1. Which of the following is reported as an operating activity in the statement of cash flows?

1.  Which of the following is reported as an operating activity in the statement of cash flows? 

 The payment of dividends

 The sale of office equipment

 The payment of interest on long-term notes

 The issuance of a stock dividend

2.  Cash paid to suppliers under the direct method is computed as 

 cost of goods sold plus a decrease in inventory and minus an increase in accounts payable.

 cost of goods sold plus an increase in inventory and minus an increase in accounts payable.

 cost of goods sold minus a decrease in inventory and plus an increase in accounts payable. 

 cost of goods sold minus an increase in inventory and plus an increase in accounts payable.

3.  Which of the following is not reported as an adjustment to net income when using the indirect method of computing net cash flows from operating activities? 

 Cash dividends paid

 A change in accounts receivable

 Depreciation

 A change in a prepaid expense

4.  A loss on the sale of machinery should be reported in the statement of cash flows as: 

 an adjustment to net income under the indirect method.

 an operating activity under the direct method.

 an investing activity cash outflow.

 a non-cash investing activity.

5.  Each year, White Mountain Enterprises (WME) prepares a reconciliation schedule that compares its income statement with its statement of cash flows on both the direct and indirect method bases.

In its 2011 income statement, WME reported $58,000 for insurance expense. WME paid $72,000 in insurance premiums during 2011. In its reconciliation schedule, WME should 

 show a $14,000 positive adjustment to net income under the indirect method for the increase in prepaid insurance.

 show a $14,000 negative adjustment to net income under the indirect method for the decrease in prepaid insurance.

 show a $14,000 negative adjustment to net income under the indirect method for the increase in prepaid insurance.    

 show a $14,000 positive adjustment to net income under the indirect method for the decrease in prepaid insurance.