Question 1

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 2

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 decrease in accounts receivable indicates that more cash was collected than sales made, so $10,000 is added to sales. Thus, cash collected from customers is $115,000 + $10,000 = $125,000.

Question 3

The most recent balance sheet 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. First, we need to adjust net income for non-cash items and changes in current assets and liabilities.

Starting with net income of $50, we make the following adjustments:

Depreciation expense: $22
Increase in accounts receivable: $6
Increase in inventory: $8
Decrease in accounts payable: ($4)
Net cash provided by operating activities: $82

Subtracting the cash dividends of $12, we get a final answer of $70. Therefore, the correct choice is B ($68 is the closest option)

Question 4

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

Accepted Answer

The answer of Kuma, Inc. had cost of goods sold...

Question 5

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

Under the indirect method, Net cash provided by operating activities includes adjustments for non-cash items such as depreciation and changes in working capital. Under the direct method, actual cash inflows and outflows from operating activities are reported. Since the net cash provided by operating activities is already reported as $46,000 under the indirect method, the answer would be the same ($46,000) under the direct method. Therefore, the correct answer is B.

Question 6

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

Since the balance in Accounts Receivable increased, it means that not all of the sales revenue reported on the income statement has been collected in cash. Therefore, to adjust to a cash basis using the direct method, the $6,000 needs to be subtracted from the sales revenue reported on the income statement.

Question 7

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...

Question 8

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

The answer of The ending balance of accounts receivable was...

Question 9

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 balance sheet for the year:  Based on this information, the beginning balance in accounts receivable was:
A)$50,000
B)$40,000
C)$30,000
D)$20,000

Accepted Answer

The answer of Crossland Corporation reported sales on its income...

Question 10

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 11

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

Cost of goods sold adjusted to a cash basis = Cost of goods sold + Increase in inventories - Increase in accounts payable= $120,000 + $35,000 - $20,000= $135,000

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

When accounts receivable increases, it means that some of the sales reported on the income statement have not yet been collected in cash. 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

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

The direct method adjusts sales to a cash basis by subtracting the increase in accounts receivable and adding the decrease in accounts receivable. Therefore, sales adjusted to a cash basis would be: 
$750,000 - ($80,000 - $70,000) = $740,000.

Question 14

Dorris Corporation's balance sheet 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 balance sheet and income statement...

Question 15

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

Under the direct method, an increase in accounts receivable is subtracted from sales revenue to convert it to a cash basis, as it represents sales made on credit, not cash received.

Question 16

LFM Corporation reported cost of goods sold on its income statement of $15,000. The following account balances appeared on the company's comparative balance sheet 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:
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 17

Brew Corporation's most recent comparative balance sheet 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 balance sheet...

Question 18

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)?
A)$488,000
B)$436,000
C)$462,000
D)$445,000

Accepted Answer

The answer of Wister Corporation had net sales of $462,000...

Question 19

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

The amount of income tax expenses adjusted to a cash basis is determined by calculating the change in Income Taxes Payable account during the year. The increase in the account balance (from $5,000 to $9,000) means that Reven paid $9,000 - $5,000 = $4,000 in cash for income taxes during the year. Therefore, the amount of income tax expense adjusted to a cash basis is $25,000 - $4,000 = $21,000. Therefore, the correct answer is B.

Question 20

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.

Quiz 14: The Direct Method of Determining the Net Cash Provided by Operating Activities

The most recent balance sheet 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:

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:

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.

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:

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.

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.

Dorris Corporation's balance sheet 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:

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.

Brew Corporation's most recent comparative balance sheet 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:

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: