Question 1

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 for the preparation of the operating activities section of the statement of cash flows separately lists each major item of operating cash receipts and cash payments.

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:
A) Gains and losses from nonoperating items.
B) Revenues and expenses that did not provide or use cash.
C) Changes in noncash current assets and current liabilities related to operating activities.
D) Changes in current liabilities related to operating activities.
E) All of these.

Accepted Answer

The indirect method adjusts net income for gains and losses from nonoperating items, revenues and expenses that did not involve cash, and changes in noncash current assets and current liabilities related to operating activities.

Question 3

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 of a statement of cash flows prepared using the indirect method is net income. This is because the indirect method starts with net income and makes adjustments to convert it from an accrual basis to a cash basis.

Question 4

When preparing a statement of cash flows on the indirect method, each of the following should be classified as an operating activity cash flow except:
A) An increase in accounts receivable.
B) A decrease in accounts payable.
C) A gain from disposal of a long-term asset
D) An increase in prepaid expenses.
E) A decrease in accrued expenses payable.

Accepted Answer

Increases in accounts receivable, prepaid expenses, and accrued expenses payable are all operating activity cash flows. Decreases in accounts payable are also considered operating activity cash flows. However, gains from disposal of long-term assets are classified as investing activities on the statement of cash flows.

Question 5

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 payment of interest expense accrued in a previous accounting period affects cash because it involves an actual cash outflow to settle the liability.

Question 6

A company's Inventory balance at 12/31/11 was $188,000 and $200,000 at 12/31/10. Its Accounts Payable balance at 12/31/11 was $84,000 and $80,000 at 12/31/10, and its cost of goods sold for 2011 was $720,000. The company's total amount of cash payments for merchandise in 2011 equals:
A) $704,000.
B) $712,000.
C) $720,000.
D) $728,000.
E) $736,000.

Accepted Answer

The answer of A company's Inventory balance at 12/31/11 was...

Question 7

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 8

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 9

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 is recommended but not required by the FASB, so companies have the choice to use it or not.

Question 10

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 starts with net income and adjusts for non-cash expenses, changes in working capital accounts, and other items necessary to determine net cash provided or used by operating activities. It is a commonly used method for preparing the operating activities section of the statement of cash flows.

Question 11

A company's income statement showed the following: net income, $124,000; depreciation expense, $30,000; and gain on sale of plant assets, $14,000. An examination of the company's current assets and current liabilities showed the following changes as a result of operating activities: accounts receivable decreased $9,400; merchandise inventory increased $18,000; prepaid expenses decreased $6,200; accounts payable increased $3,400. Calculate the net cash provided or used by operating activities.
A) $139,000.
B) $141,000.
C) $145,800.
D) $155,000.
E) $167,000.

Accepted Answer

Start with net income: $124,000 
Add back depreciation: +$30,000 
Subtract gain on sale of plant assets: -$14,000 
Adjustments for changes in current assets and liabilities:
+$9,400 (decrease in accounts receivable)
+$18,000 (increase in merchandise inventory)
-$6,200 (decrease in prepaid expenses)
-$3,400 (increase in accounts payable)
Net cash provided by operating activities = $139,800. 
Therefore the best choice is B, since it is the closest option to $139,800.

Question 12

A statement of cash flows should reconcile 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

A statement of cash flows is designed to reconcile the differences between the beginning and ending balances of cash and cash equivalents, showing how cash levels have changed over the period.

Question 13

Use the following information to calculate cash paid for wages and salaries: 
A) $157,400.
B) $163,800.
C) $168,000.
D) $172,200.
E) $174,400.

Accepted Answer

The answer of Use the following information to calculate cash...

Question 14

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 specifically reports the major items of operating cash receipts and disbursements, while the other options are broader terms or refer to different methods of reporting cash flows.

Question 15

A company had average total assets of $1,760,000, total cash flows of $1,320,000, cash flows from operations of $205,000, and cash flows from financing of $850,000. The cash flow on total assets ratio equals:
A) 1.33%.
B) 8.58%.
C) 11.65%.
D) 15.5%.
E) 75%.

Accepted Answer

The answer of A company had average total assets of...

Question 16

Use the following information about the current year's operations of a company to calculate the cash paid for merchandise. 
A) $218,000.
B) $223,200.
C) $220,000.
D) $228,800.
E) $234,000.

Accepted Answer

The answer of Use the following information about the current...

Question 17

Preparation of the statement of cash flows involves:
A) Computing the net increase or decrease in cash.
B) Computing and reporting net cash provided or used by operations.
C) Computing and reporting net cash provided or used by investing activities.
D) Computing and reporting net cash provided or used by financing activities.
E) All of these.

Accepted Answer

The preparation of the statement of cash flows involves all of these activities - computing the net increase or decrease in cash, computing and reporting net cash provided or used by operations, computing and reporting net cash provided or used by investing activities, and computing and reporting net cash provided or used by financing activities. This is because the statement of cash flows reports on the sources and uses of cash during the period, including operating, investing, and financing activities.

Question 18

When preparing a statement of cash flows on the indirect method, which of the following is correct?
A) Proceeds from the sale of equipment should be added to net income in the operating activities section.
B) A loss on the sale of land should be added to net income in the operating activities section.
C) The declaration of a cash dividend should be a use of cash in the financing activities section.
D) The issuance of a stock dividend should be a use of cash in the financing activities section.
E) The purchase of land and a building by issuing a long-term note payable should be a source of cash in the financing activities section.

Accepted Answer

The answer of When preparing a statement of cash flows...

Question 19

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 total assets.

Question 20

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 can be an indicator of earnings quality, as it shows the amount of cash generated relative to the total assets used to generate that cash. This ratio is less affected by accounting principles of income recognition and measurement compared to other profitability ratios like return on assets or profit margin. Therefore, it can provide a more accurate representation of a company's cash-generating ability. Option A is incorrect because return on assets is calculated by dividing net income by total assets. Option B is incorrect because profit margin measures a company's ability to generate profit from each dollar of sales, while cash flow on total assets ratio measures cash generated relative to total assets. Option D is partially correct as accounting principles do affect this ratio to some extent, but they are less significant than other profitability ratios. Option E is incorrect as the formula for cash flow on total assets ratio is cash flows from operating activities divided by average total assets.

Quiz 16: Reporting the Statement of Cash Flows

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

When using the indirect method to calculate and report the net cash provided or used by operating activities, net income is adjusted for:

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

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

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

A company's Inventory balance at 12/31/11 was $188,000 and $200,000 at 12/31/10. Its Accounts Payable balance at 12/31/11 was $84,000 and $80,000 at 12/31/10, and its cost of goods sold for 2011 was $720,000. The company's total amount of cash payments for merchandise in 2011 equals:

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 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?

The direct method of reporting operating cash flows:

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

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

Use the following information to calculate cash paid for wages and salaries:

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 company had average total assets of $1,760,000, total cash flows of $1,320,000, cash flows from operations of $205,000, and cash flows from financing of $850,000. The cash flow on total assets ratio equals:

Use the following information about the current year's operations of a company to calculate the cash paid for merchandise.

Preparation of the statement of cash flows involves:

When preparing a statement of cash flows on the indirect method, which of the following is correct?

The cash flow on total assets ratio is calculated by:

The cash flow on total assets ratio: