Question 1

Under the direct method of preparing the statement of cash flows, cash payments from operating activities do NOT include:

Accepted Answer

Under the direct method of preparing the statement of cash flows, cash payments from operating activities include payments to suppliers, payments to employees, and payments of interest. However, they do not include the payment of dividends as they are considered a financing activity.

Question 2

Under the direct method of preparing the statement of cash flows, the computation of payments to suppliers includes:

Accepted Answer

The direct method of preparing the statement of cash flows requires the computation of cash payments to suppliers, which includes payments for both inventory purchases and operating expenses (excluding employee wages). This is in contrast to the indirect method, which starts with net income and makes adjustments for non-cash transactions and changes in working capital to arrive at cash flows from operating activities. Interest and income taxes are not included in the calculation of payments to suppliers.

Question 3

The direct method of preparing the statement of cash flows is preferred by the Financial Accounting Standards Board primarily because of the way it reports:

Accepted Answer

The direct method of preparing the statement of cash flows is preferred by the Financial Accounting Standards Board primarily because it reports operating activities directly, presenting a more detailed and accurate picture of how cash is received and paid out in the ordinary course of business. The direct method is considered more informative than the indirect method, which starts with net income and adjusts for noncash items and changes in current assets and liabilities to arrive at cash flows from operating activities. The direct method is also more user-friendly for non-accountants, as it shows actual cash inflows and outflows and is easier to understand. The direct method does not have a significant impact on the reporting of investing, financing, or noncash activities.

Question 4

Under the direct method of preparing the statement of cash flows, which statement is CORRECT regarding the method of computing cash payments to suppliers for inventory?

Accepted Answer

To compute cash payments to suppliers for inventory using the direct method, you start with the cost of goods sold (COGS), add any increase in inventory (since an increase in inventory means you've bought more than you sold), and subtract any increase in accounts payable (since an increase in accounts payable means you've bought on credit and haven't paid cash yet). This approach adjusts COGS for changes in inventory and accounts payable to reflect actual cash payments.

Question 5

Under the direct method of preparing the statement of cash flows, all of the following would be reported under operating activities EXCEPT:

Accepted Answer

Cash proceeds on sale of long-term investments would be reported under investing activities, not operating activities. Collections from customers, interest received on notes receivable, and dividends received on investments in stock are all examples of cash inflows that would be reported under operating activities.

Question 6

Which of the following would NOT be reported in the operating activities section of a statement of cash flows using the direct method?

Accepted Answer

The loss on sale of equipment would not be reported in the operating activities section of a statement of cash flows using the direct method. This is because the loss on sale of equipment is related to investing activities, not operating activities. The operating activities section typically includes cash flows directly related to operating the business, such as cash received from customers and cash paid to suppliers and employees.

Question 7

Northwest Builders, Inc. reported Cost of Goods Sold for the current year of $340,000. During the same period, the Inventory account decreased $15,000 and the Accounts Payable account increased $24,000. The amount of cash paid to suppliers for inventory is:

Accepted Answer

Cost of Goods Sold = Beginning Inventory + Purchases - Ending Inventory$340,000 = Beginning Inventory + Purchases - ($15,000)Purchases = $340,000 + $15,000 = $355,000Cash paid to suppliers = Purchases - Increase in Accounts PayableCash paid to suppliers = $355,000 - $24,000 = $331,000

Question 8

Jerome Smith, Inc. began the year with $299,000 in accounts receivable and ended the year with $232,700 in accounts receivable. Sales for the year were $4,170,000. The cash collected from customers during the year amounted to:

Accepted Answer

The cash collected from customers is calculated by adding the beginning accounts receivable to sales and then subtracting the ending accounts receivable: $299,000 + $4,170,000 - $232,700 = $4,236,300.

Question 9

Under the direct method of preparing the statement of cash flows, which statement is CORRECT regarding the calculation of cash collected from interest revenue?

Accepted Answer

Under the direct method, cash collected from interest revenue is calculated by adding interest revenue to any decrease in interest receivable, as this indicates cash was collected.

Question 10

Income tax expense for 2018 is $43,000. Income tax payable increased $5000 during the year. Interest payable increased $4000 during the year. What is the cash paid for income taxes?

Accepted Answer

The cash paid for income taxes is calculated by adjusting the income tax expense for changes in income tax payable. Since income tax payable increased by $5,000, it means that $5,000 of the expense was not paid in cash. Therefore, cash paid for income taxes = $43,000 (expense) - $5,000 (increase in payable) = $38,000.

Question 11

Einstein Corporation reported a decrease in inventory of $12,000. The cost of goods sold for the year was $150,000. There was also a $4000 decrease in accounts payable from the beginning of the year to the end of the year. What is Einstein's cash payment to suppliers for inventory?

Accepted Answer

The answer of Einstein Corporation reported a decrease in inventory...

Question 12

Sweeten Corporation had sales of $930,000. The beginning accounts receivable balance was $68,000 and the ending accounts receivable balance was $240,000. The cash collected from customers for this reporting period is:

Accepted Answer

The cash collected from customers is calculated as: Beginning Accounts Receivable + Sales - Ending Accounts Receivable = $68,000 + $930,000 - $240,000 = $758,000.

Question 13

Early Years Corporation reports a $14,000 increase in Inventory and a $26,000 increase in accounts payable for the year. If the cost of goods sold is $400,000 for the year, the cash paid to Early Years' suppliers for inventory is:

Accepted Answer

The answer of Early Years Corporation reports a $14,000 increase...

Question 14

Newsome Corporation had accounts receivable of $100,000 at the beginning of the year and $145,000 at the end of the year. Sales for the year amounted to $575,000. Cash collections from customers are:

Accepted Answer

Cash collections from customers can be calculated by taking the beginning accounts receivable, adding sales, and subtracting the ending accounts receivable: $100,000 + $575,000 - $145,000 = $530,000.

Question 15

During the year, Chappel Engineering Corporation has operating expenses of $51,000. There was an increase in prepaid expenses of $5000 and an increase in accrued liabilities of $7000. What were Chappel's cash payments for operating expenses?

Accepted Answer

The cash payments for operating expenses are calculated by adjusting the operating expenses for changes in prepaid expenses and accrued liabilities. The increase in prepaid expenses ($5,000) is subtracted from operating expenses, and the increase in accrued liabilities ($7,000) is added. Thus, $51,000 - $5,000 + $7,000 = $49,000.

Question 16

Newton Corporation reported an increase in inventory of $75,000. The cost of goods sold for the year was $200,000. There was also a $5000 decrease in accounts payable from the beginning of the year to the end of the year. What is Newton's cash payment to suppliers for inventory?

Accepted Answer

The answer of Newton Corporation reported an increase in inventory...

Question 17

Under the direct method of preparing the statement of cash flows, cash receipts from operating activities do NOT include:

Accepted Answer

Cash receipts from operating activities under the direct method include collections from customers, receipt of interest on investments, and receipt of dividends on investments. Collection of long-term note receivable is a cash inflow from investing activities and is therefore not included in the operating activities section.

Question 18

Interest revenue for 2015 is $120,000. Interest payable increased $43,000 during the year and Interest receivable increased $50,000 during the year. No discount or premium was amortized. What is the cash received for interest revenue?

Accepted Answer

The cash received for interest revenue is calculated by adjusting the interest revenue for changes in interest receivable and interest payable. Cash received = Interest revenue - Increase in interest receivable + Increase in interest payable = $120,000 - $50,000 + $43,000 = $113,000. However, the correct calculation should be $120,000 - $50,000 = $70,000, as the increase in interest payable does not affect cash received.

Question 19

Interest expense for 2018 is $270,000. Interest payable increased $52,000 during the year. Interest receivable increased $12,000 during the year. Interest expense includes $47,000 for the amortization of discount. What is the cash paid for interest?

Accepted Answer

Interest expense for 2018 is $270,000. Interest payable increased $52,000 during the year. Interest receivable increased $12,000 during the year. Interest expense includes $47,000 for the amortization of discount. So, cash paid for interest = Interest expense - Increase in interest payable + Increase in interest receivable - Amortization of discount = $270,000 - $52,000 + $12,000 - $47,000 = $171,000.

Question 20

Zimbalist Corporation reports a decrease in salaries payable of $6000. If salaries expense totaled $182,000 for the year, the cash paid to employees is:

Accepted Answer

The decrease in salaries payable indicates that the company paid more cash than the salaries expense recorded. Therefore, cash paid is $182,000 (salaries expense) + $6,000 (decrease in payable) = $188,000.

Quiz 12: The Statement of Cash Flows