Question 1

If Sales are $850,000 and the beginning and ending balances of Accounts Receivable are $43,000 and $48,000,respectively,the cash collected from customers is:
A) $850,000.
B) $802,000.
C) $845,000.
D) $855,000.

Accepted Answer

The cash collected from customers is calculated by adjusting sales for the change in accounts receivable. The increase in accounts receivable ($48,000 - $43,000 = $5,000) means that not all sales were collected in cash. Therefore, cash collected is $850,000 - $5,000 = $845,000.

Question 2

During the current year,Todd Electronics had $610,000 in cash sales and $2,220,000 in credit sales.The Accounts Receivable balance was $530,000 at the beginning of the year and $425,000 at the end of the year.What was the total cash collected from customers during the year?
A) $2,935,000
B) $2,830,000
C) $2,725,000
D) $2,325,000

Accepted Answer

The total cash collected from customers during the year is equal to the cash sales plus the amount collected on credit sales. The amount collected on credit sales is equal to the beginning balance of Accounts Receivable plus the credit sales minus the ending balance of Accounts Receivable. Therefore, the total cash collected from customers during the year is $610,000 + ($530,000 + $2,220,000 - $425,000) = $2,935,000.

Question 3

Which of the following statements about the calculation of cash flows from operating activities under the direct method is correct?
A) When the direct method is used, each revenue and expense account on the income statement is individually examined to calculate the cash flows from operating activities.
B) Noncash revenues and expenses must be included in cash flows from operating activities when preparing a statement of cash flows using the direct method.
C) Depreciation is reported as a cash inflow in the cash flows from operating activities when the direct method is used.
D) A loss on the sale of a long-term asset is subtracted in the cash flows from operating activities when the direct method is used.

Accepted Answer

When the direct method is used, each revenue and expense account on the income statement is individually examined to calculate the cash flows from operating activities. This involves adjusting each account for any changes in related current assets and liabilities to determine the cash inflows and outflows. Noncash revenues and expenses are not included in the cash flows from operating activities under the direct method. Depreciation is not reported as a cash inflow, as it is a noncash expense. A loss on the sale of a long-term asset would actually be added back to cash flows from operating activities, as it represents a noncash expense.

Question 4

Which of the following statements about preparation of the statement of cash flows is correct?
A) GAAP allows the indirect method only.
B) GAAP allows the direct method only.
C) GAAP allows either the indirect or direct method.
D) Although GAAP allows either method for the preparation of the operating activities section of the statement of cash flows, the indirect method must be used to prepare the investing activities section of the statement of cash flows.

Accepted Answer

GAAP allows either the indirect or direct method for the preparation of the statement of cash flows. The choice of method is left to the preparer's discretion, but the indirect method is more commonly used due to its simplicity and feasibility. Additionally, there are no restrictions on the use of either method for the preparation of any particular section of the statement of cash flows.

Question 5

If interest revenue for the period is $14,000 and the beginning and ending interest receivable balances are $1,320 and $5,900,respectively,cash received for interest is:
A) $14,000.
B) $9,420.
C) $18,500.
D) $8,100.

Accepted Answer

The cash received for interest can be calculated by adding the interest revenue to the increase in interest receivable balance:
Cash received for interest = interest revenue + increase in interest receivable
Increase in interest receivable = ending balance - beginning balance
Increase in interest receivable = $5,900 - $1,320
Increase in interest receivable = $4,580
Cash received for interest = $14,000 + $4,580
Cash received for interest = $18,580
Therefore, the correct answer is B) $9,420.

Question 6

Ashley Co.uses the direct method in calculating its cash flow from operations.Which of the following items will not have an effect on cash flow from operating activities?
A) Increase in inventory
B) Payment of dividends to stockholders
C) Cash collections from customers
D) Payment of interest to lenders

Accepted Answer

Payment of dividends to stockholders is a financing activity and does not have an effect on cash flow from operating activities. The other choices (A, C, and D) are all operating activities that will affect the cash flow from operations.

Question 7

Allison Co.uses the direct method to determine its cash flow from operations.During the year,it had sales revenue of $300,000.Its beginning Accounts Receivable balance was $30,000,and its ending Accounts Receivable balance was $40,000.Its cash collected from customers for the year was:
A) $300,000.
B) $290,000.
C) $310,000.
D) $370,000.

Accepted Answer

The cash collected from customers during the year can be calculated as:
Beginning Accounts Receivable + Sales Revenue - Ending Accounts Receivable = Cash collected from customers
$30,000 + $300,000 - $40,000 = $290,000 
Therefore, the correct answer is B, $290,000.

Question 8

If a company's Cost of Goods Sold is $158,000 for the period,beginning and ending Inventory balances are $18,000 and $13,000,respectively,and the beginning and ending Accounts Payable balances are $19,000 and $7,500,respectively,what is the amount of the cash paid to suppliers?
A) $157,000
B) $163,500
C) $164,500
D) $151,500

Accepted Answer

Using the formula:
Cost of Goods Sold = Beginning Inventory + Purchases - Ending Inventory
We can calculate the purchases as follows:
$158,000 = $18,000 + Purchases - $13,000
Purchases = $153,000

Using the formula:
Purchases = Increase in Accounts Payable - Decrease in Inventory
We can calculate the increase in accounts payable as follows:
$153,000 = Increase in Accounts Payable - ($18,000 - $13,000)
Increase in Accounts Payable = $158,000

Therefore, the cash paid to suppliers is the increase in accounts payable ($158,000) minus the decrease in accounts payable ($19,000 - $7,500) which equals $164,500.

Question 9

If Cost of Goods Sold is $145,000 and the beginning and ending Inventory balances are $18,000 and $13,000,respectively,inventory purchases equal:
A) $145,000.
B) $140,000.
C) $150,000.
D) $132,000.

Accepted Answer

Inventory purchases = Cost of Goods Sold + Ending Inventory - Beginning Inventory= $145,000 + $13,000 - $18,000= $140,000

Question 10

When a company uses the direct method to determine the cash flows from operating activities,cash flows from operating activities will:
A) be identical to the amount reported using the indirect method.
B) be larger if there is a net cash inflow and smaller if there is a net cash outflow compared to the amount reported using the indirect method.
C) always be larger than the amount reported using the indirect method.
D) be larger if there is a net cash outflow and smaller if there is a net cash inflow compared to the amount reported using the indirect method.

Accepted Answer

The direct method and indirect method will both result in the same amount of cash flows from operating activities, just arranged in a different format.

Question 11

Which of the following statements about the reporting of operating cash flows using the direct method is correct?
A) Although most U.S. companies use the indirect method, the Financial Accounting Standards Board (FASB) prefers the direct method of accounting for cash flows from operating activities.
B) The FASB prefers the indirect method of calculating cash flows from operating activities because it gives a more accurate calculation of cash provided by operating activities.
C) The direct method results in a larger amount of cash flow from operating activities than does the indirect method.
D) The direct and indirect methods use different presentations for cash flows from investing and financing activities.

Accepted Answer

The Financial Accounting Standards Board (FASB) prefers the direct method of accounting for cash flows from operating activities, but most U.S. companies still use the indirect method. However, both methods are acceptable under generally accepted accounting principles (GAAP).

Question 12

When the direct method is used to determine the cash flows from operating activities,other operating expenses are converted into cash outflows by:
A) adding changes in prepaid expenses and accrued liabilities to other expenses.
B) subtracting increases in prepaid expenses and subtracting decreases in accrued liabilities from other expenses.
C) adding increases in prepaid expenses and adding decreases in accrued liabilities to other expenses.
D) subtracting changes in prepaid expenses and accrued liabilities from other expenses.

Accepted Answer

The answer of When the direct method is used to...

Question 13

Which phrase below best describes the direct method for reporting operating cash flows?
A) A method that incorporates financing and investing activities into cash flows from operations.
B) A method employing accrual-based accounting to convert cash flows to GAAP Net Income.
C) A summary of operating transactions resulting in either a debit or credit to cash.
D) A series of adjustments to Net Income to arrive at operating cash flows.

Accepted Answer

The direct method involves reporting the operating cash flows as a summary of operating transactions resulting in either a debit or credit to cash. It does not incorporate financing or investing activities, nor does it require adjustments to net income. Therefore, option C is the best description of the direct method for reporting operating cash flows.

Question 14

The accounting records for the Helen Co.show that its cost of goods sold for the year was $600,000.In addition,it had an increase in inventory of $10,000 and a decrease in accounts payable of $12,000.As a result under the direct method,the amount of cash paid to suppliers for the year was:
A) $602,000.
B) $610,000.
C) $612,000.
D) $622,000.

Accepted Answer

The answer of The accounting records for the Helen Co.show...

Question 15

Almost all U.S.companies have used the indirect method of preparing the statement of cash flows:
A) because most users of the financial statements do not understand the direct method.
B) in spite of the FASB's stated preference for the direct method.
C) because it usually requires less space in the annual report.
D) so that stockholders cannot determine how much cash was spent on executives' salaries.

Accepted Answer

The indirect method is used by almost all U.S. companies despite the FASB's stated preference for the direct method because the indirect method is easier to prepare and provides the same information as the direct method, albeit in a more roundabout way. Additionally, most users of financial statements are capable of understanding both methods. The size of the cash flow statement and shareholders' ability to determine executive salaries are not relevant factors in this decision.

Question 16

If a company's Sales Revenue was $171,356 and cash collected from customers was $167,803,which of the following would be consistent with this difference?
A) Accounts Receivable could have decreased.
B) Cash payments could have been larger than the related expense accounts.
C) Accounts Receivable could have increased.
D) Cash payments could have been smaller than the related expense accounts.

Accepted Answer

The difference between Sales Revenue and cash collected from customers could be due to an increase in the Accounts Receivable balance, meaning that some customers still owe the company money for sales made during the period.

Question 17

Assume a company uses the direct method to prepare its statement of cash flows.If the company's inventory and accounts payable both increase during the accounting period,how would these changes affect cash flow calculations?
A) The changes in each account are both added to net income.
B) The change in inventory is subtracted from cost of goods sold and the change in accounts payable is added to cost of goods sold to find the cash paid to suppliers.
C) The changes in each account are both subtracted from net income.
D) The change in inventory is added to cost of goods sold and the change in accounts payable is subtracted from cost of goods sold to find the cash paid to suppliers.

Accepted Answer

The answer of Assume a company uses the direct method...

Question 18

Assume a company uses the direct method to prepare its statement of cash flows.If the company's Accounts Receivable increase during the accounting period,the change in Accounts Receivable is:
A) added to the change in the Cash account to calculate cash collected from customers.
B) subtracted from Sales Revenue to calculate the cash collected from customers.
C) added to Sales Revenue to calculate the cash collected from customers.
D) subtracted from the change in the Cash account to calculate cash collected from customers.

Accepted Answer

The answer of Assume a company uses the direct method...

Question 19

Which of the following items would be reported on a statement of cash flows using the indirect method,but not on a statement prepared using the direct method?
A) Cash paid for dividends
B) Cash received from stock issuances
C) Depreciation
D) Cash paid for purchase of treasury stock

Accepted Answer

Depreciation would be reported on the cash flow statement using the indirect method but not on a statement prepared using the direct method because the indirect method starts with accrual accounting net income and adjusts for non-cash items such as depreciation, while the direct method reports actual cash inflows and outflows.

Therefore, options A, B, and D would be reported on both the indirect and direct method statements because they are actual cash transactions.

Question 20

The advantages of the direct method include all of the following except:
A) it allows for more detailed analysis of operating cash flows.
B) it provides more information than the indirect method to relate cash inflows and outflows.
C) it allows for more reliable prediction of future cash flows.
D) comparisons between companies are facilitated since most U.S. companies use the direct method.

Accepted Answer

The answer of The advantages of the direct method include...

Quiz 12: Reporting and Interpreting the Statement of Cash Flows

If Sales are $850,000 and the beginning and ending balances of Accounts Receivable are $43,000 and $48,000,respectively,the cash collected from customers is:

During the current year,Todd Electronics had $610,000 in cash sales and $2,220,000 in credit sales.The Accounts Receivable balance was $530,000 at the beginning of the year and $425,000 at the end of the year.What was the total cash collected from customers during the year?

Which of the following statements about the calculation of cash flows from operating activities under the direct method is correct?

Which of the following statements about preparation of the statement of cash flows is correct?

If interest revenue for the period is $14,000 and the beginning and ending interest receivable balances are $1,320 and $5,900,respectively,cash received for interest is:

Ashley Co.uses the direct method in calculating its cash flow from operations.Which of the following items will not have an effect on cash flow from operating activities?

Allison Co.uses the direct method to determine its cash flow from operations.During the year,it had sales revenue of $300,000.Its beginning Accounts Receivable balance was $30,000,and its ending Accounts Receivable balance was $40,000.Its cash collected from customers for the year was:

If a company's Cost of Goods Sold is $158,000 for the period,beginning and ending Inventory balances are $18,000 and $13,000,respectively,and the beginning and ending Accounts Payable balances are $19,000 and $7,500,respectively,what is the amount of the cash paid to suppliers?

If Cost of Goods Sold is $145,000 and the beginning and ending Inventory balances are $18,000 and $13,000,respectively,inventory purchases equal:

When a company uses the direct method to determine the cash flows from operating activities,cash flows from operating activities will:

Which of the following statements about the reporting of operating cash flows using the direct method is correct?

When the direct method is used to determine the cash flows from operating activities,other operating expenses are converted into cash outflows by:

Which phrase below best describes the direct method for reporting operating cash flows?

The accounting records for the Helen Co.show that its cost of goods sold for the year was $600,000.In addition,it had an increase in inventory of $10,000 and a decrease in accounts payable of $12,000.As a result under the direct method,the amount of cash paid to suppliers for the year was:

Almost all U.S.companies have used the indirect method of preparing the statement of cash flows:

If a company's Sales Revenue was $171,356 and cash collected from customers was $167,803,which of the following would be consistent with this difference?

Assume a company uses the direct method to prepare its statement of cash flows.If the company's inventory and accounts payable both increase during the accounting period,how would these changes affect cash flow calculations?

Assume a company uses the direct method to prepare its statement of cash flows.If the company's Accounts Receivable increase during the accounting period,the change in Accounts Receivable is:

Which of the following items would be reported on a statement of cash flows using the indirect method,but not on a statement prepared using the direct method?

The advantages of the direct method include all of the following except: