Question 1

The indirect method for the preparation of the operating activities section of the statement of cash flows:
A)Separately lists each major item of operating cash receipts.
B)Separately lists each major item of operating cash payments.
C)Reports net income and then adjusts it for items necessary to determine net cash provided or used by operating activities.
D)Is required if the company is a merchandiser.
E)Must not be used in all circumstances.

Accepted Answer

The indirect method lists net income and then adjusts it for items necessary to determine net cash provided or used by operating activities. This is the most commonly used method for preparing the operating activities section of the statement of cash flows.

Question 2

When using the indirect method to calculate and report the net cash provided or used by operating activities,net income is adjusted for all but which of the following?
A)Gains and losses from nonoperating items.
B)Revenues and expenses that did not provide or use cash.
C)Changes in noncurrent assets and noncurrent liabilities.
D)Changes in current liabilities related to operating activities.
E)Depreciation and amortization expense.

Accepted Answer

Changes in noncurrent assets and noncurrent liabilities are not adjusted in the operating activities section; they are typically considered in the investing and financing activities sections.

Question 3

A company's Inventory balance at 12/31/16 was $188,000 and $200,000 at 12/31/15.Its Accounts Payable balance at 12/31/16 was $84,000 and $80,000 at 12/31/15,and its cost of goods sold for 2016 was $720,000.The company's total amount of cash payments for merchandise in 2016 equals:
A)$704,000.
B)$712,000.
C)$720,000.
D)$728,000.
E)$736,000.

Accepted Answer

The correct answer is A because the total amount of cash payments for merchandise in 2016 is equal to the cost of goods sold for 2016 plus the increase in accounts payable from 12/31/15 to 12/31/16, minus the increase in inventory from 12/31/15 to 12/31/16.

Question 4

The direct method for the preparation of the operating activities section of the statement of cash flows:
A)Separately lists each major item of operating cash receipts and cash payments.
B)Reports adjustments to reconcile net income to net cash provided or used by operating activities in the statement.
C)Reports a different amount of cash flows from operations than if the indirect method is used.
D)Is required if the company is a merchandiser.
E)Is required by the FASB.

Accepted Answer

The direct method separately lists each major item of operating cash receipts and cash payments. It is one of the two methods used for preparing the operating activities section of the statement of cash flows, the other being the indirect method. The direct method does not report adjustments to reconcile net income to net cash provided or used by operating activities in the statement. While the indirect method is required by the FASB, the direct method is not required but is an acceptable alternative.

Question 5

The cash flow on total assets ratio:
A)Is the same as return on assets.
B)Is the same as profit margin.
C)Can be an indicator of earnings quality.
D)Is highly affected by accounting principles of income recognition and measurement.
E)Is average net assets divided by cash flows from operations.

Accepted Answer

The cash flow on total assets ratio measures the ability of a company to generate cash flows from its total assets. It is different from return on assets and profit margin as it focuses on cash flows rather than accounting profits. It can be an indicator of the quality of a company's earnings as it considers the cash generated from operations rather than just accounting profits which can be manipulated by accounting practices. The ratio can also be affected by accounting principles of income recognition and measurement, but this is not its primary focus. Option E is incorrect as it is not the correct formula for the cash flow on total assets ratio.

Question 6

The statement of cash flows cannot help address questions such as:
A)How is the increase in investments financed?
B)What is the source of cash for new plant assets?
C)How much cash is generated from or used in operations?
D)How much of the company's revenues have been retained as profit?
E)Why is cash flow from operations different from income?

Accepted Answer

The statement of cash flows provides information about cash inflows and outflows, but does not provide information about the retention of profits. This information can be found in the income statement or statement of retained earnings.

Question 7

When using the indirect method to calculate and report net cash provided or used by operating activities,which of the following is subtracted from net income?
A)Decrease in income taxes payable.
B)Depreciation expense.
C)Amortization of intangible assets.
D)Bad debts expense.
E)Decrease in merchandise inventory.

Accepted Answer

A decrease in income taxes payable indicates that cash was used to pay off some of the tax liability, which is subtracted from net income in the indirect method to calculate cash flows from operating activities.

Question 8

Of the following,which one affects cash during a period?
A)The payment of interest expense accrued in a previous accounting period.
B)Writing off an uncollectible account receivable.
C)The declaration of a cash dividend.
D)An adjusting entry recognizing the expiration of prepaid insurance.
E)The declaration of a stock dividend.

Accepted Answer

The payment of interest expense accrued in a previous accounting period affects cash because it involves an actual cash outflow to settle the liability.

Question 9

The direct method of reporting operating cash flows:
A)Is recommended but not required by the FASB.
B)Must be used by all companies.
C)Is used by most companies.
D)Is considered supplementary disclosure.
E)Is not recommended by the FASB,but is commonly used.

Accepted Answer

The direct method of reporting operating cash flows is recommended by the FASB, but it is not required. Most companies use the indirect method instead, which is also accepted by the FASB. However, the direct method provides more detailed information about the sources and uses of cash, and may be preferred by investors and analysts.

Question 10

The statement of cash flows helps analysts evaluate all but which of the following?
A)Ability of the company to generate profit.
B)Source of cash used for plant expansion.
C)Differences between net income and net operating cash flow.
D)Source of cash used to finance investing activities.
E)Source of cash used for debt repayments.

Accepted Answer

The statement of cash flows helps analysts evaluate the sources and uses of cash by the company, but it does not directly evaluate the ability of the company to generate profit.

Question 11

A company had net cash flows from operations of $341,000,net income of $286,000 and average total assets of $1,850,000.The cash flow on total assets ratio equals:
A)83.9%
B)542.5%
C)15.5%
D)18.4%
E)646.9%

Accepted Answer

Cash flow on total assets ratio = Net cash flows from operations / Average total assets= $341,000 / $1,850,000= 0.184 or 18.4%

Question 12

A company had net cash flows from operations of $120,000,cash flows from financing of $330,000,total cash flows of $500,000,and average total assets of $2,500,000.The cash flow on total assets ratio equals:
A)4.8%.
B)5.0%.
C)20.0%.
D)20.8%.
E)24.0%.

Accepted Answer

The cash flow on total assets ratio is calculated by dividing the total cash flows by the average total assets. In this case, it's $500,000 / $2,500,000 = 0.20 or 20%. However, the correct calculation for cash flow on total assets ratio should actually involve net cash flows from operations, not total cash flows. Therefore, it should be $120,000 / $2,500,000 = 0.048 or 4.8%.

Question 13

A company had average total assets of $1,660,000,total cash flows of $1,320,000,cash flows from operations of $205,000,and cash flows from financing of $750,000.The cash flow on total assets ratio equals:
A)45.2%.
B)22.0%.
C)11.65%.
D)12.3%.
E)79.5%.

Accepted Answer

The formula for the cash flow on total assets ratio is: 
Cash flows from operations / Average total assets

Plugging in the given values:
Cash flow on total assets = $205,000 / $1,660,000
Cash flow on total assets = 12.3%

Therefore, the answer is D) 12.3%.

Question 14

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

Accepted Answer

The direct method of reporting net cash provided or used by operating activities lists the major items of operating cash receipts and subtracts the major items of operating cash disbursements. This method provides a more detailed picture of cash flows from operating activities than the indirect method, which starts with net income and adjusts for non-cash items and changes in balance sheet accounts. The cash basis of accounting is not relevant to the reporting of cash flows, as it only records cash transactions. The classified statement of cash flows is a general term that refers to any statement of cash flows that organizes cash flows into operating, investing, and financing activities. The net method of reporting cash flows from operating activities is not a commonly used term in financial reporting.

Question 15

The first line item in the operating activities section of a spreadsheet for a statement of cash flows prepared using the indirect method is:
A)Cash.
B)Cash received from customers.
C)Increase (decrease)in accounts receivable.
D)Net income.
E)Adjustments to net income.

Accepted Answer

The first line item in the operating activities section of a statement of cash flows prepared using the indirect method is net income. This is because the indirect method starts with net income and then adjusts for non-cash transactions and changes in working capital accounts to arrive at the cash flow from operating activities.

Question 16

The cash flow on total assets ratio is calculated by:
A)Dividing cash flows from operations by average total assets.
B)Dividing total cash flows by average total assets.
C)Dividing average total assets by cash flows from investing activities.
D)Dividing average total assets by total cash flows.
E)Total cash flows divided by average total assets times 365.

Accepted Answer

The cash flow on total assets ratio is calculated by dividing cash flows from operations (which represents the amount of cash generated by the company's core business operations) by the average total assets (which represents the total investment made in the company's assets). This ratio measures the company's ability to generate cash from its assets and is an important indicator of its financial health.

Question 17

When preparing a statement of cash flows using the indirect method,each of the following should be classified as an operating cash flow except:
A)An increase in accounts receivable.
B)A decrease in accounts payable.
C)Proceeds from the disposal of a long-term asset with no gain or loss.
D)An increase in prepaid expenses.
E)A decrease in accrued expenses payable.

Accepted Answer

An increase in accounts receivable (A), an increase in prepaid expenses (D), and a decrease in accrued expenses payable (E) all affect operating cash flows as they are adjustments to net income to arrive at cash flows from operating activities. A decrease in accounts payable (B) also affects operating cash flows as it represents a reduction in the amount owed to suppliers, which would have been included in expenses. However, proceeds from the disposal of a long-term asset with no gain or loss (C) would be classified as a cash flow from investing activities, as it represents a sale of a capital asset.

Question 18

Use the following information to calculate cash paid for wages and salaries: 
A)$157,400.
B)$163,800.
C)$168,000.
D)$172,200.
E)$174,400.

Accepted Answer

The answer of Use the following information to calculate cash...

Question 19

Preparation of the statement of cash flows does not involve:
A)Computing the net increase or decrease in cash.
B)Computing and reporting net cash provided or used by operations.
C)Computing the profit compared to the net increase or decrease in cash.
D)Computing and reporting net cash provided or used by financing activities.
E)Computing and reporting net cash provided or used by investing activities.

Accepted Answer

The preparation of the statement of cash flows involves computing the net increase or decrease in cash, computing and reporting net cash provided or used by operations, computing and reporting net cash provided or used by financing activities, and computing and reporting net cash provided or used by investing activities. However, it does not involve computing the profit compared to the net increase or decrease in cash. The statement of cash flows focuses specifically on the movement of cash, rather than the profitability of the business.

Question 20

A statement of cash flows explains the differences between the beginning and ending balances of:
A)Net income.
B)Equity.
C)Cash and cash equivalents.
D)Working capital.
E)Cash,cash equivalents,and short-term investments.

Accepted Answer

Statement of cash flows highlights the changes in the cash and cash equivalents balance over a period of time, hence the correct option is C.

Quiz 16: Reporting the Statement of Cash Flows

The indirect method for the preparation of the operating activities section of the statement of cash flows:

When using the indirect method to calculate and report the net cash provided or used by operating activities,net income is adjusted for all but which of the following?

A company's Inventory balance at 12/31/16 was $188,000 and $200,000 at 12/31/15.Its Accounts Payable balance at 12/31/16 was $84,000 and $80,000 at 12/31/15,and its cost of goods sold for 2016 was $720,000.The company's total amount of cash payments for merchandise in 2016 equals:

The direct method for the preparation of the operating activities section of the statement of cash flows:

The cash flow on total assets ratio:

The statement of cash flows cannot help address questions such as:

When using the indirect method to calculate and report net cash provided or used by operating activities,which of the following is subtracted from net income?

Of the following,which one affects cash during a period?

The direct method of reporting operating cash flows:

The statement of cash flows helps analysts evaluate all but which of the following?

A company had net cash flows from operations of $341,000,net income of $286,000 and average total assets of $1,850,000.The cash flow on total assets ratio equals:

A company had net cash flows from operations of $120,000,cash flows from financing of $330,000,total cash flows of $500,000,and average total assets of $2,500,000.The cash flow on total assets ratio equals:

A company had average total assets of $1,660,000,total cash flows of $1,320,000,cash flows from operations of $205,000,and cash flows from financing of $750,000.The cash flow on total assets ratio equals:

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:

The first line item in the operating activities section of a spreadsheet for a statement of cash flows prepared using the indirect method is:

The cash flow on total assets ratio is calculated by:

When preparing a statement of cash flows using the indirect method,each of the following should be classified as an operating cash flow except:

Use the following information to calculate cash paid for wages and salaries:

Preparation of the statement of cash flows does not involve:

A statement of cash flows explains the differences between the beginning and ending balances of: