1. Cash flows that result from the purchase or sale of productive assets
are
Multiple choice question.
financing activities.
operating activities.
incorrect
investing activities.
Correct AnswerQuestion
investing activities.
2. Categories of cash inflows and outflows of operating activities that are
required to be reported under the direct method include
Multiple select question.
income taxes paid.
correct
interest received.
incorrect
issuance of stock.
interest paid.
correct
dividends paid.
incorrect
Correct AnswerQuestion
income taxes paid.
interest received.
interest paid.
3. True or false: Both the direct method and indirect method will arrive at
the same amount for cash flow from operating activities.
True false question.
True
Falseincorrect
Reason:&
This is true. They are just different methods of arriving at the same amount.
Correct AnswerQuestion
True
4. True or false: The majority of public companies use the direct method
of preparing cash flows from operating activities.
True false question.
Trueincorrect
Reason:&
Most companies use the indirect method
False
Correct AnswerQuestion
False
5. Gratiot Corporation reported income tax expense of $13,500 on its
income statement. It had income taxes payable of $4,000 at the
beginning of the year and $3,475 at the end of the year. How does this
affect cash provided by operating activities in a cash flow statement?
Multiple choice question.
The cash paid for income taxes is $12,975.
incorrect
The decrease in income taxes payable $525 is subtracted from net income
using the indirect method.
The decrease in income taxes payable $525 is added to net income using the
indirect method.
The cash paid for income taxes is $13,500.
Correct AnswerQuestion
The decrease in income taxes payable $525 is subtracted from net income
using the indirect method.
6. Firms using the direct method of reporting operating activities
Multiple choice question.
must add back depreciation because it does not include the outflow of cash.
incorrect
must present major classes of gross receipts and disbursements.
do not include investing and financing sections on the statement of cash
flows.
must add back income taxes paid.
Correct AnswerQuestion
must present major classes of gross receipts and disbursements.
7. Which of the following are reasons that the overwhelming majority of
public companies use the indirect method of preparing cash flow
statements?
Multiple select question.
The indirect method produces a higher amount of cash provided by
operating activities.
incorrect
The indirect method does not require a reconciliation of net income to
net operating cash flow.
The indirect method characterizes cash flow in a way that many
analysts find useful.
incorrect
The indirect method relies exclusively on data already available in
accrual accounts.
correct
Correct AnswerQuestion
The indirect method characterizes cash flow in a way that many
analysts find useful.
The indirect method relies exclusively on data already available in
accrual accounts.
8. Which of the following are true of deferred income taxes with regards
to an indirect method cash flow statement?
Multiple select question.
An increase in net deferred tax liabilities must be added to accrual-
basis net income in the cash flow statement.
incorrect
A decrease in net deferred tax liabilities must be subtracted from
accrual-basis net income.
correct
An increase in net deferred tax liabilities must be subtracted from
accrual-basis net income in the cash flow statement.
A decrease in net deferred tax liabilities must be added to accrual-
basis net income in the cash flow statement.
incorrect
Correct AnswerQuestion
An increase in net deferred tax liabilities must be added to accrual-
basis net income in the cash flow statement.
A decrease in net deferred tax liabilities must be subtracted from
accrual-basis net income.
9. Which of the following items would be subtracted from accrual-basis
net income in determining cash flows from operating activities using
the indirect method?
Multiple choice question.
a decrease in accounts receivable
incorrect
loss on the sale of equipment
a increase in salaries and wages payable
an increase in inventory
Correct AnswerQuestion
an increase in inventory
10. True or false: The majority of public companies use the direct
method of preparing cash flows from operating activities.
True false question.
Trueincorrect
Reason:&
Most companies use the indirect method
False
Correct AnswerQuestion
False
11. An increase in prepaid expenses
Multiple choice question.
is added to accrual earnings to obtain operating cash flows using the indirect
method.
incorrect
is deducted from accrual earnings to obtain operating cash flows using the
indirect method.
is included in investing cash flows using the indirect method.
is included in financing cash flows using the indirect method.
Correct AnswerQuestion
is deducted from accrual earnings to obtain operating cash flows using the
indirect method.
12. An increase in income tax payable
Multiple choice question.
is added to net income in calculating operating cash flows using the direct
method.
incorrect
is subtracted from net income in calculating operating cash flows using the
indirect method.
is subtracted from net income in calculating investing cash flows using the
direct method.
is added to net income in calculating operating cash flows using the indirect
method.
Correct AnswerQuestion
is added to net income in calculating operating cash flows using the indirect
method.
13. An increase in accrued expenses
Multiple choice question.
is shown in financing cash flows using the indirect method.
is shown as an addition to accrual earnings to arrive at operating cash flows
using the indirect method.
is shown as a deduction from accrual earnings to arrive at operating cash
flows using the indirect method.
incorrect
does not impact the cash flow statement.
Correct AnswerQuestion
is shown as an addition to accrual earnings to arrive at operating cash flows
using the indirect method.
14. Which of the following is not generally helpful in reconciling
differences that result from year-to-year changes in comparative
balance sheet accounts not coinciding with the changes implied from
amounts reported on the cash flow statements?
Multiple choice question.
Information in the operating activities section of the cash flow statement
IRS tax code.
Information in the income statement
Disclosures in notes
incorrect
Correct AnswerQuestion
IRS tax code.
15. Which of the following is a reason that some claim to justify their
preference of the direct method over the indirect method for
computing net cash provided by operating activities?
Multiple choice question.
The direct method discloses operating cash flows by category which
facilitates cash flow predictions.
The direct method provides yardsticks for evaluating quality of earnings.
The indirect method will result in less conservative net cash provided by
operating activities.
The direct method will result in higher net cash provided by operating
activities.
incorrect
Correct AnswerQuestion
The direct method discloses operating cash flows by category which
facilitates cash flow predictions.
16. Firms using the indirect method are required to separately
disclose the amount of
Multiple choice question.
interest received.
incorrect
interest paid.
interest accrued.
dividends received..
Correct AnswerQuestion
interest paid.
17. A decrease in accrued expenses
Multiple choice question.
is shown as an addition to accrual earnings to arrive at operating cash flows
using the indirect method.
incorrect
is shown in financing cash flows using the indirect method.
does not impact the cash flow statement.
is shown as a deduction from accrual earnings to arrive at operating cash
flows using the indirect method.
Correct AnswerQuestion
is shown as a deduction from accrual earnings to arrive at operating cash
flows using the indirect method.
18. Zero-coupon bond settlement should be
Multiple choice question.
included in operating cash flows only.
allocated between operating and financing cash flows.
included in investing cash flows only.
incorrect
allocated between investing and financing cash flows.
Correct AnswerQuestion
allocated between operating and financing cash flows.
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