Question 1

Under the indirect method,a gain from the early extinguishment of long-term debt is subtracted from net income.

Accepted Answer

According to the indirect method of preparing the cash flow statement, gains from the early extinguishment of long-term debt are deducted from net income. This is because such gains represent a non-cash item that did not result in an outflow of cash and therefore should not be included in the cash flow from operating activities.

Question 2

When preparing the statement of cash flows under the indirect method,an appropriate procedure would be to

Accepted Answer

Under the indirect method, a loss from the sale of a fixed asset is added back to net income because it is a non-cash expense that reduced net income.

Question 3

Income tax expense minus the decrease in income taxes payable equals cash paid for income taxes.

Accepted Answer

Income tax expense minus the decrease in income taxes payable does not directly equal cash paid for income taxes. The correct formula to find cash paid for income taxes is: Income tax expense adjusted for the change in deferred income taxes and the change in income taxes payable.

Question 4

Both the direct and indirect methods yield the same net cash flow from operations.

Accepted Answer

Both methods ultimately calculate the same net cash flow from operations, but they differ in the way they present the individual cash inflows and outflows. The direct method lists the actual cash receipts and payments, while the indirect method starts with net income and adjusts for non-cash items such as depreciation and changes in current assets and liabilities.

Question 5

Which of the following transactions increase cash? 
1)Convert debt to common stock
2)Credit sales
3)Increase long-term debt
4)Issue common stock

Accepted Answer

Transactions that increase cash include increasing long-term debt (3) because the company receives cash from the loan, and issuing common stock (4) because the company receives cash from investors in exchange for shares. Converting debt to common stock (1) and credit sales (2) do not directly increase cash.

Question 6

A decrease in inventory will be added to net income when preparing the operating activities section under the indirect method.

Accepted Answer

When preparing the operating activities section under the indirect method, a decrease in inventory is added back to net income because it means less cash was spent on inventory, which increases cash flow from operations.

Question 7

Stepp Entertainment has the following selected balance sheet and income statement information:
 
$\begin{array}{ll}
 & \text { For the Year Ended } \
\text { Income Statement Accounts } & December 31,2012 \
\end{array}$ 
$\begin{array}{ll}
\text { Income Tax Expense } &&&& \$ 15,000 \
\text { Cost of Goods Sold } &&&& 164,000 \
\text { Sales }  &&&& 523,000 \
\text { Wage Expense } &&&& 88,000
\end{array}$ $$\begin{array} { l c c } 
\text { Balance Sheet Accounts } & \text { At December } 31,2012 & \text { At December 31,2011 } \
 \text { Accounts Payable } & \$ 19,000 & \$ 17,000 \
\text { Cash } & 19,000 & 12,000 \
\text { Income Taxes layable } & 21,000 & 9,000 \
\text { Accounts Receivable } & 41,000 & 36,000 \
\text { Inventory } & 12,000 & 23,000 \
\text { Wages Iayable } & 5,000 & 12,000
\end{array}$$ Determine the following items for Stepp Entertainment for the year ended December 31,2012:
a.Cash received from customers
b.Cash paid to suppliers
c.Cash paid for wages
d.Cash paid for income taxes

Accepted Answer

The answer of Stepp Entertainment has the following selected balance...

Question 8

When preparing the statement of cash flows under the indirect method,an appropriate procedure would be to

Accepted Answer

Under the indirect method, an increase in accounts receivable is subtracted from net income because it represents revenue that has been recognized but not yet collected in cash, thus reducing cash flow from operating activities.

Question 9

Which of the following transactions increase cash? 
1)Sales of goods and services for cash
2)Receiving cash dividends
3)Collection of accounts receivable
4)Reclassifying long-term debt to short-term debt
5)Accruing interest revenue

Accepted Answer

1, 2, and 3 directly increase cash through sales, dividends, and collections, while 4 and 5 do not involve cash transactions.

Question 10

Under the indirect method,a loss from the sale of a fixed asset is subtracted from net income.

Accepted Answer

The answer of Under the indirect method,a loss from the...

Question 11

The following selected information is for Porter Handbags at,and for the year ended,December 31,2012,and 2011: $\begin{array} { l l l } 
\text { Selected Ealance Sheet Accounts } & \underline { 12 / 31 / 12 } & \underline { 12 / 31 / 11 } \
\text { Accounts Payable } & \$ 19,000 & \$ 13,000 \
\text { Inventory } & 26,000 & 30,000 \
\text { Prepaid Expense } & 7,000 & 5,000 \
\text { Retained Earnings } & 23,000 & 19,000 \
\text { Wages Payable } & 2,000 & 7,000 \
\text { Accounts Receivable } & 29,000 & 22,000 \
\text { Accumulated Depreciation } & 43,000 & 35,000 \
\text { Cash } & 19,000 & 14,000 \
\text { Fixed Assets } & 94,000 & 79,000
\end{array}$ 
$\text{Selected Income Statement Accounts}$
$\begin{array} { l l } 
\text { Oepreciation Expense } & \$ 14,000 \
\text { Gain on Sale of Fixed Asset } & 3,000 \
\text { Net Income } & 23,000 \
\text { Sales } & 91,000 \
\text { Wages Expense } & 34,000
\end{array}$ 
Using the indirect method,what is the net cash flow from operations for Porter Handbags for the year ended December 31,2012?

Accepted Answer

Net income + Depreciation expense - Gain on sale of fixed asset + Decrease in accounts receivable - Increase in inventory - Decrease in prepaid expense + Increase in accounts payable + Decrease in wages payable = Net cash flow from operations23,000 + 14,000 - 3,000 + 7,000 - 4,000 - 2,000 + 6,000 + 5,000 = 30,000

Question 12

The indirect method of preparing the statement of cash flows

Accepted Answer

The indirect method of preparing the statement of cash flows begins with net income, adds back non-cash expenses, and adjusts for changes in the current asset and current liability accounts. It is a commonly used method to determine cash flows from operating activities.

Question 13

Which of the following transactions do not affect cash? 
1)Convert debt to common stock
2)Credit sales
3)Purchase a fixed asset by issuing debt
4)Accept rental deposit
5)Write-off of prepaid expenses

Accepted Answer

Transactions that do not affect cash include converting debt to common stock (1), making credit sales (2), purchasing a fixed asset by issuing debt (3), and writing off prepaid expenses (5). These transactions either involve exchanging one non-cash asset for another, recognizing revenue or expenses without the immediate exchange of cash, or altering the composition of equity or liabilities without a cash transaction.

Question 14

The following selected information is for Barble Gardening Center at,and for the year ended,December 31,2012,and 2011: $\begin{array} { l l l } 
\text { Selected Ealance Sheet Accounts } & \underline { 12 / 31 / 12 } & \underline { 12 / 31 / 11 } \
\text { Fixed Assets } & \$ 188,000 & \$ 158,000 \
\text { Inventory } & 52,000 & 60,000 \
\text { Prepaid Expense } & 14,000 & 10,000 \
\text { Retained Earnings } & 46,000 & 38,000 \
\text { Accounts Payable } & 38,000 & 25,000 \
\text { Accounts Receivable } & 58,000 & 44,000 \
\text { Accumulated Depreciation } & 86,000 & 70,000 \
\text { Cash } & 38,000 & 28,000 \
\text { Wages Payable } & 4,000 & 14,000
\end{array}$ 
$\text{Selected Income Statement Accounts}$
$\begin{array}{lc}
\text { Depreciation Expense } & \$ 28,000 \
\text { Gain on Sale of Fixed Asset } & 6,000 \
\text { Net Income } & 43,000 \
\text { Sales } & 182,000 \
\text { Wages Expense } & 68,000
\end{array}$ 
Using the indirect method,what is the net cash flow from operations for Barble Gardening Center for the year ended December 31,2012?

Accepted Answer

Net cash flow from operations = Net Income + Depreciation Expense - Increase in Accounts Receivable + Increase in Inventory - Increase in Prepaid Expense + Increase in Accounts Payable - Decrease in Wages Payable
Net cash flow from operations = 43,000 + 28,000 - (58,000 - 44,000) + (60,000 - 52,000) - (14,000 - 10,000) + (38,000 - 25,000) - (14,000 - 4,000) = $58,000

Question 15

The following data pertains to Joss Decorating for the year of 2012:
a.Salaries and wages: accrued,$175,000; paid in cash $200,000.
b.Depreciation,$50,000.
c.Interest expense,all paid in cash,$12,500.
d.Other expenses,all paid in cash,$112,000.
e.Income taxes accrued,$35,000; income taxes paid in cash,$33,000.
f.Bought plant and facilities for $365,000 cash.
g.Sales of $1,500,000,all on credit.Cash collections from customers,$1,250,000.
h.The cost of items sold was $750,000.Purchases of inventory totaled $825,000; inventory and accounts payable were affected accordingly.
i.Cash payments on trade accounts payable were $700,000.
j.Issued long-term debt for $110,000 cash.
k.Paid cash dividends of $45,000.
Prepare a statement of cash flows using the direct method for reporting cash flows from operating activities.Omit supporting schedules.

Accepted Answer

The answer of The following data pertains to Joss Decorating...

Question 16

Which of the following transactions decrease cash? 
1)Purchase inventory from cash
2)Pay trade accounts payable
3)Accruing operating expenses
4)Purchase stock in R&D partner with cash
5)Charging depreciation

Accepted Answer

Transactions that decrease cash include purchasing inventory with cash (1), paying off trade accounts payable (2), and purchasing stock in an R&D partner with cash (4). Accruing operating expenses (3) and charging depreciation (5) do not involve cash outflows.

Question 17

The indirect method is used by the majority of US corporations in preparing the statement of cash flows.

Accepted Answer

The indirect method is the most commonly used method for preparing the statement of cash flows by US corporations. The direct method is also an option but is less frequently used.

Question 18

Which of the following transactions do not affect cash? 
1)Purchase inventory on credit
2)Accrue operating expenses
3)Collection of accounts receivable
4)Accrue taxes and interest
5)Reclassify long-term debt to short-term debt

Accepted Answer

Transactions 1, 2, 4, and 5 do not affect cash. Purchasing inventory on credit, accruing operating expenses, accruing taxes and interest, and reclassifying debt do not involve cash flows at the time of the transaction.

Question 19

When preparing the statement of cash flows under the indirect method,all of the following would be an appropriate procedure except

Accepted Answer

When preparing the statement of cash flows under the indirect method, we need to adjust the net income by non-cash expenses, gains, and losses and changes in current assets and liabilities. A decrease in prepaid expenses indicates that the company paid for expenses in advance, so we add it back to the net income to adjust for the cash flow effect. Hence, subtracting a decrease in prepaid expenses would not be an appropriate procedure when preparing the statement of cash flows under the indirect method.

Question 20

Which of the following transactions decrease cash? 
1)Reduce prepaid expenses
2)Increase treasury stock
3)Lend money to an employee
4)Recognize cost of goods sold
5)Reduce long-term or short-term debt

Accepted Answer

Transactions that decrease cash include increasing treasury stock (2) because it involves buying back shares, lending money to an employee (3) because it involves paying out cash, and reducing long-term or short-term debt (5) because it involves paying down debt obligations.

Quiz 5: Statement of Cash Flows

Under the indirect method,a gain from the early extinguishment of long-term debt is subtracted from net income.

When preparing the statement of cash flows under the indirect method,an appropriate procedure would be to

Income tax expense minus the decrease in income taxes payable equals cash paid for income taxes.

Both the direct and indirect methods yield the same net cash flow from operations.

Which of the following transactions increase cash? 1) Convert debt to common stock 2) Credit sales 3) Increase long-term debt 4) Issue common stock

A decrease in inventory will be added to net income when preparing the operating activities section under the indirect method.

When preparing the statement of cash flows under the indirect method,an appropriate procedure would be to

Which of the following transactions increase cash? 1) Sales of goods and services for cash 2) Receiving cash dividends 3) Collection of accounts receivable 4) Reclassifying long-term debt to short-term debt 5) Accruing interest revenue

Under the indirect method,a loss from the sale of a fixed asset is subtracted from net income.

The indirect method of preparing the statement of cash flows

Which of the following transactions do not affect cash? 1) Convert debt to common stock 2) Credit sales 3) Purchase a fixed asset by issuing debt 4) Accept rental deposit 5) Write-off of prepaid expenses

Which of the following transactions decrease cash? 1) Purchase inventory from cash 2) Pay trade accounts payable 3) Accruing operating expenses 4) Purchase stock in R&D partner with cash 5) Charging depreciation

The indirect method is used by the majority of US corporations in preparing the statement of cash flows.

Which of the following transactions do not affect cash? 1) Purchase inventory on credit 2) Accrue operating expenses 3) Collection of accounts receivable 4) Accrue taxes and interest 5) Reclassify long-term debt to short-term debt

When preparing the statement of cash flows under the indirect method,all of the following would be an appropriate procedure except

Which of the following transactions decrease cash? 1) Reduce prepaid expenses 2) Increase treasury stock 3) Lend money to an employee 4) Recognize cost of goods sold 5) Reduce long-term or short-term debt