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The reporting of financing activities is identical under the indirect and direct methods for the statement of cash flows on the statement of cash flows.

A) True
B) False

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Which of the following statements best describes the reason Depreciation Expense is added to net income when preparing the statement of cash flows?


A) Depreciation expense originally reduced net income, but it actually represents a cash inflow for the company.
B) Depreciation expense originally reduced net income, but the expense does not involve paying cash.
C) Depreciation expense originally reduced net income, but it actually represents a cash outflow for the company.
D) Depreciation expense is not included in net income and, so, its cash effect must be accounted for separately.

E) A) and B)
F) B) and C)

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A company's cash flows from investing activities include cash transactions relating to the purchase and disposal of which types of assets?


A) All of a company's assets
B) All of a company's assets except inventory
C) All of a company's non-current assets
D) Property, plant and equipment

E) All of the above
F) C) and D)

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What is the starting point for calculating cash flows from operations when the indirect method is used?


A) Find net income on the income statement.
B) Calculate the net change in the cash account.
C) Add the change in accounts receivable to sales revenue.
D) Identify the balance sheet accounts that relate to operating activities.

E) A) and C)
F) A) and B)

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To determine net cash provided by or used in financing activities,one must analyze the:


A) Notes Receivable and Bonds Payable accounts.
B) Cash account.
C) Common Stock and Retained Earnings accounts.
D) Interest Expense and Dividend Income accounts.

E) All of the above
F) B) and D)

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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.

E) None of the above
F) All of the above

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If Insurance Expense is $7,000 and the beginning and ending balances of Prepaid Insurance are $1,500 and $2,000,respectively,the cash paid for insurance is:


A) $7,000.
B) $6,500.
C) $5,000.
D) $7,500.

E) A) and B)
F) None of the above

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When preparing the statement of cash flow using the indirect method,Depreciation Expense is:


A) added back to net income under the operating activities section.
B) subtracted from net income under the operating activities section.
C) subtracted net income under the financing activities section.
D) added back to net income under the financing activities section.

E) B) and C)
F) A) and B)

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Depreciation is added back to net income in a statement of cash flows prepared using the indirect method because it:


A) reduces net income but not cash.
B) is a cash inflow.
C) is a revenue.
D) is a valuation concept.

E) A) and C)
F) A) and D)

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Complete the last two columns in the following table by indicating whether each transaction would be reported: Part a.In the operating (O),investing (I),or financing (F)activities section of the statement of cash flows or if the transaction would be reported instead as a noncash investing and/or financing transaction (Noncash). Part b.As a cash inflow (+)or a cash outflow (-)on the statement of ash flows.(Leave this cell blank if you entered "Noncash" for part a.) Complete the last two columns in the following table by indicating whether each transaction would be reported: Part a.In the operating (O),investing (I),or financing (F)activities section of the statement of cash flows or if the transaction would be reported instead as a noncash investing and/or financing transaction (Noncash). Part b.As a cash inflow (+)or a cash outflow (-)on the statement of ash flows.(Leave this cell blank if you entered Noncash for part a.)

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The T-account approach:


A) may be used with the direct method.
B) creates one big T-account for cash that replaces separate schedules to show all the changes in the cash account.
C) shows cash provided as credits and cash used as debits.
D) does not determine the change in each balance sheet account.

E) B) and C)
F) A) and B)

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Identify whether each of the following list of items is an operating activity cash flow (O),an investing activity cash flow (I),a financing activity cash flow (F),or none of these (None). 1._____ Proceeds from sale of equipment 2._____ Cash collected from customers 3._____ Payments to suppliers 4._____ Stock repurchases 5._____ Repayment of bond principal 6._____ Payment of income tax 7._____ Purchases of bonds from other companies 8._____ Purchases of equipment financed with a note 9._____ Interest and cash dividends received 10._____ Payment of cash dividends

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1.I
2.O
3....

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Flynn Corporation had the following cash flows for the current year.The company uses the direct method in preparing the statement of cash flows. Flynn Corporation had the following cash flows for the current year.The company uses the direct method in preparing the statement of cash flows. -Use the information above to answer the following question.What is the net cash flows provided by (used in) financing activities? A) $620,000 B) $410,000 C) $610,000 D) $490,000 -Use the information above to answer the following question.What is the net cash flows provided by (used in) financing activities?


A) $620,000
B) $410,000
C) $610,000
D) $490,000

E) A) and D)
F) B) and C)

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Use the information above to answer the question below.The company uses the indirect method in preparing the statement of cash flows.What is the amount of depreciation expense that will be reported in the operating activities section of the statement?


A) $4,000
B) $11,000
C) $7,000
D) $10,000

E) B) and D)
F) A) and B)

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An outdoor water park that has a calendar year-end and is located in an area of the country that has warmer weather during April through September and colder weather during the rest of the year is likely to have:


A) unpredictable fluctuations in cash flow from quarter to quarter.
B) the largest cash inflow from operating activities in the second and third quarters (April through September) .
C) a fairly stable cash flow across all four quarters.
D) the largest cash inflow from operating activities in the fourth and first quarters (October through March) .

E) None of the above
F) B) and C)

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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

E) A) and B)
F) All of the above

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Which of the statements below is correct when comparing the direct and indirect methods of reporting operating cash flows?


A) The direct method starts with net income and makes adjustments to arrive at the net cash provided by or used in operations.
B) The indirect method starts with cash collected from customers and details cash inflows and outflows from operations.
C) The indirect method starts with net income and makes adjustments to arrive at the net cash provided by or used in operations.
D) The net cash provided by or used in operations will be different depending on whether the direct or indirect method is used.

E) A) and B)
F) All of the above

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Cash provided by issuing stock to owners should be reported as cash:


A) inflows from financing activities.
B) outflows from financing activities.
C) inflows from investing activities.
D) outflows from investing activities.

E) B) and D)
F) B) and C)

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Which of the following would be included in cash flows from investing activities?


A) Cash collected from customers
B) Cash received from an issuance of bonds
C) Cash dividends paid
D) Cash used to purchase equipment

E) A) and D)
F) A) and B)

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Which of the following is the best measure of a company's profitability?


A) Cash-based net income
B) Accrual-based net income
C) Accounts Receivable
D) Sales Revenue

E) C) and D)
F) All of the above

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