Deck 15: Supplement: the Statement of Cash Flows

Question 1

On a statement of cash flows prepared using the direct method,if accounts receivable decrease from one accounting period to the next,cash receipts from sales will not be as great as sales.

Answer 1

False

Question 2

Assume the direct method is used to compute net cash flows from operating activities.For this item extracted from the financial statements-Increase in Prepaid Expenses-indicate the effect on cash payments for operating expenses by choosing one of the following:

A)Add to operating expenses to arrive at cash payments for operating expenses.
B)Subtract from operating expenses to arrive at cash payments for operating expenses.
C)Not used to adjust operating expenses to arrive ay cash payments for operating expenses.

Answer 2

A

Question 3

On a statement of cash flows prepared using the direct method,a schedule must be provided that reconciles net income to net cash flows from operating activities.

Answer 3

True

Question 4

Assume the direct method is used to compute net cash flows from operating activities.For this item extracted from the financial statements-Decrease in Inventory-indicate the effect on cash payments for purchases by choosing one of the following:

A)Add to Cost of Goods Sold to compute cash payments for purchases.
B)Subtract from Cost of Goods Sold to compute cash payments for purchases.
C)Not used to adjust Cost of Goods Sold to compute cash payments for purchases.

Question 5

Assume the direct method is used to compute net cash flows from operating activities.For this item extracted from the financial statements-Decrease in Accounts Receivable-indicate the effect on cash receipts from sales by choosing one of the following:

A)Add to Sales to arrive at cash receipts from sales.
B)Subtract from Sales to arrive at cash receipts from sales.
C)Not used to adjust Sales to arrive at cash receipts from sales.

Question 6

Since interest and dividends received are most closely associated with investment activity and are often called investment income,the FASB classifies the cash received from these items as investing activities.

Question 7

Determining net cash flows from operating activities using the direct method reveals cash collected from customers.

Question 8

The direct method of preparing the statement of cash flows

A)results in more cash from operating activities,but less cash from investing activities,and the same total cash flow as the indirect method.
B)converts each item on the income statement to its cash equivalent.
C)reports interest and dividends received in the investing activities section.
D)All of these choices.

Question 9

The direct method converts each item on the income statement to its cash equivalent.

Question 10

On a statement of cash flows prepared using the direct method,the FASB requires that cash payments for interest be classified as operating activities.

Question 11

The principal difference between the indirect and the direct methods appears in the cash flows from investing activities section of the statement of cash flows.

Question 12

Assume the direct method is used to compute net cash flows from operating activities.For this item extracted from the financial statements-Decrease in Accounts Payable-indicate the effect on cash payments for purchases by choosing one of the following:

A)Add to Cost of Goods Sold to compute cash payments for purchases.
B)Subtract from Cost of Goods Sold to compute cash payments for purchases.
C)Not used to adjust Cost of Goods Sold to compute cash payments for purchases.

Question 13

On a statement of cash flows prepared using the direct method,if accounts payable have decreased,cash payments for purchases will be greater than net purchases.

Question 14

On a statement of cash flows prepared using the direct method,if certain expenses do not require a current outlay of cash,those expenses must be subtracted from operating expense to arrive at cash payments for operating expenses.

Question 15

The direct method of preparing a statement of cash flows

A)is the overwhelming choice of most companies.
B)begins with net income in the operating activities section.
C)will produce the same net figure as the indirect method.
D)All of these choices.

Question 16

On a statement of cash flows prepared using the direct method,if inventory has decreased from one accounting period to another,net purchases will be greater than the cost of goods sold because net purchases during the period have exceeded the dollar amount of the items sold during the period.

Question 17

On a statement of cash flows prepared using the direct method,if Income Taxes Payable decreased during the accounting period,cash payments for taxes will be less than the expense shown on the income statement.

Question 18

On a statement of cash flows prepared using the direct method,credit sales are a direct cash inflow.

Question 19

If the direct method is used to prepare a statement of cash flows,credit sales may not automatically create a cash inflow because

A)some receivables may be uncollectible.
B)sales from a prior period may be collected in the current period.
C)sales from the current period may be collected in a future period.
D)All of these choices.

Question 20

If the direct method is used to prepare a statement of cash flows,the cost of goods sold from the income statement will be adjusted

A)for changes in inventory to arrive at net purchases.
B)for changes in accounts payable to arrive at cash payments for purchases.
C)Both of these choices.

Question 21

Using the direct method,calculate the amount of cash payments for operating expenses.Show your work

Question 22

Which of the following items would not be included in a statement of cash flows prepared using the direct method?

A)Net income.
B)Cash paid for dividends.
C)Sale of a plant asset.
D)Cash payments for purchases.

Question 23

Using the direct method,calculate the amount of cash payments for purchases.Show your work

Question 24

Assume the direct method is used to compute net cash flows from operating activities.For this item extracted from the financial statements-Increase in Income Taxes Payable-indicate the effect on cash payments for income taxes by choosing one of the following:

A)Add to Income Taxes to arrive at cash payments for income taxes.
B)Subtract from Income Taxes to arrive at cash payments for income taxes.
C)Not used to adjust Income Taxes to arrive at cash payments for income taxes.

Question 25

Assume that the balance of accounts payable does not change during a period.When preparing a statement of cash flows,an increase in ending inventory over beginning inventory will result in an adjustment to cost of goods sold under the direct approach because

A)the amount of cost of goods sold is equal to the amount of cash paid for purchases.
B)consumed inventory is an expense but not a use of funds.
C)the amount of cost of goods sold on an accrual basis is less than the amount of cash paid for purchases of inventory.
D)the amount of cash paid for purchases of inventory is less than the amount of cost of goods sold on an accrual basis.

Question 26

Assume the direct method is used to compute net cash flows from operating activities.For this item extracted from the financial statements-Decrease in Accrued Liabilities-indicate the effect on cash payments for operating expenses by choosing one of the following:

A)Add to operating expenses to arrive at cash payments for operating expenses.
B)Subtract from operating expenses to arrive at cash payments for operating expenses.
C)Not used to adjust operating expenses to arrive ay cash payments for operating expenses.

Question 27

When a statement of cash flows is prepared using the direct method,

A)net income is the starting point in determining cash flows from operations.
B)cash paid for dividends is not included.
C)the increase in cash is different than when the indirect method is used.
D)the amount of cash collected from customers is calculated.

Question 28

Assume the direct method is used to compute net cash flows from operating activities.For this item extracted from the financial statements-Gain on Sale of Investment-indicate the effect on cash flows from operating activities by choosing one of the following:

A)Gain on sale is added to other cash flows to arrive at net cash from operating activities.
B)Gain on sale is subtracted from other cash flows to arrive at net cash from operating activities.
C)Gain on sale is not used to arrive at net cash from operating activities.

Question 29

Using the direct method,calculate the amount of cash receipts from sales.Show your work

Question 30

The direct method of preparing a statement of cash flows

A)eliminates the need for a schedule of noncash investing and financing transactions.
B)provides a different result than the indirect method.
C)adjusts net income for changes in current accounts.
D)shows cash receipts from sales.

Question 31

How is it possible for a company to show a net loss for a given year,yet produce positive net cash flows from operating activities?

Question 32

On a statement of cash flows prepared using the direct method,the amount representing cash paid for interest would

A)be shown in the net cash flows from financing activities section.
B)not be shown.
C)be shown in the net cash flows from investing activities section.
D)be shown in the net cash flows from operating activities section.