Question 1

Presented below is the operating activities section of the statement of cash flows for Golden Consulting for 2016:  Which method of preparing the operating activities section has Golden Consulting used?
A)The direct method.
B)The indirect method.
C)Either method.
D)Cannot be determined without further information.

Accepted Answer

The statement of cash flows includes adjustments to net income for non-cash items and changes in working capital accounts. The presentation of changes in working capital accounts is based on the indirect method.

Question 2

During 2015, the accounts receivable balance of Dickerson Corp.increased.Which of the following statements is true?
A)This indicates that Dickerson sold more than it collected in cash during the period.
B)This increase is added to net income in the operating activities section of a statement of cash flows prepared under the indirect method.
C)This increase is added to sales recognized on the income statement to determine the cash collections from customers during the period.
D)This increase is considered only when the operating activities section of a statement of cash flows is prepared under the indirect method.

Accepted Answer

When accounts receivable increases, it means that the company has made more sales on credit than it has collected in cash, indicating that sales exceeded cash collections.

Question 3

When using the direct method, how is the payment of a cash dividend shown on the statement of cash flows?
A)Operating activity
B)Investing activity
C)Financing activity
D)Noncash investing and financing activity

Accepted Answer

The payment of a cash dividend is a financing activity, as it involves using cash to pay out returns to shareholders. Therefore, it is shown in the financing section of the statement of cash flows when using the direct method.

Question 4

Presented below is the operating activities section of the statement of cash flows for Feline Friends Corp.for 2016:
Operating activities: 
Which method of preparing the operating activities section has Feline used?
A)The direct method
B)The indirect method
C)Either method
D)Cannot be determined without further information

Accepted Answer

The answer of Presented below is the operating activities section...

Question 5

Which of the following transactions is a significant noncash investing and financing activity?
A)Land is purchased for cash.
B)Bonds are issued for cash.
C)Cash equivalents are purchased.
D)Equipment is acquired by issuing a long-term note.

Accepted Answer

Acquiring equipment by issuing a long-term note is a significant noncash investing and financing activity because it involves a long-term liability that will impact the company's financial statements for years to come. The other choices involve cash transactions.

Question 6

When using the direct method, how is the issuance of stock for cash shown on the statement of cash flows?
A)Operating activity
B)Investing activity
C)Financing activity
D)Noncash investing and financing activity

Accepted Answer

Issuance of stock for cash is a financing activity as it involves raising funds from investors who become owners of the company.

Question 7

When using the direct method, how is the retirement of bonds payable at their maturity date shown on the statement of cash flows?
A)Operating activity
B)Investing activity
C)Financing activity
D)Noncash investing and financing activity

Accepted Answer

The retirement of bonds payable at their maturity date is considered a financing activity and is shown under the financing section of the statement of cash flows.

Question 8

Klein Corp.acquired land by issuing its common stock.How should this transaction be disclosed when a statement of cash flows is prepared?
A)In a supplemental schedule of noncash investing and financing activities or in a note.
B)The acquisition of land should be reported as an investing activity and the issuance of the stock as a financing activity.
C)Using the master T-account approach.
D)The transaction does not need to be disclosed.

Accepted Answer

This transaction involves an exchange of non-cash assets (land for stock), so it should be disclosed in a supplemental schedule of noncash investing and financing activities or in a note, as it does not involve cash flows directly.

Question 9

When using the direct method, how are salaries paid to employees reported on the statement of cash flows?
A)Operating activity
B)Investing activity
C)Financing activity
D)Noncash investing and financing activity

Accepted Answer

Salaries paid to employees are part of operating expenses, which would be reported under operating activities in the direct method of preparing the statement of cash flows.

Question 10

Which of the following statements is false?
A)The method of preparing the operating activities section of a statement of cash flows which adjusts net income to remove the effects of deferrals and accruals for revenues and expenses is the indirect method.
B)The method of preparing the operating activities section of a statement of cash flows which reports major classes of gross cash receipts and cash payments for revenues and expenses is the direct method.
C)The FASB prefers the direct method of preparing the operating activities section of the statement of cash flows.
D)Most companies use the direct method of preparing the operating activities section of the statement of cash flows.

Accepted Answer

While the FASB prefers the direct method of preparing the operating activities section, most companies still use the indirect method. Therefore, statement D is the false statement.

Question 11

When using the direct method, how is the collection of cash from customers shown on the statement of cash flows?
A)Operating activity
B)Investing activity
C)Financing activity
D)Noncash investing and financing activity

Accepted Answer

Collection of cash from customers is classified as an operating activity in the statement of cash flows when using the direct method.

Question 12

When using the direct method, how is depreciation expense recorded on the statement of cash flows?
A)Operating activity
B)Investing activity
C)Financing activity
D)Not reported on the statement of cash flows

Accepted Answer

Depreciation expense is a non-cash charge and does not affect cash flow, thus it is not reported on the statement of cash flows when using the direct method.

Question 13

The following items were reported on the balance sheets and income statement for the Flying Mullet Company:  How would the change in accounts receivable be reported in the operating activities section of the statement of cash flows under the indirect method?
A)As an addition to sales
B)As a deduction from sales
C)As an addition to net income
D)As a deduction from net income

Accepted Answer

The answer of The following items were reported on the...

Question 14

The following items were reported on the balance sheets and income statement for Carlton Co.:  What amount would be reported in the operating activities section of the statement of cash flows for collections from customers under the direct method assuming that all sales are on credit?
A)$850,000
B)$857,000
C)$843,000
D)Cannot be determined without further information.

Accepted Answer

To calculate the collections from customers under the direct method, we need the information on the changes in accounts receivable. As we do not have this information, we cannot calculate the exact amount. However, we know that the total sales for the year were $960,000 (from the income statement), and assuming that all sales were on credit, we can estimate the collections from customers by subtracting the increase in accounts receivable from the total sales. We can see from the balance sheets that accounts receivable increased from $95,000 to $108,000, which is a difference of $13,000. Therefore, the estimated collections from customers would be $960,000 - $13,000 = $947,000. However, this is only an estimate and we cannot be certain without further information. Of the given choices, the closest to the estimated collections is B) $857,000.

Question 15

During 2016, the accounts payable balance of Andreas Corp.decreased.Which of the following statements is true?
A)This decrease indicates that Andreas paid less during the period than it recognized as expenses on the income statement.
B)This decrease is added to net income in the operating activities section of a statement of cash flows prepared under the indirect method.
C)This decrease is deducted from net income in the operating activities section of a statement of cash flows prepared under the indirect method.
D)This decrease is considered only when the operating activities section of a statement of cash flows is prepared under the direct method.

Accepted Answer

A decrease in accounts payable means that fewer payments were made to suppliers during the period than were recognized as expenses on the income statement. Therefore, this decrease should be deducted from net income in the operating activities section of a statement of cash flows prepared under the indirect method. Option A is incorrect because it implies that Andreas paid less than the expenses recognized, which is not necessarily true. Option B is incorrect because a decrease in accounts payable would be subtracted from net income, not added to it. Option D is incorrect because the method used to prepare the statement of cash flows (direct or indirect) does not affect how the change in accounts payable is treated.

Question 16

The following items were reported on the balance sheets and income statement for Bezos Corp.:  How would the change in accounts payable be reported in the operating activities section of the statement of cash flows under the indirect method?
A)As an addition to operating expenses
B)As a deduction from operating expenses
C)As an addition to net income
D)As a deduction from net income

Accepted Answer

The answer of The following items were reported on the...

Question 17

When using the direct method, how is the purchase of equipment for cash shown on the statement of cash flows?
A)Operating activity
B)Investing activity
C)Financing activity
D)Noncash investing and financing activity

Accepted Answer

When using the direct method, the purchase of equipment for cash is shown as an investing activity on the statement of cash flows.

Question 18

Occasionally, companies engage in important investing and financing activities which do not affect cash.If the amount of the transaction is significant, how should it be disclosed when financial statements are prepared?
A)In the investing section if the amount of investing activities are greater than the financing activities amount.
B)In the financing section if the amount of financing activities are greater than the investing activities amount.
C)In a note to the financial statements or in a supplemental schedule.
D)The transaction does not need to be disclosed.

Accepted Answer

Significant investing and financing activities that do not affect cash should be disclosed in a note to the financial statements or in a supplemental schedule. This provides transparency and ensures that investors and stakeholders have access to all relevant information about the company's activities. Choices A and B are incorrect because the disclosure should not be based on whether investing or financing activities are greater in amount. Choice D is incorrect because all significant activities should be disclosed, regardless of whether they affect cash.

Question 19

The following items were reported on the balance sheets and income statement for Centerton Inc., a service company:  What amount would be reported in the operating activities section of the statement of cash flows for payments for operating expenses under the direct method?
A)$186,000
B)$154,000
C)$180,000
D)$170,000

Accepted Answer

The answer of The following items were reported on the...

Question 20

Each of the following transactions would be classified as either an investing or a financing activity except
A)investments in stock are purchased.
B)a bank loan is obtained.
C)stock is issued to acquire land.
D)dividends are paid.

Accepted Answer

The transaction of issuing stock to acquire land could be classified as either an investing or a financing activity, depending on how the transaction is structured. If the issuing of stock is used to raise funds specifically for the acquisition of the land, it would be considered a financing activity. However, if the company is using its own stock as payment for the land, it would be classified as an investing activity. Therefore, this transaction is not definitive in its classification and cannot be classified as either an investing or a financing activity without more information about the specifics of the transaction.

Quiz 12: The Statement of Cash Flows

Presented below is the operating activities section of the statement of cash flows for Golden Consulting for 2016: Which method of preparing the operating activities section has Golden Consulting used?

During 2015, the accounts receivable balance of Dickerson Corp.increased.Which of the following statements is true?

When using the direct method, how is the payment of a cash dividend shown on the statement of cash flows?

Presented below is the operating activities section of the statement of cash flows for Feline Friends Corp.for 2016: Operating activities: Which method of preparing the operating activities section has Feline used?

Which of the following transactions is a significant noncash investing and financing activity?

When using the direct method, how is the issuance of stock for cash shown on the statement of cash flows?

When using the direct method, how is the retirement of bonds payable at their maturity date shown on the statement of cash flows?

Klein Corp.acquired land by issuing its common stock.How should this transaction be disclosed when a statement of cash flows is prepared?

When using the direct method, how are salaries paid to employees reported on the statement of cash flows?

Which of the following statements is false?

When using the direct method, how is the collection of cash from customers shown on the statement of cash flows?

When using the direct method, how is depreciation expense recorded on the statement of cash flows?

The following items were reported on the balance sheets and income statement for the Flying Mullet Company: How would the change in accounts receivable be reported in the operating activities section of the statement of cash flows under the indirect method?

The following items were reported on the balance sheets and income statement for Carlton Co.: What amount would be reported in the operating activities section of the statement of cash flows for collections from customers under the direct method assuming that all sales are on credit?

During 2016, the accounts payable balance of Andreas Corp.decreased.Which of the following statements is true?

The following items were reported on the balance sheets and income statement for Bezos Corp.: How would the change in accounts payable be reported in the operating activities section of the statement of cash flows under the indirect method?

When using the direct method, how is the purchase of equipment for cash shown on the statement of cash flows?

Occasionally, companies engage in important investing and financing activities which do not affect cash.If the amount of the transaction is significant, how should it be disclosed when financial statements are prepared?

The following items were reported on the balance sheets and income statement for Centerton Inc., a service company: What amount would be reported in the operating activities section of the statement of cash flows for payments for operating expenses under the direct method?

Each of the following transactions would be classified as either an investing or a financing activity except