Question 1

When using the indirect method to calculate and report net cash provided or used by operating activities, which of the following is subtracted from net income?
A)Decrease in income taxes payable.
B)Depreciation expense.
C)Amortization of intangible assets.
D)Bad debts expense.
E)Decrease in merchandise inventory.

Accepted Answer

The answer of When using the indirect method to calculate...

Question 2

When using the indirect method to calculate and report the net cash provided or used by operating activities, net income is adjusted for all but which of the following?
A)Gains and losses from nonoperating items.
B)Revenues and expenses that did not provide or use cash.
C)Changes in noncurrent assets and noncurrent liabilities.
D)Changes in current liabilities related to operating activities.
E)Depreciation and amortization expense.

Accepted Answer

The answer of When using the indirect method to calculate...

Question 3

The statement of cash flows helps analysts evaluate all but which of the following?
A)Ability of the company to generate profit.
B)Source of cash used for plant expansion.
C)Differences between net income and net operating cash flow.
D)Source of cash used to finance investing activities.
E)Source of cash used for debt repayments.

Accepted Answer

The statement of cash flows helps analysts evaluate the sources and uses of cash, including the source of cash used for plant expansion, the differences between net income and net operating cash flow, the source of cash used to finance investing activities, and the source of cash used for debt repayments. While the statement of cash flows can provide insights into a company's ability to generate profit, it is not its primary focus.

Question 4

The direct method for the preparation of the operating activities section of the statement of cash flows:
A)Separately lists each major item of operating cash receipts and cash payments.
B)Reports adjustments to reconcile net income to net cash provided or used by operating activities in the statement.
C)Reports a different amount of cash flows from operations than if the indirect method is used.
D)Is required if the company is a merchandiser.
E)Is required by the FASB.

Accepted Answer

The direct method separately lists each major item of operating cash receipts and cash payments.

Question 5

The cash flow on total assets ratio is calculated by:
A)Dividing cash flows from operations by average total assets.
B)Dividing total cash flows by average total assets.
C)Dividing average total assets by cash flows from investing activities.
D)Dividing average total assets by total cash flows.
E)Total cash flows divided by average total assets times 365.

Accepted Answer

The cash flow on total assets ratio is calculated by dividing cash flows from operations by average total assets. This ratio measures the ability of a company to generate cash flow from its assets, which is important for investors and creditors to assess the company's overall financial health.

Question 6

The reporting of net cash provided or used by operating activities that lists the major items of operating cash receipts, such as receipts from customers, and subtracts the major items of operating cash disbursements, such as cash paid for merchandise, is referred to as the:
A)Direct method of reporting net cash provided or used by operating activities.
B)Cash basis of accounting.
C)Classified statement of cash flows.
D)Indirect method of reporting net cash provided or used by operating activities.
E)Net method of reporting cash flows from operating activities.

Accepted Answer

The direct method of reporting net cash provided or used by operating activities lists the major items of cash receipts and cash disbursements, making it more detailed and specific than the indirect method. The other options are not relevant to this particular method of reporting cash flows.

Question 7

The direct method of reporting operating cash flows:
A)Is recommended but not required by the FASB.
B)Must be used by all companies.
C)Is used by most companies.
D)Is considered supplementary disclosure.
E)Is not recommended by the FASB, but is commonly used.

Accepted Answer

The direct method of reporting operating cash flows is recommended but not required by the FASB. Companies can choose to use either the direct or indirect method, but the direct method is considered more informative and transparent.

Question 8

A company's Inventory balance at 12/31/17 was $188,000 and $200,000 at 12/31/16. Its Accounts Payable balance at 12/31/17 was $84,000 and $80,000 at 12/31/16, and its cost of goods sold for 2017 was $720,000. The company's total amount of cash payments for merchandise in 2017 equals:
A)$704,000.
B)$712,000.
C)$720,000.
D)$728,000.
E)$736,000.

Accepted Answer

The correct answer is A because the total amount of cash payments for merchandise in 2017 is equal to the cost of goods sold for 2017 plus the increase in accounts payable from 12/31/16 to 12/31/17 minus the increase in inventory from 12/31/16 to 12/31/17.

Question 9

The indirect method for the preparation of the operating activities section of the statement of cash flows:
A)Separately lists each major item of operating cash receipts.
B)Separately lists each major item of operating cash payments.
C)Reports net income and then adjusts it for items necessary to determine net cash provided or used by operating activities.
D)Is required if the company is a merchandiser.
E)Must not be used in all circumstances.

Accepted Answer

The indirect method for the preparation of the operating activities section of the statement of cash flows reports net income and then adjusts it for items necessary to determine net cash provided or used by operating activities. This method is allowed by GAAP and is commonly used by companies.

Question 10

The statement of cash flows cannot help address questions such as:
A)How is the increase in investments financed?
B)What is the source of cash for new plant assets?
C)How much cash is generated from or used in operations?
D)How much of the company's revenues have been retained as profit?
E)Why is cash flow from operations different from income?

Accepted Answer

The statement of cash flows shows the sources and uses of cash during a period, but it does not directly provide information about the amount of profit retained by the company. This information would be found in the income statement or the retained earnings statement.

Question 11

A company had net cash flows from operations of $120,000, cash flows from financing of $330,000, total cash flows of $500,000, and average total assets of $2,500,000. The cash flow on total assets ratio equals:
A)4.8%.
B)5.0%.
C)20.0%.
D)20.8%.
E)24.0%.

Accepted Answer

The cash flow on total assets ratio is calculated by dividing the total cash flows by the average total assets. In this case, it's $500,000 / $2,500,000 = 0.20 or 20%. However, the correct calculation for cash flow on total assets ratio should actually involve net cash flows from operations, not total cash flows. Therefore, it should be $120,000 / $2,500,000 = 0.048 or 4.8%.

Question 12

When preparing a statement of cash flows using the indirect method, each of the following should be classified as an operating cash flow except:
A)An increase in accounts receivable.
B)A decrease in accounts payable.
C)Proceeds from the disposal of a long-term asset with no gain or loss.
D)An increase in prepaid expenses.
E)A decrease in accrued expenses payable.

Accepted Answer

An increase in accounts receivable, an increase in prepaid expenses, and a decrease in accrued expenses payable are all adjustments made to net income to arrive at operating cash flows. A decrease in accounts payable is also an adjustment made to net income to arrive at operating cash flows since it represents an increase in cash used to pay off debts incurred during the current period. However, proceeds from the disposal of a long-term asset with no gain or loss would be classified as an investing cash flow, not an operating cash flow.

Question 13

Common uses of the statement of cash flows include all but which of the following?
A)Management prediction of future cash flows for decision making.
B)Investor assessment of cash flows before buying and selling stock.
C)Creditor evaluation of a company's ability to generate cash to cover debt.
D)Government assessment of whether company is able to pay taxes as they become due.
E)Management determination of the specific sources and uses of cash.

Accepted Answer

The statement of cash flows is primarily used for internal management decision making, investor assessment, and creditor evaluation. The government does not typically use the statement of cash flows to assess a company's ability to pay taxes. They rely on other financial statements and tax filings for this purpose.

Question 14

Of the following, which one affects cash during a period?
A)The declaration of a stock dividend.
B)Writing off an uncollectible account receivable.
C)The declaration of a cash dividend.
D)An adjusting entry recognizing the expiration of prepaid insurance.
E)The payment of interest expense accrued in a previous accounting period.

Accepted Answer

The answer of Of the following, which one affects cash...

Question 15

A statement of cash flows explains the differences between the beginning and ending balances of:
A)Net income.
B)Equity.
C)Cash and cash equivalents.
D)Working capital.
E)Cash, cash equivalents, and short-term investments.

Accepted Answer

Statement of cash flows highlights the changes in the cash and cash equivalents balance over a period of time, hence the correct option is C.

Question 16

The first line item in the operating activities section of a spreadsheet for a statement of cash flows prepared using the indirect method is:
A)Cash.
B)Cash received from customers.
C)Increase (decrease) in accounts receivable.
D)Net income.
E)Adjustments to net income.

Accepted Answer

The first line item in the operating activities section using the indirect method is the adjustment to net income, which is necessary to convert net income from an accrual basis to a cash basis. This adjustment takes into account non-cash expenses and revenues, changes in working capital accounts, and other adjustments that affect cash flow but are not reflected in net income.

Question 17

A company had net cash flows from operations of $341,000, net income of $286,000 and average total assets of $1,850,000. The cash flow on total assets ratio equals:
A)83.9%
B)542.5%
C)15.5%
D)18.4%
E)646.9%

Accepted Answer

The answer of A company had net cash flows from...

Question 18

A company had average total assets of $1,660,000, total cash flows of $1,320,000, cash flows from operations of $205,000, and cash flows from financing of $750,000. The cash flow on total assets ratio equals:
A)45.2%.
B)22.0%.
C)11.65%.
D)12.3%.
E)79.5%.

Accepted Answer

The cash flow on total assets ratio is calculated as cash flows from operations divided by average total assets.

Cash flow on total assets ratio = cash flows from operations / average total assets

= $205,000 / $1,660,000

= 0.1234 or 12.3% (rounded to one decimal place)

Therefore, the correct answer is D) 12.3%.

Question 19

The cash flow on total assets ratio:
A)Is the same as return on assets.
B)Is the same as profit margin.
C)Can be an indicator of earnings quality.
D)Is highly affected by accounting principles of income recognition and measurement.
E)Is average net assets divided by cash flows from operations.

Accepted Answer

The cash flow on total assets ratio measures the ability of a company to generate cash flow from its assets. It can be an indicator of earnings quality because it measures the actual cash flow generated by the company, rather than relying on accounting principles of income recognition and measurement, which can be manipulated. This ratio is not the same as return on assets or profit margin, and it is not calculated by dividing average net assets by cash flows from operations.

Question 20

Preparation of the statement of cash flows does not involve:
A)Computing the net increase or decrease in cash.
B)Computing and reporting net cash provided or used by operations.
C)Computing the profit compared to the net increase or decrease in cash.
D)Computing and reporting net cash provided or used by financing activities.
E)Computing and reporting net cash provided or used by investing activities.

Accepted Answer

The preparation of the statement of cash flows involves computing the net increase or decrease in cash, reporting net cash provided or used by operations, financing activities, and investing activities. However, it does not involve computing the profit compared to the net increase or decrease in cash. The statement of cash flows reports cash flows, not profits.

Quiz 12: Reporting and Analyzing Cash Flows

When using the indirect method to calculate and report net cash provided or used by operating activities, which of the following is subtracted from net income?

When using the indirect method to calculate and report the net cash provided or used by operating activities, net income is adjusted for all but which of the following?

The statement of cash flows helps analysts evaluate all but which of the following?

The direct method for the preparation of the operating activities section of the statement of cash flows:

The cash flow on total assets ratio is calculated by:

The reporting of net cash provided or used by operating activities that lists the major items of operating cash receipts, such as receipts from customers, and subtracts the major items of operating cash disbursements, such as cash paid for merchandise, is referred to as the:

The direct method of reporting operating cash flows:

A company's Inventory balance at 12/31/17 was $188,000 and $200,000 at 12/31/16. Its Accounts Payable balance at 12/31/17 was $84,000 and $80,000 at 12/31/16, and its cost of goods sold for 2017 was $720,000. The company's total amount of cash payments for merchandise in 2017 equals:

The indirect method for the preparation of the operating activities section of the statement of cash flows:

The statement of cash flows cannot help address questions such as:

A company had net cash flows from operations of $120,000, cash flows from financing of $330,000, total cash flows of $500,000, and average total assets of $2,500,000. The cash flow on total assets ratio equals:

When preparing a statement of cash flows using the indirect method, each of the following should be classified as an operating cash flow except:

Common uses of the statement of cash flows include all but which of the following?

Of the following, which one affects cash during a period?

A statement of cash flows explains the differences between the beginning and ending balances of:

The first line item in the operating activities section of a spreadsheet for a statement of cash flows prepared using the indirect method is:

A company had net cash flows from operations of $341,000, net income of $286,000 and average total assets of $1,850,000. The cash flow on total assets ratio equals:

A company had average total assets of $1,660,000, total cash flows of $1,320,000, cash flows from operations of $205,000, and cash flows from financing of $750,000. The cash flow on total assets ratio equals:

The cash flow on total assets ratio:

Preparation of the statement of cash flows does not involve: