Question 1

Under the direct method of preparing the statement of cash flows,cash receipts from operating activities do NOT include:
A)collection of long-term note receivable.
B)collections from customers.
C)receipt of interest on investments.
D)receipt of dividends on investments.

Accepted Answer

Cash receipts from operating activities only include transactions related to the normal operations of the business. Collection of long-term note receivable is a financing activity and therefore excluded from the operating activities section of the statement of cash flows. The other options are all examples of cash receipts from operating activities.

Question 2

Zimbalist Corporation reports a decrease in salaries payable of $3000.If salaries expense totaled $189,000 for the year,the cash paid to employees is:
A)$3000.
B)$186,000.
C)$189,000.
D)$192,000.

Accepted Answer

$189,000 + $3000 = $192,000

Question 3

Interest expense for the current year is $310,000.Interest payable increased $55,000 during the year.Interest receivable increased $11,000 during the year.Interest expense includes $47,000 for the amortization of discount.What is the cash paid for interest?
A)$208,000
B)$219,000
C)$310,000
D)$263,000

Accepted Answer

$310,000 - Interest Payable $55,000 - Discount Amortized $47,000 = $208,000

Question 4

The direct method of preparing the statement of cash flows:
A)has an identical operating activities section as the indirect method.
B)is used by a vast majority of companies.
C)is preferred by FASB.
D)is much easier for companies to compute.

Accepted Answer

The FASB does not have a preference for either the direct or indirect method, but it does encourage companies to use the direct method because it provides more detailed information about cash flows from operating activities. However, the direct method requires more detailed information and is less commonly used than the indirect method, which reconciles net income to cash flows from operating activities. Therefore, option A and B are incorrect. Option D is also incorrect as the direct method requires more detailed information and is therefore more difficult for companies to compute.

Question 5

During the year,Chappel Engineering Corporation has operating expenses of $50,000.There was an increase in prepaid expenses of $4000 and an increase in accrued liabilities of $6000.What were Chappel's cash payments for operating expenses?
A)$44,000
B)$48,000
C)$54,000
D)$56,000

Accepted Answer

$50,000 + $4000 - $6000 = $48,000

Question 6

Newton Corporation reported an increase in inventory of $85,000.The cost of goods sold for the year was $170,000.There was also a $4000 decrease in accounts payable from the beginning of the year to the end of the year.What is Newton's cash payment to suppliers for inventory?
A)$174,000
B)$251,000
C)$255,000
D)$259,000

Accepted Answer

170,000 + 85,000 + 4000 = 259,000

Question 7

Jerome Smith,Inc.began the year with $259,000 in accounts receivable and ended the year with $252,700 in accounts receivable.Sales for the year were $3,770,000.The cash collected from customers during the year amounted to:
A)$3,763,700.
B)$3,776,300.
C)$4,022,700.
D)$4,281,700.

Accepted Answer

$3,770,000 + ($259,000 - $252,700)= $3,776,300

Question 8

Income tax expense is $47,000 for the current year.Income tax payable increased $3000 during the year.Interest payable increased $4000 during the year.What is the cash paid for income taxes?
A)$44,000
B)$47,000
C)$50,000
D)$51,000

Accepted Answer

$47,000 - $3000 = $44,000

Question 9

Under the direct method of preparing the statement of cash flows,all of the following would be reported under operating activities EXCEPT:
A)collections from customers.
B)interest received on notes receivable.
C)dividends received on investments in stock.
D)cash proceeds on sale of long-term investments.

Accepted Answer

Cash proceeds on sale of long-term investments would be reported under investing activities, not operating activities. The other options are typical operating activities that would be reported under this section.

Question 10

Under the direct method of preparing the statement of cash flows,cash payments from operating activities do NOT include:
A)payments to suppliers.
B)payments to employees.
C)payment of dividends.
D)payment of interest.

Accepted Answer

Cash payments from operating activities under the direct method include payments to suppliers and employees, as well as payments for interest. However, dividends are classified as cash flows from financing activities and are not included in cash payments from operating activities under the direct method.

Question 11

Which of the following would NOT be reported in the operating activities section of a statement of cash flows using the direct method?
A)cash paid for income taxes
B)interest received on notes receivable
C)loss on sale of equipment
D)payments to suppliers

Accepted Answer

The loss on sale of equipment would not be reported in the operating activities section of a statement of cash flows using the direct method. This is because the loss on sale of equipment is related to investing activities, not operating activities. The operating activities section typically includes cash flows directly related to operating the business, such as cash received from customers and cash paid to suppliers and employees.

Question 12

Interest revenue for the current year is $90,000.Interest payable increased $41,000 during the year and Interest receivable increased $55,000 during the year.No discount or premium was amortized.What is the cash received for interest revenue?
A)$35,000
B)$49,000
C)$90,000
D)$145,000

Accepted Answer

$90,000 - $55,000 = $35,000

Question 13

Northwest Builders,Inc.reported Cost of Goods Sold for the current year of $330,000.During the same period,the Inventory account decreased $15,000 and the Accounts Payable account increased $26,000.The amount of cash paid to suppliers for inventory is:
A)$289,000.
B)$304,000.
C)$315,000.
D)$345,000.

Accepted Answer

330,000 - 15,000 - 26,000 = 289,000

Question 14

Early Years Corporation reports a $17,000 increase in Inventory and a $27,000 increase in accounts payable for the year.If the cost of goods sold is $400,000 for the year,the cash paid to Early Years' suppliers for inventory is:
A)$356,000.
B)$373,000.
C)$390,000.
D)$444,000.

Accepted Answer

$400,000 -$27,000 + $17,000 = $390,000

Question 15

Under the direct method of preparing the statement of cash flows,which statement is CORRECT regarding the method of computing cash payments to suppliers for inventory?
A)Cost of goods sold less a decrease in inventory plus an increase in accounts payable.
B)Cost of goods sold plus an increase in inventory less an increase in accounts payable.
C)Cost of goods sold plus an increase in inventory plus an increase in accounts payable.
D)Cost of goods sold plus a decrease in inventory plus an increase in accounts payable.

Accepted Answer

To compute cash payments to suppliers for inventory using the direct method, you start with the cost of goods sold (COGS), add any increase in inventory (since an increase in inventory means you've bought more than you sold), and subtract any increase in accounts payable (since an increase in accounts payable means you've bought on credit and haven't paid cash yet). This approach adjusts COGS for changes in inventory and accounts payable to reflect actual cash payments.

Question 16

Newsome Corporation had accounts receivable of $120,000 at the beginning of the year and $135,000 at the end of the year.Sales for the year amounted to $565,000.Cash collections from customers are:
A)$15,000.
B)$445,000.
C)$550,000.
D)$565,000.

Accepted Answer

565,000 - (135,000 - 120,000)= $550,000

Question 17

Einstein Corporation reported a decrease in inventory of $13,000.The cost of goods sold for the year was $180,000.There was also a $4000 decrease in accounts payable from the beginning of the year to the end of the year.What is Einstein's cash payment to suppliers for inventory?
A)$163,000
B)$171,000
C)$189,000
D)$197,000

Accepted Answer

$180,000 - $13,000 + $4000 = $171,000

Question 18

Sweeten Corporation had sales of $890,000.The beginning accounts receivable balance was $66,000 and the ending accounts receivable balance was $250,000.The cash collected from customers for this reporting period is:
A)$640,000.
B)$706,000.
C)$956,000.
D)$1,074,000.

Accepted Answer

$890,000 - $184,000 increase in accounts receivable = $706,000

Question 19

Under the direct method of preparing the statement of cash flows,which statement is CORRECT regarding the calculation of cash collected from interest revenue?
A)sales plus a decrease in interest receivable
B)interest revenue plus a decrease in interest receivable
C)interest revenue plus an increase in interest receivable
D)interest revenue less a decrease in interest receivable

Accepted Answer

According to the direct method, the calculation of cash collected from interest revenue is done by adding interest revenue to a decrease in interest receivable. This is because a decrease in the interest receivable account represents the actual cash collected from interest revenue during the period.

Question 20

The direct method of preparing the statement of cash flows is preferred by the Financial Accounting Standards Board primarily because of the way it reports:
A)operating activities.
B)investing activities.
C)financing activities.
D)noncash activities.

Accepted Answer

The direct method of preparing the statement of cash flows is preferred by the Financial Accounting Standards Board primarily because it reports operating activities directly, showing the actual cash inflows and outflows of the business, which provides more useful information to investors and analysts. The indirect method reconciles net income to net cash flows from operating activities, which may be less transparent and informative than the direct method. The direct method also reports investing and financing activities and noncash activities, but the primary reason for preferring it is its reporting of operating activities.

Quiz 11: The Statement of Cash Flows

Under the direct method of preparing the statement of cash flows,cash receipts from operating activities do NOT include:

Zimbalist Corporation reports a decrease in salaries payable of $3000.If salaries expense totaled $189,000 for the year,the cash paid to employees is:

Interest expense for the current year is $310,000.Interest payable increased $55,000 during the year.Interest receivable increased $11,000 during the year.Interest expense includes $47,000 for the amortization of discount.What is the cash paid for interest?

The direct method of preparing the statement of cash flows:

During the year,Chappel Engineering Corporation has operating expenses of $50,000.There was an increase in prepaid expenses of $4000 and an increase in accrued liabilities of $6000.What were Chappel's cash payments for operating expenses?

Newton Corporation reported an increase in inventory of $85,000.The cost of goods sold for the year was $170,000.There was also a $4000 decrease in accounts payable from the beginning of the year to the end of the year.What is Newton's cash payment to suppliers for inventory?

Jerome Smith,Inc.began the year with $259,000 in accounts receivable and ended the year with $252,700 in accounts receivable.Sales for the year were $3,770,000.The cash collected from customers during the year amounted to:

Income tax expense is $47,000 for the current year.Income tax payable increased $3000 during the year.Interest payable increased $4000 during the year.What is the cash paid for income taxes?

Under the direct method of preparing the statement of cash flows,all of the following would be reported under operating activities EXCEPT:

Under the direct method of preparing the statement of cash flows,cash payments from operating activities do NOT include:

Which of the following would NOT be reported in the operating activities section of a statement of cash flows using the direct method?

Interest revenue for the current year is $90,000.Interest payable increased $41,000 during the year and Interest receivable increased $55,000 during the year.No discount or premium was amortized.What is the cash received for interest revenue?

Northwest Builders,Inc.reported Cost of Goods Sold for the current year of $330,000.During the same period,the Inventory account decreased $15,000 and the Accounts Payable account increased $26,000.The amount of cash paid to suppliers for inventory is:

Early Years Corporation reports a $17,000 increase in Inventory and a $27,000 increase in accounts payable for the year.If the cost of goods sold is $400,000 for the year,the cash paid to Early Years' suppliers for inventory is:

Under the direct method of preparing the statement of cash flows,which statement is CORRECT regarding the method of computing cash payments to suppliers for inventory?

Newsome Corporation had accounts receivable of $120,000 at the beginning of the year and $135,000 at the end of the year.Sales for the year amounted to $565,000.Cash collections from customers are:

Einstein Corporation reported a decrease in inventory of $13,000.The cost of goods sold for the year was $180,000.There was also a $4000 decrease in accounts payable from the beginning of the year to the end of the year.What is Einstein's cash payment to suppliers for inventory?

Sweeten Corporation had sales of $890,000.The beginning accounts receivable balance was $66,000 and the ending accounts receivable balance was $250,000.The cash collected from customers for this reporting period is:

Under the direct method of preparing the statement of cash flows,which statement is CORRECT regarding the calculation of cash collected from interest revenue?

The direct method of preparing the statement of cash flows is preferred by the Financial Accounting Standards Board primarily because of the way it reports: