Question 1

A loss on the sale of machinery should be reported in the statement of cash flows as:

Accepted Answer

The loss on the sale of machinery is added back to net income when preparing the statement of cash flows using the indirect method because it is a non-cash expense that reduced net income but did not involve an outflow of cash.

Question 2

Which of the following is not reported as an adjustment to net income when using the indirect method of computing net cash flows from operating activities?

Accepted Answer

Cash dividends paid is reported as a financing activity in the statement of cash flows, not as an adjustment to net income when using the indirect method for operating activities. The other three options (changes in accounts receivable, depreciation, and changes in prepaid expenses) are reported as adjustments to net income when using the indirect method.

Question 3

A 10% stock dividend is reported in connection with a statement of cash flows as:

Accepted Answer

A stock dividend does not represent a significant operating, investing, or financing activity.

Question 4

S Company reported net income for 2013 in the amount of $400,000. The company's financial statements also included the following:  What is net cash provided by operating activities under the indirect method?

Accepted Answer

To calculate net cash provided by operating activities using the indirect method, start with net income and adjust for non-cash items and changes in current assets and liabilities. Beginning with net income of $400,000, add back depreciation of $180,000, subtract the increase in accounts receivable of $140,000, and add the decrease in accounts payable of $4,000. This results in net cash provided by operating activities of $536,000.

Question 5

Which of the following does not represent a cash flow relating to operating activities?

Accepted Answer

Cash dividends paid to stockholders represent a cash flow related to financing activities, not operating activities. The other options are all cash flows related to operating activities.

Question 6

Which of the following is reported as a deduction from net income when using the indirect method to determine net cash flows from operating activities?

Accepted Answer

Amortization of premium on bonds payable is added back to net income when using the indirect method for calculating net cash flows from operating activities because it is a non-cash expense that had reduced net income. Unlike depreciation and amortization of a patent, which are also non-cash expenses but are added back to net income because they reduce it without affecting cash, amortization of premium on bonds payable is specifically related to the financing activities and adjusts for the fact that it does not impact cash flow from operations. Dividends declared are not a business expense and relate to financing activities, not operating activities.

Question 7

In its 2013 income statement, WME reported $440,000 for the cost of goods sold. WME paid inventory suppliers $380,000 in 2013, and its inventory balance decreased by $41,000 during the year. In its reconciliation schedule, WME should:

Accepted Answer

The cost of goods sold is $440,000, but WME paid only $380,000 to suppliers, indicating an increase in accounts payable of $60,000. The inventory decreased by $41,000, so the net effect is a $19,000 increase in accounts payable, which is a positive adjustment to net income under the indirect method.

Question 8

How is the amortization of patents reported in a statement of cash flows that is prepared using the indirect method?

Accepted Answer

Amortization of patents is a non-cash expense. Therefore, it is added back to net income in the operating activities section of the cash flow statement when using the indirect method.

Question 9

Which of the following is not true regarding the statement of cash flows?

Accepted Answer

The indirect method for deriving cash flows starts with net income, not sales revenue, and adjusts for noncash expenses and changes in current assets and liabilities to arrive at the net cash provided by operating activities.

Question 10

The amortization of bond discount is included in the statement of cash flows (indirect method) as:

Accepted Answer

The amortization of bond discount is added back to net income in the operating activities section of the statement of cash flows when using the indirect method, because it is a non-cash expense that reduced net income.

Question 11

In its 2013 income statement, WME reported $58,000 for insurance expense. WME paid $72,000 in insurance premiums during 2013. In its reconciliation schedule, WME should:

Accepted Answer

The $14,000 difference between the insurance paid ($72,000) and the insurance expense reported ($58,000) represents an increase in prepaid insurance, which is a current asset. Under the indirect method, an increase in current assets is a negative adjustment to net income.

Question 12

In its 2013 income statement, WME reported a $40,000 loss on the sale of equipment. In its reconciliation schedule, WME should:

Accepted Answer

Under the indirect method, a loss on the sale of equipment is added back to net income because it is a non-cash expense that reduced net income.

Question 13

When preparing the statement of cash flows using the indirect method for determining net cash flows from operating activities, depreciation is added to net income because:

Accepted Answer

Depreciation is a non-cash expense that reduces the net income on the income statement but does not require an outflow of cash. Therefore, it needs to be added back to net income when preparing the statement of cash flows using the indirect method to determine the net cash flows from operating activities.

Question 14

Interest payments to creditors are reported in a statement of cash flows as:

Accepted Answer

Interest payments to creditors are considered part of the day-to-day operations of a business and are therefore reported in the statement of cash flows as an operating activity.

Question 15

An analyst compiled the following information for U Inc. for the year ended December 31, 2013: ▪ Net income was $1,700,000.
▪ Depreciation expense was $400,000.
▪ Interest paid was $200,000.
▪ Income taxes paid were $100,000.
▪ Common stock was sold for $200,000.
▪ Preferred stock (8% annual dividend) was sold at par value of $250,000.
▪ Common stock dividends of $50,000 were paid.
▪ Preferred stock dividends of $20,000 were paid.
▪ Equipment with a book value of $100,000 was sold for $200,000.
Using the indirect method, what was U Inc.'s net cash flow from operating activities for the year ended December 31, 2013?

Accepted Answer

The answer of An analyst compiled the following information for...

Question 16

In its 2013 income statement, WME reported $11,000 of interest expense on its outstanding bonds. During the year, WME paid its regular installments of $9,000 of interest in cash. In its reconciliation schedule, WME should:

Accepted Answer

The answer of In its 2013 income statement, WME reported...

Question 17

Sneed Corporation reported balances in the following accounts for the current year:  Income tax expense was $230 for the year. What was the amount paid for taxes?

Accepted Answer

The answer of Sneed Corporation reported balances in the following...

Question 18

On June 4, White Corporation issued $400 million of bonds for $386 million. During the same year, $1 million of the bond discount was amortized. In a statement of cash flows prepared by the indirect method, White Corporation should report:

Accepted Answer

It is a financing activity of $386 million and an operating activity addition to net income of $1 million.

Question 19

In its 2013 income statement, WME reported $695,000 for service revenue earned from membership fees. WME received $681,000 cash in advance from members during 2013. In its reconciliation schedule, WME should:

Accepted Answer

The answer of In its 2013 income statement, WME reported...

Question 20

In determining cash flows from operating activities (indirect method), adjustments to net income should not include:

Accepted Answer

In the indirect method of calculating cash flows from operating activities, non-cash expenses like depreciation and amortization (choices A, B, and D) are added back to net income because they reduce net income but do not involve an outflow of cash. However, gains on the sale of equipment (choice C) are deducted from net income because they represent a cash inflow that is not part of operating activities but rather an investing activity.

Quiz 21: The Statement of Cash Flows Revisited

A loss on the sale of machinery should be reported in the statement of cash flows as:

Which of the following is not reported as an adjustment to net income when using the indirect method of computing net cash flows from operating activities?

A 10% stock dividend is reported in connection with a statement of cash flows as:

S Company reported net income for 2013 in the amount of $400,000. The company's financial statements also included the following: What is net cash provided by operating activities under the indirect method?

Which of the following does not represent a cash flow relating to operating activities?

Which of the following is reported as a deduction from net income when using the indirect method to determine net cash flows from operating activities?

In its 2013 income statement, WME reported $440,000 for the cost of goods sold. WME paid inventory suppliers $380,000 in 2013, and its inventory balance decreased by $41,000 during the year. In its reconciliation schedule, WME should:

How is the amortization of patents reported in a statement of cash flows that is prepared using the indirect method?

Which of the following is not true regarding the statement of cash flows?

The amortization of bond discount is included in the statement of cash flows (indirect method) as:

In its 2013 income statement, WME reported $58,000 for insurance expense. WME paid $72,000 in insurance premiums during 2013. In its reconciliation schedule, WME should:

In its 2013 income statement, WME reported a $40,000 loss on the sale of equipment. In its reconciliation schedule, WME should:

When preparing the statement of cash flows using the indirect method for determining net cash flows from operating activities, depreciation is added to net income because:

Interest payments to creditors are reported in a statement of cash flows as:

In its 2013 income statement, WME reported $11,000 of interest expense on its outstanding bonds. During the year, WME paid its regular installments of $9,000 of interest in cash. In its reconciliation schedule, WME should:

Sneed Corporation reported balances in the following accounts for the current year: Income tax expense was $230 for the year. What was the amount paid for taxes?

On June 4, White Corporation issued $400 million of bonds for $386 million. During the same year, $1 million of the bond discount was amortized. In a statement of cash flows prepared by the indirect method, White Corporation should report:

In its 2013 income statement, WME reported $695,000 for service revenue earned from membership fees. WME received $681,000 cash in advance from members during 2013. In its reconciliation schedule, WME should:

In determining cash flows from operating activities (indirect method) , adjustments to net income should not include: