash items and changes in working capital accounts.

Start with net income: $252,000
Add back depreciation: + $26,000
Add loss on sale of equipment: + $3,000
Adjust for changes in working capital accounts: 
Increase in Accounts Receivable: - $15,000
Increase in Inventory: - $40,000
Decrease in Prepaid Expenses: + $2,000
Decrease in Accounts Payable: - $4,000
Cash provided by operating activities: $224,000

Question 6

Accounts receivable from sales to customers amounted to $40,000 and $32,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $110,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is

Accepted Answer

The answer of Accounts receivable from sales to customers amounted...

Question 7

The following selected account balances appeared on the financial statements of the Washington Company:  The Washington Company uses the direct method to calculate net cash flow from operating activities.
Cash collections from customers are

Accepted Answer

The answer of The following selected account balances appeared on...

Question 8

Discount Sales sells some used store fixtures. The acquisition cost of the fixtures is $12,500, the accumulated depreciation on these fixtures is $9,750 at the time of sale. The fixtures are sold for $4,500. The value of this transaction in the Investing section of the statement of cash flows is:

Accepted Answer

The value of the transaction in the Investing section of the statement of cash flows is the selling price of the fixtures, which is $4,500. The acquisition cost and accumulated depreciation are not relevant for this section.

Question 9

A corporation uses the Indirect Statement of Cash Flows. A fixed asset has been sold for $25,000 representing a gain of $3,750. The value in the operating activities section regarding this event would be:

Accepted Answer

The gain from the sale of a fixed asset is considered a non-operating activity and is not included in the operating activities section of the indirect statement of cash flows. Therefore, the value in the operating activities section regarding this event would be the net cash received from the sale of the asset, which is $25,000. The gain of $3,750 would be reported in the investing activities section. So, the correct answer is ($3,750).

Question 10

The net income reported on the income statement for the current year was $250,000. Depreciation recorded on fixed assets and amortization of patents for the year were $40,000 and $9,000, respectively. Balances of current asset and current liability accounts at the end and at the beginning of the year are as follows:  What is the amount of cash flows from operating activities reported on the statement of cash flows prepared by the indirect method?

Accepted Answer

The answer of The net income reported on the income...

Question 11

Sales for the year were $600,000. Accounts receivable were $100,000 and $80,000 at the beginning and end of the year. Cash received from customers to be reported on the cash flow statement using the direct method is

Accepted Answer

The answer of Sales for the year were $600,000. Accounts...

Question 12

Accounts receivable resulting from sales to customers amounted to $40,000 and $31,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $120,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is

Accepted Answer

The answer of Accounts receivable resulting from sales to customers...

Question 13

Cash dividends of $50,000 were declared during the year. Cash dividends payable were $10,000 and $20,000 at the beginning and end of the year, respectively. The amount of cash for the payment of dividends during the year is

Accepted Answer

The cash paid for dividends is calculated as: Dividends declared ($50,000) + Beginning dividends payable ($10,000) - Ending dividends payable ($20,000) = $40,000.

Question 14

Baxter Company reported a net loss of $13,000 for the year ended December 31, 2010. During the year, accounts receivable decreased $5,000, merchandise inventory increased $8,000, accounts payable increased by $10,000, and depreciation expense of $4,000 was recorded. During 2010, operating activities

Accepted Answer

The answer of Baxter Company reported a net loss of...

Question 15

The cost of merchandise sold during the year was $50,000. Merchandise inventories were $12,500 and $10,500 at the beginning and end of the year, respectively. Accounts payable were $6,000 and $5,000 at the beginning and end of the year, respectively. Using the direct method of reporting cash flows from operating activities, cash payments for merchandise total

Accepted Answer

The answer of The cost of merchandise sold during the...

Question 16

The following selected account balances appeared on the financial statements of the Washington Company:  The Washington Company uses the direct method to calculate net cash flow from operating activities.
Cash paid to suppliers is

Accepted Answer

According to the information given on the financial statements, the following formula can be used to calculate cash paid to suppliers:
Cash paid to suppliers = Cost of goods sold + decrease in accounts payable
= $42,000 + ($3,000 - $12,000) = $33,000
Therefore, the correct choice is B.

Question 17

Income tax was $400,000 for the year. Income tax payable was $30,000 and $40,000 at the beginning and end of the year. Cash payments for income tax reported on the cash flow statement using the direct method is

Accepted Answer

The direct method requires reporting actual cash payments made during the year, not the income tax expense amount. 
Beginning income tax payable: $30,000
End income tax payable: $40,000
Cash payments for income tax: $400,000 - $30,000 + $40,000 = $410,000
Therefore, the correct option is B, which is the nearest option to $410,000.

Question 18

Operating expenses other than depreciation for the year were $400,000. Prepaid expenses increased by $17,000 and accrued expenses decreased by $30,000 during the year. Cash payments for operating expenses to be reported on the cash flow statement using the direct method would be

Accepted Answer

The answer of Operating expenses other than depreciation for the...

Question 19

The following information is available from the current period financial statements:  The net cash flow from operating activities using the indirect method is

Accepted Answer

The answer of The following information is available from the...

Question 20

In calculating cash flows from operating activities using the indirect method, a gain on the sale of equipment is

Accepted Answer

A gain on the sale of equipment represents a non-operating item, and is therefore deducted from net income when calculating cash flows from operating activities using the indirect method. This is because the gain represents an increase in net income that did not involve a corresponding increase in cash received, so it must be removed to arrive at the true cash flows from operating activities.

Quiz 14: Statement of Cash Flows