Question 1

Of the following, which has a positive effect on the computation of cash flow from investing using the indirect method?
A) Decrease in Inventory
B) Increase in Accounts Payable
C) Purchase of Equipment
D) Sale of Equipment

Accepted Answer

The indirect method for computing cash flow from investing activities involves adjustments for transactions that affect the company's investments in long-term assets. The sale of equipment is considered a positive cash flow event because it represents an inflow of cash from disposing of a long-term asset, which increases the cash flow from investing activities.

Question 2

Orion Corporation reported net income of $31,000, depreciation expenses of $18,000, an increase in Accounts Payable of $3,000 and a decrease in Accounts Receivable of $2,500. Under the indirect method, net cash flow from operating activities is:
A) $38,300
B) $54,500
C) $23,700
D) $35,300

Accepted Answer

Net cash flow from operating activities is calculated by adjusting net income for non-cash expenses and changes in working capital. Start with net income of $31,000, add back depreciation of $18,000 (a non-cash expense), add the increase in Accounts Payable of $3,000 (a source of cash), and add the decrease in Accounts Receivable of $2,500 (also a source of cash). This results in a total of $54,500.

Question 3

The Accounts Receivable balance has decreased during the year. How would this event affect the statement of cash flows operations section-indirect method?
A) It is already included in the net income.
B) It would affect the operations section positively.
C) It would affect the operations section negatively.
D) Does not affect the cash flow from operations.

Accepted Answer

A decrease in Accounts Receivable indicates that cash has been collected on outstanding receivables, thus increasing the cash flow from operations. This is because, under the indirect method, decreases in current assets (other than cash) are added back to net income in the operating activities section of the cash flow statement.

Question 4

Collins Corporation reported net income of $45,000; depreciation expenses of $20,000; a decrease in Accounts Payable of $2,000; and an increase in Accounts Receivable of $4,000. Net cash flow from operating activities using the indirect method is:
A) $65,000.
B) $25,000.
C) $59,000.
D) $71,000.

Accepted Answer

Net cash flow from operating activities using the indirect method starts with net income and adjusts for non-cash expenses and changes in working capital. Here, start with net income ($45,000), add back depreciation expenses ($20,000), subtract the decrease in Accounts Payable ($2,000), and subtract the increase in Accounts Receivable ($4,000). The calculation is $45,000 + $20,000 - $2,000 - $4,000 = $59,000.

Question 5

The records of Aaron Paint Co. showed the issuance of a long-term note in the amount of $15,900; issuance of Common Stock in the amount of $50,900; and payment of dividends in the amount of $21,100. The amount of Net Cash Flow from Financing Activities using the indirect method is:
A) $87,900.
B) $45,700.
C) $13,900.
D) $56,100.

Accepted Answer

Net Cash Flow from Financing Activities is calculated by adding the cash flows from financing activities. Here, issuance of a long-term note ($15,900) and issuance of Common Stock ($50,900) are inflows, while payment of dividends ($21,100) is an outflow. Thus, the net cash flow is $15,900 + $50,900 - $21,100 = $45,700.

Question 6

The net income reported on the income statement for the current year was $70,000. Depreciation Expense recorded on fixed assets was $18,000. What is the net cash flow from operations that would appear on a cash flow statement using the indirect method?
A) $70,000
B) $88,000
C) $18,000
D) $52,000

Accepted Answer

The net cash flow from operations, using the indirect method, starts with the net income and then adjustments are made for non-cash expenses and changes in working capital. Since depreciation expense is a non-cash expense, it is added back to the net income. Therefore, $70,000 (net income) + $18,000 (depreciation expense) = $88,000.

Question 7

The records of Amy's Flowers showed Net Loss, $20,000; Depreciation Expense, $31,000; and decrease in Supplies on Hand, $8,000. The amount of Net Cash Flow from Operating Activities using the indirect method is:
A) ($19,000).
B) $3,000.
C) $19,000.
D) -$3,000.

Accepted Answer

The net cash flow from operating activities using the indirect method starts with the net loss of $20,000, adds back the non-cash expense of depreciation ($31,000), and adjusts for the decrease in supplies on hand ($8,000), which is an operating asset. The calculation is: -$20,000 + $31,000 - $8,000 = $3,000. The negative sign in front of the $8,000 is incorrect in the explanation; it should be added because a decrease in current assets is added back in the indirect method. Correcting this: -$20,000 + $31,000 + $8,000 = $19,000.

