Question 1

Show Company had total operating expenses of $153,000 in 2020, which included Depreciation Expense of $30,000.Also during 2020, prepaid expenses decreased by $9,500 and accrued expenses increased by $8,500.
Instructions
Calculate the amount of cash payments for operating expenses in 2020 using the direct method.

Accepted Answer

The answer of Show Company had total operating expenses of...

Question 2

A statement of cash flows indicates the sources and uses of cash during a period.

Accepted Answer

A statement of cash flows is a financial statement that shows the sources and uses of cash during a specific period of time, typically a month, quarter or year. It categorizes the cash flows into three sections: operating activities, investing activities, and financing activities, thus allowing stakeholders to understand a company's overall cash position and how it is being used.

Question 3

Using the indirect method, an increase in accounts payable during a period is deducted from net income in calculating cash provided by operations.

Accepted Answer

Using the indirect method, an increase in accounts payable during a period is added to net income in calculating cash provided by operations because it represents cash that has not yet been paid out.

Question 4

Under the direct method, the formula for computing cash collections from customers is sales revenues plus the increase in accounts receivable or minus the decrease in accounts receivable.

Accepted Answer

Under the direct method, the formula for computing cash collections from customers is cash received from customers. It is not based on sales revenues or changes in accounts receivable.

Question 5

Generally, the most important category on the statement of cash flows is cash flows from

Accepted Answer

Cash flows from operating activities are considered the most important category on the statement of cash flows as they provide information about a company's daily operations, such as revenue and expenses, and reflect the company's ability to generate cash from its core business operations. This information is crucial to investors and analysts when evaluating a company's financial health and future prospects. While the other categories of cash flows (investing and financing activities) are also important, they do not provide as much insight into the company's ongoing operations.

Question 6

If accounts payable have increased during a period,

Accepted Answer

An increase in accounts payable indicates that expenses have been incurred but not yet paid for, which is typical of accrual accounting. Therefore, expenses on an accrual basis are greater than expenses on a cash basis.

Question 7

On a statement of cash flows prepared using the indirect method, patent amortization expense will

Accepted Answer

Patent amortization expense is a non-cash expense that is added back to net income in the operating section of the cash flow statement when using the indirect method. This adjustment is made because the expense reduces net income on the income statement, but it does not involve an actual outflow of cash.

Question 8

Which of the following steps is not required in preparing the statement of cash flows?

Accepted Answer

While determining the net change in cash, determining the net cash provided by operating activities, and determining cash from investing and financing activities are all required steps in preparing the statement of cash flows, determining the change in current assets is not specifically listed as a required step. However, changes in current assets (such as accounts receivable and inventory) are considered in determining the net cash provided by operating activities.

Question 9

Classify each of the following as a(n):

Accepted Answer

The answer of Classify each of the following as a(n):...

Question 10

A statement of cash flows should help investors and creditors assess the entity's ability to generate future income.

Accepted Answer

A statement of cash flows is primarily used to assess an entity's liquidity, solvency, and financial flexibility by showing cash inflows and outflows, rather than directly assessing future income generation.

Question 11

A loss on sale of equipment is added to net income in determining cash provided by operations under the indirect method.

Accepted Answer

A loss on sale of equipment is added back to net income in the calculation of cash flow from operations under the indirect method because it is a non-cash expense that reduced net income but did not involve an outflow of cash.

Question 12

The statement of cash flows should help investors and creditors assess each of the following except the

Accepted Answer

The statement of cash flows primarily provides information about a company's cash receipts and cash payments during a period, focusing on its operating, investing, and financing activities. It helps in assessing the company's ability to generate cash and cash equivalents, thereby indicating its capacity to pay dividends, explaining differences between net income and net cash from operating activities, and detailing cash investing and financing transactions. However, it does not directly assess the entity's ability to generate future income, as this involves broader considerations beyond cash flow, including market conditions, competitive position, and operational efficiency.

Question 13

The category that is generally considered to be the best measure of a company's ability to continue as a going concern is

Accepted Answer

The cash flows from operating activities provide a measure of a company's ability to generate cash from its primary operations and to cover its operating expenses, including interest and taxes. This category is often considered the best measure of a company's ability to continue operating, as it indicates whether the company is generating enough cash from its core business activities to sustain its operations.

Question 14

Which one of the following affects cash during a period?

Accepted Answer

Payment of an accounts payable affects cash during a period as it represents an outflow of cash from the company's bank account.

A, B, and C do not affect cash during a period as follows: 
A) Recording depreciation expense is a non-cash transaction that reduces the value of a long-term asset over time but does not involve a direct change in cash.
B) Declaration of a cash dividend involves a distribution of company earnings to shareholders, but it does not represent a change in cash until the dividend is actually paid out.
C) Write-off of an uncollectible accounts receivable represents a reduction in the value of an asset (accounts receivable) due to non-payment by a customer, but it does not involve a direct change in cash.

Question 15

The indirect and direct methods of preparing the statement of cash flows are identical except for the

Accepted Answer

The indirect and direct methods of preparing the statement of cash flows differ only in the operating activities section. The indirect method adjusts net income for changes in non-cash accounts to calculate cash flow from operations, while the direct method lists all cash receipts and payments from operating activities.

Question 16

Financing activities involve

Accepted Answer

Financing activities refer to raising funds for the company's operations through borrowing or issuing equity. Therefore, financing activities include long-term liability (such as issuing bonds) and owners' equity items (such as issuing stock or paying dividends), and not activities related to lending money to other entities or acquiring/ disposing of long-lived assets.

Question 17

Selected transactions of Alton Company are listed here.

Accepted Answer

The answer of Selected transactions of Alton Company are listed...

Quiz 12: Statement of Cash Flows