Question 1

Explain how the cash flows from operating activities section of the statement of cash flows is prepared using the direct method.

Accepted Answer

The direct method for reporting cash flo

Question 2

To be classified as a cash equivalent, the only criterion an item must meet is that it must be readily convertible to a known amount of cash.

Accepted Answer

A) True 
 B)False

Question 3

The reporting of net cash provided or used by operating activities that lists the major items of operating cash receipts, such as receipts from customers, and subtracts the major items of operating cash disbursements, such as cash paid for merchandise, is referred to as the:

Accepted Answer

A)  Direct method of reporting net cash provided or used by operating activities. 
B)  Indirect method of reporting net cash provided or used by operating activities. 
C)  Classified statement of cash flows. 
D)  Cash basis of accounting. 
E)  Net method of reporting cash flows from operating activities. 
A)  Direct method of reporting net cash provided or used by operating activities. 
B)  Indirect method of reporting net cash provided or used by operating activities. 
C)  Classified statement of cash flows. 
D)  Cash basis of accounting. 
E)  Net method of reporting cash flows from operating activities.

Question 4

Cash flows from selling trading securities are usually reported in the statement of cash flows as part of:

Accepted Answer

A)  Financing activities. 
B)  This is not reported in the statement of cash flows. 
C)  Investing activities. 
D)  Noncash activities. 
E)  Operating activities. 
A)  Financing activities. 
B)  This is not reported in the statement of cash flows. 
C)  Investing activities. 
D)  Noncash activities. 
E)  Operating activities.

Question 5

Define the cash flow on total assets ratio and explain how it is used to evaluate cash flows and to assess company performance.

Accepted Answer

The cash flow on total assets ratio is d

Question 6

The direct method separately lists each major item of operating cash receipts and cash payments.

Accepted Answer

A) True 
 B)False

Question 7

Northington, Inc. is preparing the company's statement of cash flows for the fiscal year just ended. Using the following information, determine the amount of cash flows from investing activities: $\begin{array} { | l | r | } 
\hline \text { Net income } & \$ 182,000 \
\hline \text { Gain on the sale of equipment } & 12,300 \
\hline \text { Proceeds from the sale of equipment } & 92,300 \
\hline \text { Depreciation expense - equipment } & 50,000 \
\hline \text { Payment of bonds at maturity } & 100,000 \
\hline \text { Purchase of land } & 200,000 \
\hline \text { Issuance of common stock } & 300,000 \
\hline \text { Increase in merchandise inventory } & 35,400 \
\hline \text { Decrease in accounts receivable } & 28,800 \
\hline \text { Increase in accounts payable } & 23,700 \
\hline \text { Payment of cash dividends } & 32,000 \
\hline
\end{array}$    Payment of cash dividends 32,000

Accepted Answer

A)  ($200,000). 
B)  ($139,700). 
C)  ($107,700). 
D)  $107,700. 
E)  ($207,700). 
A)  ($200,000). 
B)  ($139,700). 
C)  ($107,700). 
D)  $107,700. 
E)  ($207,700).

Question 8

The purchase of stock in another company is classified as an investing activity.

Accepted Answer

A) True 
 B)False

Question 9

When preparing the operating activities section of the statement of cash flows using the direct method, non-operating losses are added to net income.

Accepted Answer

A) True 
 B)False

Question 10

When preparing the operating activities section of the statement of cash flows using the indirect method, expenses with no cash outflows are added back to net income.

Accepted Answer

A) True 
 B)False

Question 11

Managers only use the cash flow statement to evaluate the net cash increase or decrease, and do not pay much attention to the details of cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities.

Accepted Answer

A) True 
 B)False

Question 12

The appropriate section in the statement of cash flows for reporting the issuance of common stock for cash is:

Accepted Answer

A)  Schedule of noncash investing or financing activity. 
B)  Operating activities. 
C)  This is not reported on the statement of cash flows. 
D)  Financing activities. 
E)  Investing activities. 
A)  Schedule of noncash investing or financing activity. 
B)  Operating activities. 
C)  This is not reported on the statement of cash flows. 
D)  Financing activities. 
E)  Investing activities.

Question 13

Scranton, Inc. reports net income of $230,000 for the year ended December 31. It also reports $87,700 depreciation expense and a $5,000 gain on the sale of equipment. Its comparative balance sheet reveals a $35,500 decrease in accounts receivable, a $15,750 increase in accounts payable, and a $12,500 decrease in wages payable. Calculate the cash provided (used) in operating activities using the indirect method.

Accepted Answer

A)  $356,450. 
B)  $376,450. 
C)  $263,750. 
D)  $319,950. 
E)  $351,450. 
A)  $356,450. 
B)  $376,450. 
C)  $263,750. 
D)  $319,950. 
E)  $351,450.

Question 14

Financing activities include receiving cash dividends from investments in other companies' stocks.

Accepted Answer

A) True 
 B)False

Question 15

A company's transactions with its creditors to borrow money and/or to repay the principal amounts of both short- and long-term debt are reported as cash flows from:

Accepted Answer

A)  Investing activities. 
B)  Direct activities. 
C)  Operating activities. 
D)  Indirect activities. 
E)  Financing activities. 
A)  Investing activities. 
B)  Direct activities. 
C)  Operating activities. 
D)  Indirect activities. 
E)  Financing activities.

Question 16

When preparing the operating activities section of the statement of cash flows using the indirect method, non-operating losses are added to net income.

Accepted Answer

A) True 
 B)False

Question 17

When preparing the operating activities section of the statement of cash flows using the indirect method, a decrease in accounts receivable is subtracted from net income.

Accepted Answer

A) True 
 B)False

Exam 16: Reporting the Statement of Cash Flows

Explain how the cash flows from operating activities section of the statement of cash flows is prepared using the direct method.

To be classified as a cash equivalent, the only criterion an item must meet is that it must be readily convertible to a known amount of cash.

The reporting of net cash provided or used by operating activities that lists the major items of operating cash receipts, such as receipts from customers, and subtracts the major items of operating cash disbursements, such as cash paid for merchandise, is referred to as the:

Cash flows from selling trading securities are usually reported in the statement of cash flows as part of:

Define the cash flow on total assets ratio and explain how it is used to evaluate cash flows and to assess company performance.

The direct method separately lists each major item of operating cash receipts and cash payments.

The purchase of stock in another company is classified as an investing activity.

When preparing the operating activities section of the statement of cash flows using the direct method, non-operating losses are added to net income.

When preparing the operating activities section of the statement of cash flows using the indirect method, expenses with no cash outflows are added back to net income.

Managers only use the cash flow statement to evaluate the net cash increase or decrease, and do not pay much attention to the details of cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities.

The appropriate section in the statement of cash flows for reporting the issuance of common stock for cash is:

Financing activities include receiving cash dividends from investments in other companies' stocks.

A company's transactions with its creditors to borrow money and/or to repay the principal amounts of both short- and long-term debt are reported as cash flows from:

When preparing the operating activities section of the statement of cash flows using the indirect method, non-operating losses are added to net income.

When preparing the operating activities section of the statement of cash flows using the indirect method, a decrease in accounts receivable is subtracted from net income.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets Natural Resoures and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Capital Budgeting and Managerial Decisions

Present and Future Values in Accounting

Activity-Based Costing

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