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? 

a.  The purchase of long-lived assets

b.  The acquisition of treasury stock

c.  The retirement of bonds

d.  The payment of prepaid insurance

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

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

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

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

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

3.  Which of the following does not represent a cash flow relating to operating activities?  

a.  Cash dividends paid to stockholders

b.  Cash received from customers

c.  Interest paid to bondholders

d.  Cash paid for salaries

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

a.  an adjustment to net income under the indirect method.

b.  an operating activity under the direct method.

c.  an investing activity cash outflow.

d.  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  

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

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

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

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