Question 1

When preparing the operating activities section of the statement of cash flows, both FASB and IASB prefer the direct method over the indirect method.

Accepted Answer

A) True 
 B)False

Question 2

The statement of cash flows summarizes a firm's cash inflows and outflows at a point in time.

Accepted Answer

A) True 
 B)False

Question 3

Cash paid to employees is calculated as salary and wage expense minus increases in salaries and wages payable.

Accepted Answer

A) True 
 B)False

Question 4

Cash flows from investing activities on the statement of cash flows include receipts of cash from the collection of notes receivable and from the sale of fixed assets.

Accepted Answer

A) True 
 B)False

Question 5

In its first year of operations, Badonna Corp. reported Income Tax Expense of $52,000 and Income Tax Payable of $10,000. At the end of the year, Badonna reported a noncurrent Deferred Tax Liability of $5,000. What is the amount of cash paid for income taxes during the year?

Accepted Answer

A)  $37,000 
B)  $47,000 
C)  $17,000 
D)  $7,000 
A)  $37,000 
B)  $47,000 
C)  $17,000 
D)  $7,000

Question 6

The direct method of formatting the statement of cash flow is also referred to as the reconciliation format.

Accepted Answer

A) True 
 B)False

Question 7

Significant noncash transactions involving investing and financing activities are not required to be disclosed in the body of the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 8

Both U.S. GAAP and IFRS require a reconciliation of net income to net cash provided by operations, when using the direct method for the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 9

Under U.S. GAAP, bank overdrafts are typically considered to be liabilities.

Accepted Answer

A) True 
 B)False

Question 10

When preparing the statement of cash flows using the indirect method, which of the following is subtracted from net income to determine cash flows from operations?

Accepted Answer

A)  losses from equity method investments 
B)  increases in deferred-tax assets 
C)  bond discount amortization 
D)  unrealized gains from available-for-sale securities 
A)  losses from equity method investments 
B)  increases in deferred-tax assets 
C)  bond discount amortization 
D)  unrealized gains from available-for-sale securities

Question 11

In 2019, BayKing Company sold used equipment for $17,000. The equipment had an original cost of $80,000 and accumulated depreciation as of the date of sale was $60,000. BayKing also purchased held-to-maturity securities for $7,000. Net income for the year was $78,000. There were no other transactions conducted during the period. What are the 2019 net operating cash flows for BayKing under the indirect method?

Accepted Answer

A)  $75,000 
B)  $78,000 
C)  $81,000 
D)  $95,000 
A)  $75,000 
B)  $78,000 
C)  $81,000 
D)  $95,000

Question 12

Under the direct method, items included in the operating activities section of the statement of cash flows include cash collected from customers and cash collected from the sale of operating plant assets.

Accepted Answer

A) True 
 B)False

Question 13

Firms report cash flows from investing activities using the ________.

Accepted Answer

A)  gross method 
B)  net method 
C)  indirect method 
D)  direct method 
A)  gross method 
B)  net method 
C)  indirect method 
D)  direct method

Question 14

When preparing the financing activities section of the cash flow statement, dividends paid and dividends received are reported as separate line items in the financing section.

Accepted Answer

A) True 
 B)False

Question 15

Unrealized gains and losses associated with available-for-sale investments reported through other comprehensive income do not have any cash flow effects.

Accepted Answer

A) True 
 B)False

Question 16

Under IFRS, the operating activities section may begin with something other than net income when using the indirect method.

Accepted Answer

A) True 
 B)False

Question 17

List each of the four disclosure items for the statement of cash flows required by both U.S. GAAP and IFRS.

Accepted Answer

Both U.S. GAAP and IFRS require that an

Question 18

A decrease in a deferred tax asset is added to the accrual-basis tax expense to arrive at cash paid for income taxes.

Accepted Answer

A) True 
 B)False

Question 19

What is the proper treatment of pension expense when computing net cash from operating activities using the indirect method?

Accepted Answer

A)  net income is increased by the excess of the expense over the cash used to fund the plan 
B)  net income is increased by the sum of the expense plus the cash used to fund the plan 
C)  net income is increased by pension expense 
D)  net income is decreased by the cash used to fund the plan 
A)  net income is increased by the excess of the expense over the cash used to fund the plan 
B)  net income is increased by the sum of the expense plus the cash used to fund the plan 
C)  net income is increased by pension expense 
D)  net income is decreased by the cash used to fund the plan

Question 20

An increase in accounts receivable generally results in an increase in cash.

Accepted Answer

A) True 
 B)False

Exam 22: The Statement of Cash Flows

When preparing the operating activities section of the statement of cash flows, both FASB and IASB prefer the direct method over the indirect method.

The statement of cash flows summarizes a firm's cash inflows and outflows at a point in time.

Cash paid to employees is calculated as salary and wage expense minus increases in salaries and wages payable.

Cash flows from investing activities on the statement of cash flows include receipts of cash from the collection of notes receivable and from the sale of fixed assets.

In its first year of operations, Badonna Corp. reported Income Tax Expense of $52,000 and Income Tax Payable of $10,000. At the end of the year, Badonna reported a noncurrent Deferred Tax Liability of $5,000. What is the amount of cash paid for income taxes during the year?

The direct method of formatting the statement of cash flow is also referred to as the reconciliation format.

Significant noncash transactions involving investing and financing activities are not required to be disclosed in the body of the statement of cash flows.

Both U.S. GAAP and IFRS require a reconciliation of net income to net cash provided by operations, when using the direct method for the statement of cash flows.

Under U.S. GAAP, bank overdrafts are typically considered to be liabilities.

When preparing the statement of cash flows using the indirect method, which of the following is subtracted from net income to determine cash flows from operations?

Under the direct method, items included in the operating activities section of the statement of cash flows include cash collected from customers and cash collected from the sale of operating plant assets.

Firms report cash flows from investing activities using the ________.

When preparing the financing activities section of the cash flow statement, dividends paid and dividends received are reported as separate line items in the financing section.

Unrealized gains and losses associated with available-for-sale investments reported through other comprehensive income do not have any cash flow effects.

Under IFRS, the operating activities section may begin with something other than net income when using the indirect method.

List each of the four disclosure items for the statement of cash flows required by both U.S. GAAP and IFRS.

A decrease in a deferred tax asset is added to the accrual-basis tax expense to arrive at cash paid for income taxes.

What is the proper treatment of pension expense when computing net cash from operating activities using the indirect method?

An increase in accounts receivable generally results in an increase in cash.

The Financial Reporting Environment

Financial Reporting Theory

Judgment and Applied Financial Accounting Research

Review of the Accounting Cycle

Statements of Net Income and Comprehensive Net Income

Statements of Financial Position and Cash Flows and the Annual Report

Accounting and the Time Value of Money

Revenue Recognition

Extenssion: Ol Revenue Recognition Previous Standard

Short-Term Operating Assets: Cash and Receivables

Short-Term Operating Assets: Inventory

Long-Term Operating Assets: Acquisition, Cost Allocation

Long-Term Operating Assets: Departures From Historical Cost

Operating Liabilities and Contingencies

Financing Liabilities

Accounting for Stockholders Equity

Investing Assets

Accounting for Income Taxes

Accounting for Leases

Extension: Ol Accounting for Leases Current Standard

Accounting for Employee Compensation and Benefits

Earnings Per Share

Accounting Corrections and Error Analysis

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