Question 1

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)Net income (loss).
B)Adjustments to net income.
C)Cash received from customers.
D)Cash.
E)Increase (decrease)in accounts receivable.

Accepted Answer

The answer of The first line item in the operating...

Question 2

The direct method for the preparation of the operating activities section of the statement of cash flows:
A)Reports adjustments to reconcile net income to net cash provided or used by operating activities in the statement.
B)Is required by the FASB.
C)Reports a different amount of cash flows from operations than if the indirect method is used.
D)Separately lists each major item of operating cash receipts and cash payments.
E)Is required if the company is a merchandiser.

Accepted Answer

The direct method separately lists each major item of operating cash receipts and cash payments, rather than adjusting net income like the indirect method. It is not required by the FASB, and both methods can be used regardless of whether the company is a merchandiser or not. However, using the direct method may provide more detailed information for investors and analysts.

Question 3

The cash flow on total assets ratio:
A)Is the same as profit margin.
B)Can be an indicator of earnings quality.
C)Is highly affected by accounting principles of income recognition and measurement.
D)Is the same as return on assets.
E)Is average net assets divided by cash flows from operations.

Accepted Answer

The cash flow on total assets ratio, also known as cash return on assets, is a measure of how much cash is generated by a company's assets. It can be an indicator of earnings quality and the ability of a company to generate cash from its assets. It is not the same as profit margin, return on assets or average net assets divided by cash flows from operations. While it can be affected by accounting principles of income recognition and measurement, it is not highly affected by them.

Question 4

Of the following, which one affects cash during a period?
A)The declaration of a cash dividend.
B)The payment of interest expense accrued in a previous accounting period.
C)The declaration of a stock dividend.
D)Writing off an uncollectible account receivable.
E)An adjusting entry recognizing the expiration of prepaid insurance.

Accepted Answer

The answer of Of the following, which one affects cash...

Question 5

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)Indirect method of reporting net cash provided or used by operating activities.
C)Classified statement of cash flows.
D)Cash basis of accounting.
E)Net method of reporting cash flows from operating activities.

Accepted Answer

The description given in the question matches the direct method of reporting net cash provided or used by operating activities, where cash receipts and cash disbursements are listed separately.

Question 6

A company had net cash flows from operations of $341,000, net income of $286,000 and average total assets of $1,850,000. The cash flow on total assets ratio equals:
A)646.9%
B)15.5%
C)83.9%
D)542.5%
E)18.4%

Accepted Answer

The answer of A company had net cash flows from...

Question 7

A statement of cash flows explains the differences between the beginning and ending balances of:
A)Cash, cash equivalents, and short-term investments.
B)Cash and cash equivalents.
C)Net income.
D)Working capital.
E)Equity.

Accepted Answer

A statement of cash flows only explains the differences between the beginning and ending balances of cash and cash equivalents. It does not cover the other options listed.

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)Bad debts expense.
D)Amortization of intangible assets.
E)Decrease in merchandise inventory.

Accepted Answer

The answer of When using the indirect method to calculate...

Question 9

Use the following information to calculate cash paid for wages and salaries: $\begin{array}{l|r}
\text { Salaries expense } & \$ 168,000 \
\hline \text { Salaries payable, January 1 } & 6,400 \
\hline \text { Salaries payable, December 31 } & 10,600
\end{array}$
A)$172,200.
B)$157,400.
C)$168,000.
D)$163,800.
E)$174,400.

Accepted Answer

The cash paid for wages and salaries is calculated as: Salaries expense + Beginning salaries payable - Ending salaries payable = $168,000 + $6,400 - $10,600 = $163,800.

Question 10

The statement of cash flows helps analysts evaluate all but which of the following?
A)Source of cash used for debt repayments.
B)Differences between net income and net operating cash flow.
C)Ability of the company to generate profit.
D)Source of cash used to finance investing activities.
E)Source of cash used for plant expansion.

Accepted Answer

The statement of cash flows does not directly evaluate the ability of the company to generate profit. It indicates where cash is coming from and where it is going, but profitability analysis requires additional information from the income statement and other financial statements. The other options are all areas that the statement of cash flows can provide valuable information on.

Question 11

Preparation of the statement of cash flows does not involve:
A)Computing the net increase or decrease in cash.
B)Computing the profit compared to the net increase or decrease in cash.
C)Computing and reporting net cash provided or used by operations.
D)Computing and reporting net cash provided or used by investing activities.
E)Computing and reporting net cash provided or used by financing activities.

Accepted Answer

The preparation of the statement of cash flows involves computing and reporting net increase or decrease in cash, net cash provided or used by operations, investing activities, and financing activities. However, it does not involve computing the profit compared to the net increase or decrease in cash. That is the function of the income statement.

Question 12

When preparing a statement of cash flows using the indirect method, each of the following should be classified as an operating cash flow except:
A)A decrease in accounts payable.
B)Proceeds from the disposal of a long-term asset with no gain or loss.
C)An increase in accounts receivable.
D)A decrease in accrued expenses payable.
E)An increase in prepaid expenses.

Accepted Answer

Proceeds from the disposal of a long-term asset with no gain or loss is classified as an investing cash flow, not an operating cash flow. The other options (A, C, D, and E) are all related to operating activities and should be classified as operating cash flows in the statement of cash flows using the indirect method.

Question 13

The statement of cash flows cannot help address questions such as:
A)Why is cash flow from operations different from income?
B)What is the source of cash for new plant assets?
C)How much of the company's revenues have been retained as profit?
D)How much cash is generated from or used in operations?
E)How is the increase in investments financed?

Accepted Answer

The statement of cash flows provides information about the company's cash inflows and outflows for a specific period of time. While it provides information about cash generated from or used in operations (option D) and the source of cash for new plant assets (option B), it does not provide information about how much of the company's revenues have been retained as profit (option C) or how the increase in investments is financed (option E). The reason for cash flow from operations differing from income can be addressed through the statement of cash flows (option A).

Question 14

A company's Inventory balance at the end of the year was $188,000 and $200,000 at the beginning of the year. Its Accounts Payable balance at the end of the year was $84,000 and $80,000 at the beginning of the year, and its cost of goods sold for the year was $720,000. The company's total amount of cash payments for merchandise during the year equals:
A)$720,000.
B)$736,000.
C)$712,000.
D)$728,000.
E)$704,000.

Accepted Answer

The answer of A company's Inventory balance at the end...

Question 15

When using the indirect method to calculate and report the net cash provided or used by operating activities, net income is adjusted for all but which of the following?
A)Depreciation and amortization expense.
B)Changes in current liabilities related to operating activities.
C)Gains and losses from nonoperating items.
D)Revenues and expenses that did not provide or use cash.
E)Changes in noncurrent assets and noncurrent liabilities.

Accepted Answer

The answer of When using the indirect method to calculate...

Question 16

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 payments.
B)Is required if the company is a merchandiser.
C)Must not be used in all circumstances.
D)Separately lists each major item of operating cash receipts.
E)Reports net income and then adjusts it for items necessary to determine net cash provided or used by operating activities.

Accepted Answer

The indirect method starts with net income and then makes adjustments to determine net cash provided or used by operating activities. It is the most commonly used method for preparing the operating activities section of the statement of cash flows. The other statements mentioned (separately listing operating cash payments or receipts) are not part of the indirect method, but may be used in conjunction with it. The method used is not required to be disclosed, but the details of the adjustments must be provided.

Question 17

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)20.0%.
B)24.0%.
C)5.0%.
D)20.8%.
E)4.8%.

Accepted Answer

The answer of A company had net cash flows from...

Question 18

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)Total cash flows divided by average total assets times 365.
E)Dividing average total assets by total cash flows.

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 cash generating ability of a company's assets, indicating how much cash is generated for every dollar of assets the company owns.

Question 19

The direct method of reporting operating cash flows:
A)Is considered supplementary disclosure.
B)Is not recommended by the FASB, but is commonly used.
C)Is used by most companies.
D)Must be used by all companies.
E)Is recommended but not required by the FASB.

Accepted Answer

The direct method of reporting operating cash flows is recommended but not required by the FASB. Most companies use the indirect method, which is required by GAAP but provides less detailed information. The direct method presents information about the specific cash inflows and outflows related to operating activities, making it a useful tool for financial analysis. However, it is more time-consuming and costly to prepare, which is why many companies opt for the indirect method instead.

Question 20

A company had average total assets of $1,660,000, total cash flows of $1,320,000, cash flows from operations of $205,000, and cash flows from financing of $750,000. The cash flow on total assets ratio equals:
A)22.0%.
B)79.5%.
C)11.65%.
D)12.3%.
E)45.2%.

Accepted Answer

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

Quiz 16: Reporting the Statement of Cash Flows

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

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

The cash flow on total assets ratio:

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

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 net cash flows from operations of $341,000, net income of $286,000 and average total assets of $1,850,000. The cash flow on total assets ratio equals:

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

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?

Use the following information to calculate cash paid for wages and salaries: $\begin{array}{l|r}\text { Salaries expense } & \$ 168,000 \\\hline \text { Salaries payable, January 1 } & 6,400 \\\hline \text { Salaries payable, December 31 } & 10,600\end{array}$

The statement of cash flows helps analysts evaluate all but which of the following?

Preparation of the statement of cash flows does not involve:

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

The statement of cash flows cannot help address questions such as:

When using the indirect method to calculate and report the net cash provided or used by operating activities, net income is adjusted for all but which of the following?

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

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:

The cash flow on total assets ratio is calculated by:

The direct method of reporting operating cash flows:

A company had average total assets of $1,660,000, total cash flows of $1,320,000, cash flows from operations of $205,000, and cash flows from financing of $750,000. The cash flow on total assets ratio equals: