Question 1

Amortization is added back to net income in a statement of cash flows prepared using the indirect method because it:

Accepted Answer

Amortization is a non-cash expense that reduces net income but does not affect cash flows. Therefore, it needs to be added back to net income in the operating activities section of the statement of cash flows prepared using the indirect method.

Question 2

The supplies account decreases and accounts payable increases during an accounting period.When the indirect method is used,what does the company do with the changes in these accounts to calculate net cash flows from operating activities?

Accepted Answer

A

Question 3

Cash flows from financing activities:

Accepted Answer

Cash flows from financing activities include all cash transactions between a company and its shareholders, such as issuing and buying back shares, paying dividends, and borrowing and repaying debt.

Question 4

Which of the following is not needed to prepare a statement of cash flows?

Accepted Answer

A statement of retained earnings is not necessary to prepare a statement of cash flows as it focuses on changes in equity rather than changes in cash. The other options, such as the comparative balance sheet, income statement, and additional information on financing and investing activities, are all necessary to prepare a statement of cash flows.

Question 5

Which of the following would be included in calculating net cash flows from financing activities?

Accepted Answer

Cash received from an issuance of bonds is a financing activity and would be included in calculating net cash flows from financing activities.

Question 6

Cinno Company reported net income of $20,000 for the year ended December 31,2007.During the year,inventories decreased by $7,000,accounts payable decreased by $8,000,amortization expense was $10,000,and accounts receivable increased by $6,500.Net cash provided by operations in 2007,computed using the indirect method,was:

Accepted Answer

The net cash provided by operations is calculated using the indirect method in the following way:

Net income: $20,000
Add: Amortization expense: $10,000
Increase in accounts receivable: $6,500
Decrease in inventories: $7,000
Decrease in accounts payable: $8,000
Net cash provided by operations: $36,500

Therefore, the correct answer is B) $22,500.

Question 7

A change in a company's cash account is equal to the:

Accepted Answer

A change in a company's cash account equals the changes in liabilities and shareholders' equity minus the change in noncash assets. This is because the accounting equation (Assets = Liabilities + Shareholders' Equity) must always balance, and an increase in cash (an asset) must be balanced by a corresponding increase in liabilities and/or equity, or a decrease in other assets.

Question 8

Which of the following is not provided by the statement of cash flows?

Accepted Answer

The statement of cash flows provides information on the company's cash inflows and outflows, including investments in long-term assets, reliance on external financing, and management of current assets and liabilities. However, it does not provide information on current profitability as measured by specific revenues and expenses, which is found on the income statement.

Question 9

When the indirect method is used,if accounts receivable increases during the accounting period,the change in accounts receivable is:

Accepted Answer

The answer of When the indirect method is used,if accounts...

Question 10

Which of the following adjusting journal entries would change the Net Cash Flows from Operating Activities line of the statement of cash flows?

Accepted Answer

The answer of Which of the following adjusting journal entries...

Question 11

What is the first step in identifying cash flows from operations when the indirect method is used?

Accepted Answer

The first step in identifying cash flows from operations using the indirect method is to identify the balance sheet accounts that relate to operating activities. This includes accounts such as accounts receivable, accounts payable, and inventory. Once these accounts are identified, adjustments can be made to reconcile changes in these accounts with net income to arrive at the cash flows from operating activities. Therefore, option D is the correct answer.

Question 12

If inventory decreases and unearned revenue increase during an accounting period while the indirect method is used,what does the company do with the changes in these accounts to calculate net cash flows from operating activities?

Accepted Answer

The answer of If inventory decreases and unearned revenue increase...

Question 13

Cash flows from investing activities include cash:

Accepted Answer

Cash flows from investing activities include the purchase and sale of long-term investments, property, plant, and equipment. Therefore, inflows from the sale of long-term investments are included in cash flows from investing activities. Choices A, B, and D are incorrect because they do not reflect investing activities.

Question 14

Which of the following would be included in calculating net cash flows from operating activities?

Accepted Answer

Net cash flows from operating activities involve cash inflows and outflows directly related to the day-to-day operations of the business, such as cash received from customers, payments made to suppliers, and operating expenses. Cash received from an issuance of bonds (B) would be included in net cash flows from financing activities, dividends paid to shareholders (C) would be included in net cash flows from financing activities or investing activities (if it involves the sale of an investment), and cash used for purchases of equipment (D) would be included in net cash flows from investing activities.

Question 15

Suppose a company generally records revenues and expenses before receiving or making cash payments.Which of the following statements is then true?

Accepted Answer

The company uses accrual accounting, which records revenues and expenses when they are earned or incurred, not necessarily when cash is exchanged. This can lead to discrepancies between net income and cash flows, making all statements true.

Question 16

If the calculation of net cash flows from operating activities starts with net income,the company:

Accepted Answer

This is because net income includes both cash and noncash items, and in order to determine the actual cash generated or used by operating activities, noncash items such as depreciation and amortization need to be removed from net income. This is done through the indirect method of calculating cash flows from operating activities.

Question 17

When the indirect method is used,if prepaid expenses decreases during the accounting period,the change in prepaid expenses is:

Accepted Answer

When using the indirect method for cash flow statement preparation, a decrease in prepaid expenses indicates that more cash was used than was initially recorded as an expense. Therefore, to adjust net income to the cash basis, the decrease in prepaid expenses is added to net income. This adjustment is necessary because the cash flow statement aims to reflect actual cash movements, and the decrease in prepaid expenses represents an outflow of cash not captured in the net income calculation.

Question 18

Which of the following would be included in calculating net cash flows from investing activities?

Accepted Answer

Net cash flows from investing activities include cash used for purchases of long-term assets like equipment. Cash proceeds from sales are part of operating activities, cash received from an issuance of bonds is part of financing activities, and dividends paid to shareholders are also part of financing activities.

Question 19

Cash and cash equivalents include:

Accepted Answer

Cash and cash equivalents are typically short-term and highly liquid assets that can be quickly converted into cash. They should have an original maturity of less than three months. Examples include bank balances, treasury bills, and money market funds. Assets that have stable long-term value (choice A) or consistently grow in value over the long run (choice C) are not considered cash equivalents.

Question 20

When the indirect method is used,details from which of the following balance sheet accounts are used in calculating both operating and financing cash flows?

Accepted Answer

The details from retained earnings are used in calculating both operating and financing cash flows under the indirect method as they are shown in the net income calculation. Bond payable, taxes payable and contributed capital are not directly related to the calculation of operating and financing cash flows.

Quiz 12: Statement Cash Flows