Question 8

The records of Lily's Landing showed a purchase of equipment in the amount of $17,100; sale of equipment in the amount of $41,200; a purchase of land in the amount of $10,400, and a loan to a borrower in the amount of $4,100. The amount of Net Cash Flow from Investing Activities using the indirect method is:
A) $9,600.
B) ($9,600).
C) $52,000.
D) $72,800.

Accepted Answer

Net Cash Flow from Investing Activities = Purchase of equipment + Sale of equipment + Purchase of land + Loan to a borrower= -$17,100 + $41,200 + -$10,400 + -$4,100= $9,600

Question 9

Sears Inc.'s Net Income was $56,000. Other accounts that changed included: Accounts Receivable decreased by $25,000; Merchandise Inventory increased by $15,000; Accounts Payable increased by $4,400; and Salaries Payable increased by $6,200. The amount of Net Cash Flow from Operating Activities using the indirect method is:
A) $76,600.
B) $81,000.
C) $50,600.
D) $26,600.

Accepted Answer

The net cash flow from operating activities using the indirect method starts with the net income ($56,000) and adjusts for changes in working capital. Decreases in accounts receivable ($25,000) add to cash, while increases in inventory ($15,000) reduce cash. Increases in accounts payable ($4,400) and salaries payable ($6,200) add to cash. Therefore, the calculation is $56,000 + $25,000 - $15,000 + $4,400 + $6,200 = $76,600.

Question 10

Blair Corporation's Accounts Receivable decreased by $15,000 during the year. What is the adjustment to the cash flow statement when it is prepared by the indirect method?
A) Subtract the increase from the net income in the operating activities section.
B) Add the increase to the net income in the operating activities section.
C) Add the decrease in the investing activities section.
D) Subtract the increase in the financing activities section.

Accepted Answer

A decrease in accounts receivable is added back to net income in the operating activities section of the cash flow statement when using the indirect method. This is because the decrease in accounts receivable indicates that cash has been collected, which increases cash flow.

Question 11

Which of the following adjustments would be in error when computing cash from financing using the indirect method?
A) Increase cash when issuing Common Stock
B) Decrease cash when purchasing Treasury Stock
C) Decrease cash when issuing Common Stock
D) None of the above

Accepted Answer

The correct adjustments when computing cash from financing activities using the indirect method include increasing cash when issuing common stock (since it brings in cash) and decreasing cash when purchasing treasury stock (since it uses cash). Therefore, decreasing cash when issuing common stock would be an error, making option C the incorrect adjustment.

Question 12

When comparing net cash provided by operating activities using the indirect versus direct methods:
A) net cash is higher using the indirect method.
B) net cash is lower using indirect method.
C) there is no difference between the two methods.
D) depreciation expense is used in the direct method.

Accepted Answer

The net cash provided by operating activities will be the same whether the indirect or direct method is used. The difference between the two methods lies in the presentation and the process of calculation, not in the final amount of net cash provided by operating activities.

Question 13

Which of the following adjustments would be in error when computing cash from investing using the indirect method?
A) Increase cash when purchasing equipment
B) Increase cash when selling equipment
C) Decrease cash when purchasing land
D) None of the above

Accepted Answer

When using the indirect method to compute cash from investing activities, purchasing equipment would result in a decrease in cash, not an increase. This is because cash is used to buy the equipment, representing an outflow of cash.

Question 14

Which of the following items would be subtracted from Net Income to compute Net Cash Flow from Operating Activities under the indirect method?
A) A decrease in Prepaid Insurance
B) A decrease in Merchandise Inventory
C) An increase in Salaries Payable
D) A decrease in Accounts Payable

Accepted Answer

Under the indirect method for computing Net Cash Flow from Operating Activities, increases in current liabilities are added to net income, and decreases in current liabilities are subtracted. A decrease in Accounts Payable means the company has paid off some of its liabilities, which is a use of cash, hence it is subtracted from Net Income.

Question 15

The records of Ashley Boutique showed Net Loss, $30,000 Depreciation Expense, $21,000 and decrease in Supplies on Hand, $25,000. The amount of Net Cash Flow from Operating Activities using the indirect method is:
A) $34,000.
B) $16,000.
C) -$16,000.
D) -$34,000.

Accepted Answer

The answer of The records of Ashley Boutique showed Net...

Question 16

Big Toy Corporation's records show net income of $30,000; depreciation expense of $12,000; and cash dividends declared and paid of $1,000. The amount of cash provided by operating activities using the indirect method is:
A) $43,000.
B) $42,000.
C) $30,000.
D) $18,000.

Accepted Answer

The answer of Big Toy Corporation's records show net income...

Question 17

The records of Billie's Surfboards showed a purchase of equipment in the amount of $24,800; sale of equipment in the amount of $14,900; and a purchase of land in the amount of $30,500. The amount of Net Cash Flow from Investing Activities using the indirect method is:
A) $70,200.
B) $9,200.
C) $40,400.
D) ($40,400).

Accepted Answer

Net Cash Flow from Investing Activities is calculated by adding up all cash inflows and outflows from investing activities. Here, the purchase of equipment ($24,800) and the purchase of land ($30,500) are cash outflows, while the sale of equipment ($14,900) is a cash inflow. Therefore, the net cash flow is -$24,800 (purchase of equipment) - $30,500 (purchase of land) + $14,900 (sale of equipment) = -$40,400. The negative sign indicates an outflow of cash, hence the correct answer is D) ($40,400).

Question 18

Of the following, which has a positive effect on the computation of cash flow from operations using the indirect method?
A) Decrease in Inventory
B) Increase in Accounts Payable
C) Increase in Accounts Receivable
D) Increase in Prepaid Insurance

Accepted Answer

The answer of Of the following, which has a positive...

Question 19

Of the following, which has a positive effect on the computation of cash flow from operations using the indirect method?
A) Decrease in Accounts Payable
B) Increase in Inventory
C) Decrease in Notes Payable
D) Depreciation Expense

Accepted Answer

Depreciation expense is added back to net income in the computation of cash flow from operations using the indirect method because it is a non-cash expense that reduces net income but does not affect cash flow.

Question 20

Which of the following adjustments would be in error if made to net income when computing cash from operations using the indirect method?
A) Add an increase in Accounts Payable
B) Add Depreciation Expense
C) Add an increase in Accounts Receivable
D) None of the above

Accepted Answer

When using the indirect method to compute cash from operations, an increase in Accounts Receivable is subtracted from net income, not added. This is because an increase in Accounts Receivable represents sales that have not yet been collected in cash, thus not affecting the cash flow.

Quiz 21: Statement of Cash Flows

Of the following, which has a positive effect on the computation of cash flow from investing using the indirect method?

Orion Corporation reported net income of $31,000, depreciation expenses of $18,000, an increase in Accounts Payable of $3,000 and a decrease in Accounts Receivable of $2,500. Under the indirect method, net cash flow from operating activities is:

The Accounts Receivable balance has decreased during the year. How would this event affect the statement of cash flows operations section-indirect method?

Collins Corporation reported net income of $45,000; depreciation expenses of $20,000; a decrease in Accounts Payable of $2,000; and an increase in Accounts Receivable of $4,000. Net cash flow from operating activities using the indirect method is:

The records of Aaron Paint Co. showed the issuance of a long-term note in the amount of $15,900; issuance of Common Stock in the amount of $50,900; and payment of dividends in the amount of $21,100. The amount of Net Cash Flow from Financing Activities using the indirect method is:

The net income reported on the income statement for the current year was $70,000. Depreciation Expense recorded on fixed assets was $18,000. What is the net cash flow from operations that would appear on a cash flow statement using the indirect method?

The records of Amy's Flowers showed Net Loss, $20,000; Depreciation Expense, $31,000; and decrease in Supplies on Hand, $8,000. The amount of Net Cash Flow from Operating Activities using the indirect method is:

Blair Corporation's Accounts Receivable decreased by $15,000 during the year. What is the adjustment to the cash flow statement when it is prepared by the indirect method?

Which of the following adjustments would be in error when computing cash from financing using the indirect method?

When comparing net cash provided by operating activities using the indirect versus direct methods:

Which of the following adjustments would be in error when computing cash from investing using the indirect method?

Which of the following items would be subtracted from Net Income to compute Net Cash Flow from Operating Activities under the indirect method?

The records of Ashley Boutique showed Net Loss, $30,000 Depreciation Expense, $21,000 and decrease in Supplies on Hand, $25,000. The amount of Net Cash Flow from Operating Activities using the indirect method is:

Big Toy Corporation's records show net income of $30,000; depreciation expense of $12,000; and cash dividends declared and paid of $1,000. The amount of cash provided by operating activities using the indirect method is:

The records of Billie's Surfboards showed a purchase of equipment in the amount of $24,800; sale of equipment in the amount of $14,900; and a purchase of land in the amount of $30,500. The amount of Net Cash Flow from Investing Activities using the indirect method is:

Of the following, which has a positive effect on the computation of cash flow from operations using the indirect method?

Of the following, which has a positive effect on the computation of cash flow from operations using the indirect method?

Which of the following adjustments would be in error if made to net income when computing cash from operations using the indirect method?