Question 1

Which of the following would not be presented in the cash from operating activities section of the statement of cash flows when the indirect method is used?

Accepted Answer

The answer of Which of the following would not be...

Question 2

Which method will yield higher cash flows from operating activities?

Accepted Answer

Both the direct and indirect methods of calculating cash flows from operating activities will yield the same amount. The difference between the two methods lies in the presentation and the process of calculation, not in the final amount of cash flows from operating activities.

Question 3

At the beginning of 2009, Baldwin Corporation bought an automobile for $36,000 by issuing a note payable. The automobile has a six-year life and is depreciated using the straight-line method. To determine net cash flow from operating activities for 2009 using the indirect method, net income should be:

Accepted Answer

The depreciation expense of $6,000 is a non-cash charge that reduces net income. When using the indirect method to calculate net cash flow from operating activities, net income should be increased by the depreciation expense to adjust for this non-cash item.

Question 4

Which of the following does not create a difference between net income and the net cash flow from operations?

Accepted Answer

Payment of a cash dividend does not affect the difference between net income and net cash flow from operations because it is a financing activity, not an operating activity.

Question 5

Which method will yield the higher cash flows from financing activities?

Accepted Answer

The method (direct or indirect) used for calculating cash flows affects only the presentation of the cash flow from operating activities. Cash flows from financing activities are calculated and presented in the same way under both methods, thus yielding the same amount.

Question 6

Craig Corporation's reported net income for 2009 is less than its net cash flow from operating activities. One reason for this could be:

Accepted Answer

The answer of Craig Corporation's reported net income for 2009...

Question 7

Which of the following indicates cash receipts?

Accepted Answer

Credit entries in the Marketable Securities account indicate cash receipts from the sale of marketable securities. Debit entries in the Notes Receivable account indicate that the company has received a promissory note from a borrower, which is not necessarily a cash receipt. Debit entries in the Notes Payable account indicate that the company has borrowed money and received cash, but this is not a cash receipt. Credit entries in the Accumulated Depreciation account indicate the amount of depreciation that has been recorded, which is not a cash receipt.

Question 8

Cigna Corporation's 2010 net income is smaller than net cash flow from operating activities. Which of the following would not be an explanation of why net income is smaller than net cash flow from operating activities?

Accepted Answer

The answer of Cigna Corporation's 2010 net income is smaller...

Question 9

When net cash flow from operating activities is presented by the direct method, the statement of cash flows is accompanied by a supplementary schedule reconciling:

Accepted Answer

The answer of When net cash flow from operating activities...

Question 10

An example of a non-cash investing or financing activity that is disclosed in a supplementary schedule accompanying the statement of cash flows is:

Accepted Answer

Selling land in exchange for a note receivable is a non-cash investing activity that would be disclosed in a supplementary schedule accompanying the statement of cash flows. Recording depreciation (choice A) is a non-cash expense that is already reflected in the operating section of the statement of cash flows. Declaring dividends (choice B) is a financing activity that would be reflected in the financing section of the statement of cash flows, but does not involve a non-cash transaction. Transferring cash (choice D) is a cash management decision that does not involve an investing or financing activity.

Question 11

Which of the following is not true regarding the direct and indirect methods of computing net cash flow from operating activities?

Accepted Answer

The direct and indirect methods of computing net cash flow from operating activities do not involve adjusting entries to the company's books. The adjustments are made within the cash flow statement itself to reconcile net income to net cash provided by operating activities (indirect method) or to present cash receipts and payments (direct method).

Question 12

The Nelson Corporation reported net income in excess of its net cash flow from operating activities for the current year. An explanation for this may be:

Accepted Answer

The answer of The Nelson Corporation reported net income in...

Question 13

When using the indirect method, depreciation expense:

Accepted Answer

The answer of When using the indirect method, depreciation expense:
...

Question 14

Which of the following would not be presented in the cash flows from operating activities section of the statement of cash flows when the direct method is used?

Accepted Answer

Dividends paid are typically classified as financing activities, not operating activities, in the statement of cash flows.

Question 15

From the viewpoint of stockholders or potential investors, which of the following cash flow measurements would be of least importance?

Accepted Answer

The dollar amount of overall increase or decrease in cash for the current year may not provide enough information about the company's financial health, as it does not differentiate between cash generated from operating activities, investing activities, or financing activities. It is also affected by other non-operational factors such as debt repayments or issuance of new equity. Therefore, it is the least important measurement for investors.

Question 16

When equipment is purchased entirely through a loan:

Accepted Answer

The answer of When equipment is purchased entirely through a...

Question 17

Which of the following sets of data is sufficient to compute the amount of cash paid for merchandise?

Accepted Answer

To compute the amount of cash paid for merchandise, you need to know the cost of goods sold, any increase or decrease in inventory (to adjust the cost of goods sold for the actual merchandise purchased), and any increase or decrease in accounts payable (to adjust for merchandise purchased on credit versus cash paid). This combination provides a complete picture of cash movement related to merchandise purchases.

Question 18

Which of the following statements regarding the direct and indirect methods of reporting cash flow from operating activities is false?

Accepted Answer

This statement is false because both methods should result in the same net cash flow from operating activities as they are both reporting the same information from different perspectives.

Question 19

When equipment is sold at a loss:

Accepted Answer

The net proceeds from the sale of equipment are reported in the investing section of the cash flow statement, regardless of whether the sale results in a gain or a loss.

Question 20

Which of the following indicates a cash receipt?

Accepted Answer

A decrease in accounts receivable is an indication of cash receipt, as it means that the company has received payment from their customers.

Quiz 13: Statement of Cash Flows