Question 1

The distinction between the indirect and direct methods only applies to the cash flows from which section?

Accepted Answer

The distinction between the indirect and direct methods applies only to the cash flows from operating activities. This is because these methods are used to present the cash flow from operations in the statement of cash flows, whereas the cash flows from financing and investing activities are typically presented in a similar manner under both methods.

Question 2

Operating expenses other than depreciation expense for the year were $30,500. Prepaid expenses increased by $9,400. Cash payments for operating expenses to be reported on the cash flow statement using the direct method would be:

Accepted Answer

When using the direct method for the cash flow statement, adjustments are made for changes in working capital accounts to calculate cash payments or receipts. The increase in prepaid expenses (a current asset) means that more cash was paid out than the expense recognized in the income statement. Therefore, to find the cash payments for operating expenses, you add the increase in prepaid expenses ($9,400) to the operating expenses other than depreciation ($30,500), totaling $39,900.

Question 3

If Salaries Expense was $38,000, and there was a decrease in Salaries Payable of $15,000, what would be the cash amount paid for Salaries?

Accepted Answer

The cash amount paid for salaries is calculated by adding the Salaries Expense to the decrease in Salaries Payable. Therefore, $38,000 + $15,000 = $53,000.

Question 4

Under the direct method of the statement of cash flows, a sale of merchandise inventory for cash is a(n):

Accepted Answer

The sale of merchandise inventory for cash is considered an operating activity because it is part of the company's primary operations and affects net income.

Question 5

When using the direct method to determine the net cash flows from operating activities, major categories would include:

Accepted Answer

The direct method for determining net cash flows from operating activities involves listing all the cash inflows and outflows from operational business activities. This includes cash received from customers and cash paid for expenses like salaries. Cash paid for dividends (financing activity) and cash paid for equipment (investing activity) are not included in the operating activities section.

Question 6

If Cost of Goods Sold was $25,000, there was a decrease in Inventory of $5,000, and an increase in Accounts Payable of $5,700, what would be the cash amount paid for Merchandise Inventory?

Accepted Answer

The cash paid for merchandise inventory is calculated by adjusting the Cost of Goods Sold (COGS) for changes in inventory and accounts payable. The formula is: Cash Paid = COGS + Decrease in Inventory - Increase in Accounts Payable. Thus, $25,000 + $5,000 - $5,700 = $24,300.

Question 7

If Insurance Expense was $7,100, and there was a decrease in Prepaid Insurance of $4,700, what would be the cash amount paid for Insurance?

Accepted Answer

Insurance Expense is a debit, and Prepaid Insurance is an asset account. So, if Insurance Expense increases and Prepaid Insurance decreases, it means that cash was paid for insurance. The amount of cash paid is the sum of the increase in Insurance Expense and the decrease in Prepaid Insurance, which is $7,100 + $4,700 = $11,800.

Question 8

If $38,000 was generated in sales and there was an increase to Accounts Receivable of $3,100, what would be the cash amount received from customers?

Accepted Answer

The cash amount received from customers is calculated by subtracting the increase in Accounts Receivable from the total sales. Therefore, $38,000 - $3,100 = $34,900.

Question 9

Cost of merchandise sold for the year was $370,000. Inventories were $34,000 and $80,000 at the beginning and end of the year, respectively. There were no changes in accounts payable from the beginning to the end of the year. Cash payment for merchandise to be reported on the cash flow statement using the direct method is:

Accepted Answer

To calculate the cash payment for merchandise, start with the cost of merchandise sold ($370,000), subtract the beginning inventory ($34,000), and add the ending inventory ($80,000). This gives a total of $416,000.

Question 10

Under the direct method of the statement of cash flows, cash paid for salaries would result in:

Accepted Answer

Cash paid for salaries is considered an operating activity, and paying out cash for salaries would decrease the cash flow from operating activities.

Question 11

If $40,000 was generated from operations, $9,000 was used for investing activities, and $4,000 was provided by financing activities, the cash balance would:

Accepted Answer

The cash balance would increase by $35,000 because the net cash provided by operating activities ($40,000) minus the cash used in investing activities ($9,000) plus the cash provided by financing activities ($4,000) equals $35,000.

Question 12

If $31,000 net cash was used in operations, $12,000 was used for investing activities, and $25,000 was provided by financing activities, the cash balance would:

Accepted Answer

The cash balance would decrease by $18,000 because the net cash used in operations ($31,000) and investing activities ($12,000) totals $43,000, while the cash provided by financing activities is $25,000. The net change is $25,000 - $43,000 = -$18,000.

Question 13

If $97,000 net cash was provided by operations, $33,000 was used for investing activities, and $15,400 was provided by financing activities, the cash balance would:

Accepted Answer

The answer of If $97,000 net cash was provided by...

Question 14

Cash generated from operating activities may be computed by using:

Accepted Answer

Cash generated from operating activities can be computed using either the indirect method or the direct method, making both A and B correct. The estimating method is not a recognized approach for this purpose.

Question 15

Which would go into the operating activities section of a statement of cash flows using the direct method?

Accepted Answer

Cash paid for inventory is considered an operating activity because it relates directly to the core business operations of purchasing goods for sale. The direct method of the cash flow statement lists actual cash inflows and outflows from operating activities, including payments to suppliers for inventory.

Question 16

Operating expenses other than depreciation expense for the year were $332,000. Prepaid expenses increased by $5,000. Cash payments for operating expenses to be reported on the cash flow statement using the direct method would be:

Accepted Answer

When using the direct method for the cash flow statement, adjustments are made for changes in working capital accounts to calculate cash payments or receipts. The increase in prepaid expenses (a current asset) by $5,000 means that the company paid $5,000 more in cash for these expenses than was expensed on the income statement. Therefore, the cash payments for operating expenses are the reported expenses of $332,000 plus the $5,000 increase in prepaid expenses, totaling $337,000.

Question 17

Cost of merchandise sold for the year was $760,000. Inventories were $20,000 and $110,000 at the beginning and end of the year, respectively. There were no changes in accounts payable from the beginning to the end of the year. Cash payment for merchandise to be reported on the cash flow statement using the direct method is:

Accepted Answer

To calculate the cash payment for merchandise using the direct method, we start with the cost of merchandise sold ($760,000), then adjust for the change in inventory. The inventory increased from $20,000 to $110,000, indicating that $90,000 more inventory was purchased than was sold. Therefore, the cash payment for merchandise is $760,000 + $90,000 = $850,000.

Question 18

The method of reporting cash flows from operating activities under which revenues and expenses on the income statement are adjusted to reflect the amount of cash received or expended for each item is the:

Accepted Answer

The direct method of reporting cash flows from operating activities involves adjusting the income statement's revenues and expenses to reflect the actual cash received or spent, rather than using accrual accounting figures.

Question 19

Which of the following is a cash outflow from a financing activity?

Accepted Answer

A purchase of treasury stock is considered a cash outflow from financing activities because it involves the company using cash to buy back its own shares from the market.

Question 20

If Salaries Payable increased, the amount of the increase would result in what computation to Salaries Expense?

Accepted Answer

Salaries Payable is a liability account, and Salaries Expense is an expense account. When Salaries Payable increases, it means that the company owes more salaries to its employees. This increase in liability will result in an increase in Salaries Expense, as the company will need to record the expense of the salaries that it owes.

Quiz 21: Statement of Cash Flows