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Exam 14: Statement of Cash Flows

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Question 31

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The gain resulting from the sale of equipment shown when using the indirect method to prepare the statement of cash flows is reported in the:

A) operating section as a deduction.
B) investing section as a deduction.
C) operating section as an addition.
D) investing section as an addition.

E) B) and D)
F) All of the above

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Question 32

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All of the following are deducted from net income when preparing the statement of cash flows under the indirect method except:

A) an increase in accounts payable.
B) a decrease in accrued liabilities.
C) an increase in accounts receivable.
D) an increase in inventory.

E) A) and B)
F) B) and C)

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Question 33

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The difference between the direct and the indirect methods applies only to cash from what type of activity?

Pierce Corporation reported a $3,600 balance in accounts receivable on January 1,Year 2.During the year,sales on account in the amount of $24,800 were made.If the ending balance of accounts receivable is $3,700,what is the amount of cash received from customers?

Under the indirect method,losses are added and gains are subtracted when computing net cash flow from operating activities.

Use the reconciliation approach to determine cash received from customers for the Boyd Company for the year.Beginning and ending balances of accounts receivable were $6,500 and 5,900,respectively.Sales (all on account)amounted to $127,000.

When using the indirect method,the amount of net cash flow from operating activities will be higher than it would be if the direct method were used.

Bates Company pays cash for all inventory purchases.Bates reports that it had a beginning inventory of $2,500 and an ending inventory of $900.Its cost of goods sold equaled $5,500.Based on this information,the amount of cash paid for inventory purchases was:

The indirect method of preparing the statement of cash flows is recommended by the Financial Accounting Standards Board.

Which of the following would not be reported as an investing activity on the statement of cash flows?

In preparing the statement of cash flows by the indirect method,which of the following is an incorrect statement of one of the general rules to convert net income to a cash-basis equivalent?

Shaw Associates uses the indirect method for preparing the statement of cash flows.The following accounts and balances were drawn from the company's accounting records: $\begin{array} { l c c } \text { Account Title } & \text { Beginning } & \text { Ending } \\\text { Accounts receivable } & \$ 30,000 & \$ 40,000 \\\text { Prepaid insurance } & \$ 24,600 & \$ 1,000 \\\text { Accounts payable } & \$ 24,000 & \$ 25,800 \\\text { Unearned revenue } & \$ 6,400 & \$ 3,800\end{array}$ Net income for the period was $42,000.The net cash flows from operating activities equal:

Street Corporation reported net income of $400,000 and a net cash flow from operating activities of $550,000 during the year.Which of the following could not have been a reason why Street's net cash flows from operating activities were greater than its net income?

Diaz Company had the following comparative balance sheet information at the end of Year 2 and Year 1: $\begin{array}{c}\text {Diaz Company}\\\text { Comparative Balance Sheets}\\\begin{array}{lll}\\\text {Cash}\\\text {Accounts receivable}\\\text {Inventory}\\\text {Prepaid insurance}\\\text {Property, plant and equipment}\\\text {Accumulated depreciation}\\\text {Total}\\\text {Accounts payable}\\\text {Bonds payable}\\\text {Common stock}\\\text {Retained earnings}\\\text {Total}\end{array}\begin{array}{cc} \text { Year } 2 & \text { Year } 1 \\ \$ 30,000& \$ 28,000 \\ 48,000 & 50,000 \\ 158,000 & 156,000\\ 10,000& 8,000 \\ 70,000 & 60,000 \\ (14,000) & (10,000) \\\$ 302,000 & \$ 292,000 \\\$ 14,000 & \$ 18,000 \\ 90,000 & 120,000 \\140,000 & 120,000 \\58,000 & 34,000 \\\$302,000 &\$292,000 \\\end{array}\end{array}$ Diaz reported net income for Year 2 of $40,000.There were no sales or disposals of property,plant,and equipment during the year.Diaz uses the indirect method to prepare the statement of cash flows. Calculate Diaz's cash flow from financing activities for Year 2.

What can cause cash flow from operating activities to be greater than net income from operating activities?

In preparing the statement of cash flows by the indirect method,a decrease in a long-term investment account would be added to net income.

During the year,the Equipment account increased by $25,000 and the Accumulated Depreciation account increased by $2,000.In addition,the company sold equipment that originally cost $12,000 and had $9,000 of accumulated depreciation for $4,500. What was the cash outflow to purchase equipment?

What types of accounts are reconciled to determine cash flows from operating activities?

Under the indirect method,the increase or decrease in stockholders' equity is handled in the investing section of a cash flow statement.

Under the indirect method,losses would be added to net income when determining the net cash flow from operating activities.