Question 1

In the direct method, each line of the Income Statement is converted from the accrual basis to cash basis.

Accepted Answer

A) True 
 B)False

Question 2

Operating Cash Flows under the indirect method starts with the net income for the period from the Income Statement.

Accepted Answer

A) True 
 B)False

Question 3

Cash receipts from the sale of long-term assets, such as equipment and vehicles, are:

Accepted Answer

A) added to operating activities. 
B) subtracted from operating activities. 
C) added to investing activities. 
D) subtracted from investing activities.

Question 4

When comparing net cash provided by operations using the direct method versus indirect method, we find that:

Accepted Answer

A) net cash is higher using the indirect method. 
B) net cash is lower using the indirect method. 
C) there is no difference in the net cash between the two methods. 
D) Depreciation Expense is used in the direct method.

Question 5

Free cash flow is the anticipated amount of cash available from operations after paying for planned financing of stock and paying dividends.

Accepted Answer

A) True 
 B)False

Question 6

An example of a cash outflow from investing activities is:

Accepted Answer

A) payment on bonds payable. 
B) making a loan to another company. 
C) paying cash dividends. 
D) the purchase of treasury stock.

Question 7

The formula for the cash conversion cycle is days sales-in-inventory + free cash flow - receivables collection period.

Accepted Answer

A) True 
 B)False

Question 8

In which section of the Statement of Cash Flows would you add or subtract a change in Accounts Payable, and why?

Accepted Answer

A) The financing section, in order to recognize amounts paid through third party financing. 
B) The operating section, in order to make things balance and provide up-to-date information for investors. 
C) The operating section, in order to recognize that not all expenses are cash expenses. 
D) The financing section, in order to correctly compute the amount that the company has re-invested through purchases.

Question 9

Operating expenses (other than depreciation)for the year were $230,000. Prepaid expenses increased by $13,000. Cash payments for operating expenses to be reported on the cash flow statement using the direct method would be:

Accepted Answer

A) $243,000. 
B) $13,000. 
C) $217,000. 
D) $230,000.

Question 10

Aspen Corp. sold an asset with a book value of $58,000 for $31,000 cash. Which of the following is a TRUE statement?

Accepted Answer

A) Loss on sale equals $31,000 and Cash inflow equals $31,000. 
B) Loss on sale equals $58,000 and Cash inflow equals $58,000. 
C) Loss on sale equals $27,000 and Cash inflow equals $31,000. 
D) Loss on sale equals $31,000 and Cash inflow equals $27,000.

Question 11

As you approach graduation, you are evaluating your job offers from the following companies. Assuming that all other factors are equal (pay, benefits, location, job duties, industry, company size, company age etc.), for which of the following companies would you chose to work and why?

Accepted Answer

A) Company A, the company is generating cash from its daily operations, investing in long-term assets and generating cash from its' owners or borrowing a relatively small amount. 
B) Company B, the company only generates cash from its daily operations and is not spending the cash for any other reason. 
C) Company C, the company only generates cash from the owners. 
D) All three companies offer the same opportunity for the future.

Question 12

Operating expenses (other than depreciation)for the year were $533,000. Accrued expenses decreased by $50,000. Cash payments for operating expenses to be reported on the cash flow statement using the direct method would be:

Accepted Answer

A) $50,000. 
B) $483,000. 
C) $533,000. 
D) $583,000.

Question 13

Goldman Company's Accounts Receivable decreased by $23,000 and its Accounts Payable increased by $12,000. What is the net effect on cash from operations under the indirect method?

Accepted Answer

A) +$35,000 
B) -$11,000 
C) -$35,000 
D) +$11,000

Question 14

Under the direct method, the only section that differs from the indirect method is the financing activities section.

Accepted Answer

A) True 
 B)False

Question 15

The cost of purchasing long-term assets, such as buildings and land, are:

Accepted Answer

A) added to operating activities. 
B) subtracted from operating activities. 
C) added to investing activities. 
D) subtracted from investing activities.

Question 16

The cash conversion cycle represents the number of days the cash is "tied up" in the operating activities of the business.

Accepted Answer

A) True 
 B)False

Question 17

Which format is favored by companies for the operating activities section of the Statement of Cash Flows, and why?

Accepted Answer

A) The indirect method is used more often because it allows the user to more easily visualize the connection between the financial statements. 
B) The indirect method is used more often because it allows for a restatement of each accrual based item to a cash basis. 
C) The direct method is used more often because it allows the user to more easily visualize the connection between the financial statements. 
D) The direct method is used more often because it allows for a restatement of each accrual based item to a cash basis.

Question 18

The cash flows from operations computed using the indirect method is different than that computed using the direct method.

Accepted Answer

A) True 
 B)False

Question 19

The purchase of treasury stock is shown as a cash outflow in the investing section of the cash flow statement.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is NOT a part of investing activities?

Accepted Answer

A) Buying a building 
B) Collecting on a loan receivable 
C) Borrowing money 
D) Selling off equipment

Exam 11: The Statement of Cash Flows

In the direct method, each line of the Income Statement is converted from the accrual basis to cash basis.

Operating Cash Flows under the indirect method starts with the net income for the period from the Income Statement.

Cash receipts from the sale of long-term assets, such as equipment and vehicles, are:

When comparing net cash provided by operations using the direct method versus indirect method, we find that:

Free cash flow is the anticipated amount of cash available from operations after paying for planned financing of stock and paying dividends.

An example of a cash outflow from investing activities is:

The formula for the cash conversion cycle is days sales-in-inventory + free cash flow - receivables collection period.

In which section of the Statement of Cash Flows would you add or subtract a change in Accounts Payable, and why?

Operating expenses (other than depreciation) for the year were $230,000. Prepaid expenses increased by $13,000. Cash payments for operating expenses to be reported on the cash flow statement using the direct method would be:

Aspen Corp. sold an asset with a book value of $58,000 for $31,000 cash. Which of the following is a TRUE statement?

As you approach graduation, you are evaluating your job offers from the following companies. Assuming that all other factors are equal (pay, benefits, location, job duties, industry, company size, company age etc.) , for which of the following companies would you chose to work and why?

Operating expenses (other than depreciation) for the year were $533,000. Accrued expenses decreased by $50,000. Cash payments for operating expenses to be reported on the cash flow statement using the direct method would be:

Goldman Company's Accounts Receivable decreased by $23,000 and its Accounts Payable increased by $12,000. What is the net effect on cash from operations under the indirect method?

Under the direct method, the only section that differs from the indirect method is the financing activities section.

The cost of purchasing long-term assets, such as buildings and land, are:

The cash conversion cycle represents the number of days the cash is "tied up" in the operating activities of the business.

Which format is favored by companies for the operating activities section of the Statement of Cash Flows, and why?

The cash flows from operations computed using the indirect method is different than that computed using the direct method.

The purchase of treasury stock is shown as a cash outflow in the investing section of the cash flow statement.

Which of the following is NOT a part of investing activities?