Question 1

In calculating cash flows from operating activities using the indirect method, a gain on the sale of equipment is

Accepted Answer

The gain on the sale of equipment is a non-operating item and thus should be deducted from net income when calculating cash flows from operating activities using the indirect method. This is because the gain is included in net income but it does not result in an inflow of cash, so it needs to be removed to arrive at the actual cash flows from operating activities.

Question 2

A corporation uses the indirect method for preparing the Statement of Cash Flows. A fixed asset has been sold for $25,000 representing a gain of $4,500. The value in the operating activities section regarding this event would be:

Accepted Answer

The gain on the sale of the fixed asset is a non-cash item and therefore should be deducted from net income in the operating activities section. The value to be shown in the operating activities section would be the proceeds from the sale of the fixed asset, which is $25,000, and the gain on the sale of the fixed asset, which is a deduction of $4,500. Therefore, the net value to be shown in the operating activities section would be $20,500 ($25,000 - $4,500 = $20,500). Option B represents this deduction of $4,500.

Question 3

On the statement of cash flows, the cash flows from operating activities section would include

Accepted Answer

The cash flows from operating activities section of the statement of cash flows includes cash inflows and outflows directly related to the company's core business operations. Payment for interest on short-term notes payable is a cash outflow that typically arises from operating activities, as short-term notes payable are often used to fund day-to-day expenses. Receipts from the issuance of capital stock, payments for the purchase of investments, and payments for cash dividends are more likely to be classified under financing or investing activities on the statement of cash flows.

Question 4

Income tax was $175,000 for the year. Income tax payable was $30,000 and $40,000 at the beginning and end of the year. Cash payments for income tax reported on the cash flow statement using the direct method is

Accepted Answer

Income tax payable increased by $10,000 during the year ($40,000 - $30,000). Therefore, cash payments for income tax were $175,000 - $10,000 = $165,000.

Question 5

Rogers Company reported net income of $35,000 for the year. During the year, accounts receivable increased by $7,000, accounts payable decreased by $3,000 and depreciation expense of $8,000 was recorded. Net cash provided by operating activities for the year is

Accepted Answer

Net cash provided by operating activities can be calculated using the indirect method: 
Net Income + Depreciation expense - Increase in accounts receivable + Decrease in accounts payable
$35,000 + $8,000 - $7,000 + $3,000 = $39,000 - $6,000 = $33,000. Therefore, the correct answer is C.

Question 6

The net income reported on the income statement for the current year was $250,000. Depreciation recorded on fixed assets and amortization of patents for the year were $40,000 and $9,000, respectively. Balances of current asset and current liability accounts at the end and at the beginning of the year are as follows:  What is the amount of cash flows from operating activities reported on the statement of cash flows prepared by the indirect method?

Accepted Answer

The answer of The net income reported on the income...

Question 7

The cost of merchandise sold during the year was $50,000. Merchandise inventories were $12,500 and $10,500 at the beginning and end of the year, respectively. Accounts payable were $6,000 and $5,000 at the beginning and end of the year, respectively. Using the direct method of reporting cash flows from operating activities, cash payments for merchandise total

Accepted Answer

The answer of The cost of merchandise sold during the...

Question 8

Sales for the year were $600,000. Accounts receivable were $100,000 and $80,000 at the beginning and end of the year. Cash received from customers to be reported on the cash flow statement using the direct method is

Accepted Answer

The cash received from customers is calculated by adjusting sales for the change in accounts receivable. The accounts receivable decreased by $20,000 ($100,000 - $80,000), indicating that more cash was collected than sales made. Therefore, cash received = $600,000 (sales) + $20,000 (decrease in accounts receivable) = $620,000.

Question 9

Baxter Company reported a net loss of $13,000 for the year ended December 31, 2010. During the year, accounts receivable decreased by $5,000, merchandise inventory increased by $8,000, accounts payable increased by $10,000, and depreciation expense of $4,000 was recorded. During 2010, operating activities

Accepted Answer

The answer of Baxter Company reported a net loss of...

Question 10

Accounts receivable from sales to customers amounted to $40,000 and $32,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $110,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is

Accepted Answer

The decrease in accounts receivable ($40,000 - $32,000 = $8,000) indicates that cash collected from customers was $8,000 more than the sales revenue recognized. Therefore, the cash flows from operating activities would be $110,000 (income) + $8,000 (decrease in accounts receivable) = $118,000.

Question 11

If accounts payable have increased during a period

Accepted Answer

An increase in accounts payable means that a company has purchased goods or services on credit and has not yet paid for them. This means that expenses on an accrual basis are greater than expenses on a cash basis because the expenses have been recorded before the payment has been made. Therefore, D is the correct answer.

Question 12

The following information is available from the current period financial statements:  The net cash flow from operating activities using the indirect method is

Accepted Answer

The answer of The following information is available from the...

Question 13

The following selected account balances appeared on the financial statements of the Washington Company:  The Washington Company uses the direct method to calculate net cash flow from operating activities.
Cash paid to suppliers is

Accepted Answer

To calculate cash paid to suppliers using the direct method, we start with purchases and adjust for the change in accounts payable. Purchases for the year are $54,000, and the increase in accounts payable is $21,000 ($10,000 ending balance less $31,000 beginning balance). Therefore, cash paid to suppliers is $54,000 - $21,000 = $33,000. So, the best choice is B.

Question 14

The following selected account balances appeared on the financial statements of the Washington Company:  The Washington Company uses the direct method to calculate net cash flow from operating activities.
Cash collections from customers are

Accepted Answer

To calculate cash collections from customers using the direct method, we need to start with sales revenue and adjust for changes in accounts receivable. 
Sales revenue = $80,000 
Decrease in accounts receivable = $20,000 
Cash collections from customers = Sales revenue - Decrease in accounts receivable = $80,000 - $20,000 = $60,000

Question 15

Which of the following should be added to net income in calculating net cash flow from operating activities using the indirect method?

Accepted Answer

Depreciation expense is a non-cash expense and therefore needs to be added back to net income to calculate net cash flow from operating activities using the indirect method. B, C, and D are not added back to net income using the indirect method.

Question 16

Zenith Corporation sells some of its used store fixtures. The acquisition cost of the fixtures is $12,500, the accumulated depreciation on these fixtures is $9,750 at the time of sale. The fixtures are sold for $5,300. The value of this transaction in the Investing section of the statement of cash flows is:

Accepted Answer

The cash received from the sale of the fixtures, $5,300, is reported in the Investing section of the statement of cash flows.

Question 17

Cash dividends of $50,000 were declared during the year. Cash dividends payable were $10,000 and $5,000 at the beginning and end of the year, respectively. The amount of cash for the payment of dividends during the year is

Accepted Answer

Cash dividends declared during the year = $50,000
Cash dividends payable at the beginning of the year = $10,000
Cash dividends payable at the end of the year = $5,000
Total cash for the payment of dividends during the year = Cash dividends declared - Cash dividends payable at the beginning + Cash dividends payable at the end
= $50,000 - $10,000 + $5,000
= $45,000 + $10,000
= $55,000
Therefore, the correct answer is A) $55,000.

Question 18

A company had net income of $252,000. Depreciation expense is $26,000. During the year, Accounts Receivable and Inventory increased by $15,000 and $40,000, respectively. Prepaid Expenses and Accounts Payable decreased by $2,000 and $4,000, respectively. There was also a loss on the sale of equipment of $3,000. How much cash was provided by operating activities?

Accepted Answer

Cash provided by operating activities can be calculated using the indirect method of cash flow statement which adjusts net income for non-cash expenses and changes in current assets and liabilities. 
Calculation: 
Net income = $252,000
Add: Depreciation expense = $26,000
Add: Loss on sale of equipment = $3,000
Adjustments for changes in current assets and liabilities:
Accounts receivable increased = -$15,000
Inventory increased = -$40,000
Prepaid expenses decreased = $2,000
Accounts payable decreased = $4,000
Cash provided by operating activities = $252,000 + $26,000 + $3,000 - $15,000 - $40,000 + $2,000 - $4,000 = $224,000. 
Therefore, the best choice is B.

Question 19

Accounts receivable resulting from sales to customers amounted to $40,000 and $31,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $120,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is

Accepted Answer

The decrease in accounts receivable ($40,000 - $31,000 = $9,000) indicates that cash collected from customers was $9,000 more than the sales revenue recognized. Therefore, the cash flows from operating activities would be $120,000 (income) + $9,000 (decrease in accounts receivable) = $129,000.

Question 20

Operating expenses other than depreciation for the year were $400,000. Prepaid expenses increased by $17,000 and accrued expenses decreased by $30,000 during the year. Cash payments for operating expenses to be reported on the cash flow statement using the direct method would be

Accepted Answer

To calculate cash payments for operating expenses using the direct method, adjust operating expenses for changes in prepaid and accrued expenses. Increase in prepaid expenses ($17,000) means cash paid but not yet expensed, and decrease in accrued expenses ($30,000) means expenses recognized but not yet paid. Thus, cash payments = $400,000 + $17,000 - $30,000 = $447,000.

Quiz 16: Statement of Cash Flows