Question 1

Sales reported on the income statement totaled $750,000.The beginning balance in accounts receivable was $70,000.The ending balance in accounts receivable was $80,000.Under the direct method of determining the net cash provided by operating activities on the statement of cash flows,sales adjusted to a cash basis are:
A)$760,000
B)$740,000
C)$680,000
D)$830,000

Accepted Answer

To adjust sales to a cash basis, we need to subtract the increase in accounts receivable from sales. In this case, the increase in accounts receivable is $10,000 ($80,000 - $70,000), so we subtract it from the reported sales of $750,000:

$750,000 - $10,000 = $740,000

Therefore, the adjusted sales on a cash basis are $740,000. The correct answer is B.

Question 2

Last year Cumberland Corporation reported a cost of goods sold of $120,000.Inventories increased by $35,000 during the year,and accounts payable increased by $20,000.The company uses the direct method to determine the net cash provided by operating activities on the statement of cash flows.The cost of goods sold adjusted to a cash basis would be:
A)$135,000
B)$100,000
C)$155,000
D)$105,000

Accepted Answer

A

Question 3

The ending balance of accounts receivable was $69,000.Sales,adjusted to a cash basis using the direct method on the statement of cash flows,were $354,000.Sales reported on the income statement were $378,000.Based on this information,the beginning balance in accounts receivable was:
A)$93,000
B)$24,000
C)$94,000
D)$45,000

Accepted Answer

D

Question 4

Dorris Corporation's statement of financial position and income statement appear below: Cash dividends were $7.The company sold equipment for $18 that was originally purchased for $8 and that had accumulated depreciation of $6.The net cash provided by (used in)operating activities for the year was:

A)$34
B)$35
C)$50
D)$41

Accepted Answer

The answer of Dorris Corporation's statement of financial position and...

Question 5

Last year Lawn Corporation reported sales of $115,000 on its income statement.During the year,accounts receivable decreased by $10,000 and accounts payable increased by $15,000.The company uses the direct method to determine the net cash provided by operating activities on the statement of cash flows.The sales revenue adjusted to a cash basis for the year would be:
A)$125,000
B)$90,000
C)$140,000
D)$100,000

Accepted Answer

The answer of Last year Lawn Corporation reported sales of...

Question 6

During the year the balance in the Prepaid Expenses account increased by $6,000.In order to adjust the company's net income to a cash basis using the direct method on the statement of cash flows,it would be necessary to:
A)subtract the $6,000 from the selling and administrative expenses reported on the income statement.
B)add the $6,000 to the selling and administrative expenses reported on the income statement.
C)subtract the $6,000 from the cost of goods sold reported on the income statement.
D)add the $6,000 to the cost of goods sold reported on the income statement.

Accepted Answer

When the balance in the Prepaid Expenses account increases, it means the company has paid more in expenses than it has expensed on the income statement. To adjust net income to a cash basis using the direct method, you add the increase in Prepaid Expenses to the expenses reported on the income statement, as this represents cash outflow not yet expensed.

Question 7

Brew Corporation's most recent comparative statement of financial position and income statement appear below: Cash dividends were $37.The company did not retire or sell any property,plant,and equipment during the year.The net cash provided by (used in)operating activities for the year was:

A)$185
B)$51
C)$83
D)$191

Accepted Answer

The answer of Brew Corporation's most recent comparative statement of...

Question 8

Wister Corporation had net sales of $462,000 for the just completed year.Shown below are the beginning and ending balances of various Wister accounts: Wister prepares its statement of cash flows using the direct method.On its statement of cash flows,what amount should Wister show for its net sales adjusted to a cash basis (i.e. ,cash received from sales)?
$$\begin{array} { l r r } 
& \text { Ending } & \text { Beginning } \
\text { Cash................... } & \$ 105,000 & \$ 132,000 \
\text { Accounts receivable...... } & \$ 168,000 & \$ 142,000 \
\text { Inventory................. } & \$ 472,000 & \$ 536,000 \
\text { Accounts payable........ } & \$ 74,000 & \$ 91,000 \
\text { Retained earnings....... } & \$ 364,000 & \$ 292,000
\end{array}$$
A)$488,000
B)$436,000
C)$462,000
D)$445,000

Accepted Answer

To adjust net sales to a cash basis, we need to account for changes in accounts receivable. The accounts receivable increased by $26,000 ($168,000 - $142,000), indicating that not all sales were collected in cash. Therefore, cash received from sales is $462,000 (net sales) - $26,000 (increase in accounts receivable) = $436,000.

Question 9

Kuma,Inc.had cost of goods sold of $106,000 for the just completed year.Shown below are the beginning and ending balances of various Kuma accounts: Kuma prepares its statement of cash flows using the direct method.On its statement of cash flows,what amount should Kuma show for its cost of goods sold adjusted to a cash basis (i.e. ,cash paid to suppliers)?
$\begin{array}{lcc}
&\text { Ending}&\text { Beginning }\
\text { Cash.................... } & \$ 59,000 & \$ 45,000 \
\text { Accounts receivable....... } & \$ 75,000 & \$ 81,000 \
\text { Inventory ................. } & \$ 36,000 & \$ 42,000 \
\text { Accounts payable ......... } & \$ 18,000 & \$ 14,000 \
\text { Retained earnings........ } & \$ 79,000 & \$ 64,000
\end{array}$

A)$100,000
B)$96,000
C)$102,000
D)$116,000

Accepted Answer

Cost of goods sold adjusted to a cash basis is calculated as follows:Cost of goods sold (as reported) $106,000Add: Decrease in inventory (42,000 - 36,000) 6,000Less: Increase in accounts payable (18,000 - 14,000) 4,000Cost of goods sold adjusted to a cash basis $96,000

Question 10

Evita Corporation prepares its statement of cash flows using the indirect method.Evita's statement showed "Net cash provided by operating activities" of $46,000.Under the direct method,this number would have been:
A)$0.
B)$46,000.
C)greater than $46,000.
D)less than $46,000 but greater than $0.

Accepted Answer

Net cash provided by operating activities would be the same under both the indirect method and the direct method. Therefore, the answer is $46,000.

Question 11

During the year the balance in the Accounts Receivable account increased by $6,000.In order to adjust the company's net income to a cash basis using the direct method on the statement of cash flows,it would be necessary to:
A)subtract the $6,000 from the sales revenue reported on the income statement.
B)add the $6,000 to the sales revenue reported on the income statement.
C)subtract the $6,000 from the cost of goods sold reported on the income statement.
D)add the $6,000 to the cost of goods sold reported on the income statement.

Accepted Answer

When preparing the statement of cash flows using the direct method, adjustments need to be made to the income statement figures to remove non-cash items and convert to a cash basis. In this case, the increase in Accounts Receivable represents sales made in the year that have not yet been collected in cash, which means they are not actual cash inflows. As such, we need to adjust the sales revenue figure in the income statement by subtracting the $6,000 increase in Accounts Receivable to arrive at the actual cash inflows from sales during the year. Thus, the correct answer is A - subtract the $6,000 from the sales revenue reported on the income statement.

Question 12

If accounts receivable increase during a period,then the amount of cash collected from customers will be less than the amount of sales reported on the income statement for the period.

Accepted Answer

An increase in accounts receivable means that more sales have been made on credit and the customers have not yet paid. Therefore, the amount of cash collected from customers will be less than the amount of sales reported on the income statement for the period.

Question 13

Reven Corporation prepares its statement of cash flows using the direct method.Last year,Reven reported Income Tax Expense of $25,000.At the beginning of last year,Reven had a $5,000 balance in the Income Taxes Payable account.At the end of last year,Reven had a $9,000 balance in the account.On its statement of cash flows for last year,what amount should Reven have shown for its Income Tax Expense adjusted to a cash basis (i.e. ,income taxes paid)?
A)$29,000
B)$21,000
C)$25,000
D)$4,000

Accepted Answer

To adjust income tax expense to a cash basis, we need to calculate the actual payments made towards income taxes during the year. Using the information provided, we can calculate that Reven made a cash payment of $29,000 ($5,000 beginning balance + $25,000 expense - $9,000 ending balance). Therefore, the amount Reven should have shown for its Income Tax Expense adjusted to a cash basis is $21,000 ($29,000 payment - $8,000 increase in the payable account).

Question 14

Under the direct method of determining the net cash provided by operating activities on the statement of cash flows,one step in adjusting selling and administrative expenses from an accrual to a cash basis is to subtract any increase in prepaid expenses.

Accepted Answer

The answer of Under the direct method of determining the...

Question 15

Cridberg Corporation's selling and administrative expenses for last year totaled $260,000.During the year the company's prepaid expense account balance increased by $18,000 and accrued liabilities decreased by $12,000.Depreciation for the year was $25,000.Based on this information,selling and administrative expenses adjusted to a cash basis under the direct method on the statement of cash flows would be:
A)$255,000
B)$315,000
C)$205,000
D)$265,000

Accepted Answer

Under the direct method, non-cash expenses such as depreciation must be added back to the expenses, and changes in prepaid expenses and accrued liabilities must be taken into account. Therefore, the calculation would be:

Selling and administrative expenses = $260,000
Add: Depreciation = $25,000
Adjusted selling and administrative expenses = $285,000
Minus: Increase in prepaid expenses = $18,000
Plus: Decrease in accrued liabilities = $12,000

Selling and administrative expenses on a cash basis = $285,000 - $18,000 + $12,000 = $265,000. Therefore, the correct answer is D.

Question 16

The most recent statement of financial position and income statement of Dallavalle Corporation appear below: Cash dividends were $12.The company did not retire or sell any property,plant,and equipment during the year.The net cash provided by (used in)operating activities for the year was:

A)$77
B)$68
C)$40
D)$14

Accepted Answer

To calculate the net cash provided by operating activities, we need to use the indirect method. 
Starting with net income: 
Net income = $45 
Adjustments for non-cash items: 
Depreciation expense = $14 
Increase in accounts payable = $16 
Decrease in accounts receivable = ($4) 
Increase in inventory = ($5) 
Net cash provided by operating activities = Net income + Depreciation expense - Increase in accounts payable - Decrease in accounts receivable + Increase in inventory 
Net cash provided by operating activities = $45 + $14 - $16 - ($4) + ($5) = $44 
Since cash dividends were $12, the net cash provided by operating activities after deducting the cash dividends is: 
Net cash provided by operating activities - Cash dividends = $44 - $12 = $32 
Therefore, the correct answer is B) $68.

Question 17

Under the direct method of determining the net cash provided by operating activities on the statement of cash flows,an increase in accounts receivable would be added to sales revenue to convert revenue to a cash basis.

Accepted Answer

The answer of Under the direct method of determining the...

Question 18

Crossland Corporation reported sales on its income statement of $435,000.On the statement of cash flows,which used the direct method,sales adjusted to a cash basis were $455,000.Crossland Corporation reported the following account balances on its statement of financial position for the year: Based on this information,the beginning balance in accounts receivable was:
$\begin{array}{lcc}
&\text { Ending Balance}&\text { Beginning Balance }\
\text { Accounts receivable...... } & \$ 30,000 & ? \
\text { Prepaid expenses........ } & \$ 14,000 & \$ 11,000 \
\text { Inventory.............. } & \$ 18,000 & \$ 20,000
\end{array}$
A)$50,000
B)$40,000
C)$30,000
D)$20,000

Accepted Answer

Sales adjusted to a cash basis were $455,000, which means that Crossland Corporation collected $455,000 in cash from sales during the year. The beginning balance in accounts receivable was $50,000 ($455,000 - $435,000 + $30,000).

Question 19

LFM Corporation reported cost of goods sold on its income statement of $15,000.The following account balances appeared on the company's comparative statement of financial position for the same year: The company uses the direct method to determine the net cash provided by operating activities.The cost of goods sold,adjusted to a cash basis,on the company's statement of cash flows for the year would be:
$\begin{array}{lcc}
&\text { Ending Balance }&\text {Beginning Balance }\
\text { Inventory.................... } & \$ 33,000 & \$ 30,000 \
\text { Accounts Payable ....... } & \$ 23,000 & \$ 21,000
\end{array}$
A)$14,000
B)$16,000
C)$10,000
D)$15,000

Accepted Answer

The answer of LFM Corporation reported cost of goods sold...

Question 20

Under the direct method of determining the net cash provided by operating activities on the statement of cash flows,a decrease in prepaid expenses would be added to selling and administrative expenses to convert selling and administrative expenses to a cash basis.

Accepted Answer

The answer of Under the direct method of determining the...

Quiz 2: Statement of Cash Flows

The ending balance of accounts receivable was $69,000.Sales,adjusted to a cash basis using the direct method on the statement of cash flows,were $354,000.Sales reported on the income statement were $378,000.Based on this information,the beginning balance in accounts receivable was:

Dorris Corporation's statement of financial position and income statement appear below: Cash dividends were $7.The company sold equipment for $18 that was originally purchased for $8 and that had accumulated depreciation of $6.The net cash provided by (used in) operating activities for the year was:

During the year the balance in the Prepaid Expenses account increased by $6,000.In order to adjust the company's net income to a cash basis using the direct method on the statement of cash flows,it would be necessary to:

Brew Corporation's most recent comparative statement of financial position and income statement appear below: Cash dividends were $37.The company did not retire or sell any property,plant,and equipment during the year.The net cash provided by (used in) operating activities for the year was:

Evita Corporation prepares its statement of cash flows using the indirect method.Evita's statement showed "Net cash provided by operating activities" of $46,000.Under the direct method,this number would have been:

During the year the balance in the Accounts Receivable account increased by $6,000.In order to adjust the company's net income to a cash basis using the direct method on the statement of cash flows,it would be necessary to:

If accounts receivable increase during a period,then the amount of cash collected from customers will be less than the amount of sales reported on the income statement for the period.

Under the direct method of determining the net cash provided by operating activities on the statement of cash flows,one step in adjusting selling and administrative expenses from an accrual to a cash basis is to subtract any increase in prepaid expenses.

The most recent statement of financial position and income statement of Dallavalle Corporation appear below: Cash dividends were $12.The company did not retire or sell any property,plant,and equipment during the year.The net cash provided by (used in) operating activities for the year was:

Under the direct method of determining the net cash provided by operating activities on the statement of cash flows,an increase in accounts receivable would be added to sales revenue to convert revenue to a cash basis.

Under the direct method of determining the net cash provided by operating activities on the statement of cash flows,a decrease in prepaid expenses would be added to selling and administrative expenses to convert selling and administrative expenses to a cash basis.