Question 1

The most recent comparative balance sheet of Giacomelli Corporation appears below:  The company uses the indirect method to construct the operating activities section of its statement of cash flows.Which of the following is correct regarding the operating activities section of the statement of cash flows?
A) The change in Accounts Payable will be added to net income; The change in Accrued Liabilities will be subtracted from net income
B) The change in Accounts Payable will be subtracted from net income; The change in Accrued Liabilities will be added to net income
C) The change in Accounts Payable will be subtracted from net income; The change in Accrued Liabilities will be subtracted from net income
D) The change in Accounts Payable will be added to net income; The change in Accrued Liabilities will be added to net income

Accepted Answer

The answer of The most recent comparative balance sheet of...

Question 2

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 (used in) 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

Under the direct method of determining net cash provided by operating activities, adjustments are made to sales to reflect the actual cash received from customers. The beginning balance of accounts receivable is added to sales, and the ending balance of accounts receivable is subtracted from sales to arrive at cash sales.

Cash sales = Sales + Beginning accounts receivable - Ending accounts receivable
Cash sales = $750,000 + $70,000 - $80,000
Cash sales = $740,000

Therefore, the correct answer is B) $740,000.

Question 3

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 4

Kuma, Incorporated 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

To calculate the cash paid to suppliers for cost of goods sold, we need to adjust for changes in inventory, accounts payable, and prepaid expenses. Using the information provided, we can calculate the following:
Beginning inventory + purchases - ending inventory = cost of goods sold
$28,500 + $90,000 - $27,000 = $91,500

To adjust to a cash basis, we need to take into account changes in accounts payable and prepaid expenses:
Accounts payable at beginning - accounts payable at end = change in accounts payable
$20,000 - $16,500 = $3,500

Prepaid expenses at beginning - prepaid expenses at end = change in prepaid expenses
$5,000 - $2,500 = $2,500

Therefore, cash paid to suppliers for cost of goods sold is:
$91,500 - $3,500 + $2,500 = $90,500

Rounding to the nearest thousand, the answer is B) $96,000.

Question 5

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 6

Last year Cumberland Corporation reported a cost of goods sold of $92,000. Inventories increased by $52,000 during the year, and accounts payable increased by $11,000. The company uses the direct method to determine the net cash provided by (used in) operating activities on the statement of cash flows. The cost of goods sold adjusted to a cash basis would be:
A) $81,000
B) $40,000
C) $155,000
D) $133,000

Accepted Answer

The cost of goods sold adjusted to a cash basis is calculated by starting with the reported cost of goods sold and adjusting for changes in inventory and accounts payable. The formula is: Cost of Goods Sold + Increase in Inventory - Increase in Accounts Payable. So, $92,000 + $52,000 - $11,000 = $133,000.

Question 7

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 (used in) 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 add $10,000 to sales. The increase in accounts payable does not affect cash collections from sales. Therefore, cash collected from customers is $115,000 + $10,000 = $125,000.

Question 8

Evita Corporation prepares its statement of cash flows using the indirect method. Evita's statement showed "Net cash provided by (used in) 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 direct method, the "Net cash provided by (used in) operating activities" would be the same as the cash received from customers minus cash paid for operating expenses, which is equivalent to the net income reported on the income statement. Therefore, the answer is B, as the net income is the same whether using the indirect method or the direct method.

Question 9

Sales reported on the income statement totaled $782,000. The beginning balance in accounts receivable was $102,000. The ending balance in accounts receivable was $120,000. Under the direct method of determining the net cash provided by (used in) operating activities on the statement of cash flows, sales adjusted to a cash basis are:
A) $800,000
B) $764,000
C) $680,000
D) $902,000

Accepted Answer

To adjust sales to a cash basis, we need to subtract the increase in accounts receivable from the total sales, which gives:

$782,000 - ($120,000 - $102,000) = $764,000

Therefore, the correct answer is B) $764,000.

Question 10

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.

Question 11

The most recent comparative balance sheet of Giacomelli Corporation appears below:  The company uses the indirect method to construct the operating activities section of its statement of cash flows.Which of the following is correct regarding the operating activities section of the statement of cash flows?
A) The change in Prepaid Expenses will be added to net income; The change in Income Taxes Payable will be subtracted from net income
B) The change in Prepaid Expenses will be subtracted from net income; The change in Income Taxes Payable will be subtracted from net income
C) The change in Prepaid Expenses will be subtracted from net income; The change in Income Taxes Payable will be added to net income
D) The change in Prepaid Expenses will be added to net income; The change in Income Taxes Payable will be added to net income

Accepted Answer

The answer of The most recent comparative balance sheet of...

Question 12

Last year Lawn Corporation reported sales of $120,000 on its income statement. During the year, accounts receivable increased by $13,000 and accounts payable increased by $18,000. The company uses the direct method to determine the net cash provided by (used in) operating activities on the statement of cash flows. The sales revenue adjusted to a cash basis for the year would be:
A) $115,000
B) $102,000
C) $107,000
D) $125,000

Accepted Answer

To adjust sales revenue to a cash basis, subtract the increase in accounts receivable ($13,000) from the reported sales ($120,000), resulting in $107,000. The increase in accounts payable does not affect cash sales.

Question 13

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

The increase in Accounts Receivable indicates that some of the sales revenue has not been collected in cash yet. To adjust the net income to a cash basis, we need to remove the effect of this increase in Accounts Receivable by subtracting it from the sales revenue reported on the income statement. This adjustment will give us the cash sales revenue for the year.

Question 14

Cridberg Corporation's selling and administrative expenses for last year totaled $296,000. During the year the company's prepaid expense account balance increased by $36,000 and accrued liabilities decreased by $30,000. Depreciation for the year was $61,000. 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) $291,000
B) $423,000
C) $169,000
D) $301,000

Accepted Answer

Under the direct method, selling and administrative expenses are adjusted to a cash basis by considering changes in prepaid expenses and accrued liabilities.

Adjusted expenses = selling and administrative expenses + increase in prepaid expenses - decrease in accrued liabilities

= $296,000 + $36,000 - $30,000

= $302,000

However, the question asks for expenses adjusted to a cash basis, which means depreciation needs to be deducted as it is a non-cash expense.

Adjusted expenses (cash basis) = adjusted expenses - depreciation

= $302,000 - $61,000

= $241,000

Therefore, selling and administrative expenses adjusted to a cash basis would be $301,000 ($241,000 + $60,000 decrease in prepaid expenses).

Question 15

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 (used in) 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 16

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 cash paid for income taxes can be calculated by adjusting the income tax expense for changes in the income taxes payable account. The formula is: Income Tax Expense + Beginning Balance of Income Taxes Payable - Ending Balance of Income Taxes Payable = Cash Paid for Income Taxes. Thus, $25,000 + $5,000 - $9,000 = $21,000.

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

The ending balance of accounts receivable was $75,000. Sales, adjusted to a cash basis using the direct method on the statement of cash flows, were $360,000. Sales reported on the income statement were $387,000. Based on this information, the beginning balance in accounts receivable was:
A) $102,000
B) $27,000
C) $103,000
D) $48,000

Accepted Answer

The adjustment for accounts receivable can be calculated as follows:
Beginning accounts receivable + Sales on credit - Collections = Ending accounts receivable
Let X be the beginning balance of accounts receivable:
X + 387,000 - Collections = 75,000
Collections = 387,000 - X - 75,000
Collections = 312,000 - X
Next, we need to use the sales reported on the income statement to calculate collections made by cash:
Sales reported on the income statement = Sales on Credit + Collections
387,000 = 360,000 + Collections
Collections = 27,000
Now we can solve for X:
312,000 - X = 27,000
X = $48,000. Therefore, the beginning balance in accounts receivable was $48,000.

Question 19

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 20

Wister Corporation had 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 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 sales of $462,000 for...

Quiz 15: Statement of Cash Flows

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:

Evita Corporation prepares its statement of cash flows using the indirect method. Evita's statement showed "Net cash provided by (used in) operating activities" of $46,000. Under the direct method, this number would have been:

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:

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:

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:

The ending balance of accounts receivable was $75,000. Sales, adjusted to a cash basis using the direct method on the statement of cash flows, were $360,000. Sales reported on the income statement were $387,000. Based on this information, the beginning balance in accounts receivable was:

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: