11B

the following provides an indication of a higher quality of net income

Operating cash flows that are highly correlated with net income

Using the indirect method to report cash flows from operating activities, decrease in the inventory account will be ______ net income to arrive at net cash flow provided by operating activities.

added back to Reason: A decrease in inventory indicates that inventory that had been purchased during a previous period did not result in a decrease to cash.

When preparing the statement of cash flows using the indirect method, depreciation expense is ______ ______ net income.

added to

Repayments of formal, long-term debt contracts are classified as ______ activities.

financing

In preparing the operating activities section of a statement of cash flows using the indirect method, net income should be adjusted for

gain from sale of asset. loss from sale of asset. depreciation expense.

A decrease in prepaid insurance is added to net income because

insurance expense decreased net income; however, cash was not paid. The prepaid insurance account was decreased rather than cash.

Cash flows from ____ activities are both outflows and inflows of cash related to the acquisition and disposal of long-term assets.

investing

By analyzing changes in long-term asset accounts, we can derive cash flows from

investing activities

An increase in accounts receivable indicates that the company collected ______ cash than the amount of ______.

less; sales revenue

the items that would be added to net income in order to prepare the operating activities section of a statement of cash flows - indirect method

loss on sale of land depreciation expense decrease in current asset

Diamond Company's land account decreased by 10 million. Cash received from sale of land

may be higher or lower than $10 million.

Gains and losses on the sale of long-term assets represent common ______ items needing adjustment under the indirect method.

non operating

Depreciation expense and amortization expense represent _____ requiring adjustments to net income under the indirect method.

noncash

Changes to current assets and current liabilities require adjustment of net income under the indirect method because

related cash may be higher or lower than the accrued amount included in net income

the following accounts results in adjustments to net income under the indirect method of preparing the statement of cash flows if their balances change during the year

Accounts receivable Inventory Accounts payable

Joann is preparing a statement of cash flows as part of a homework assignment. She hopes to find a check figure that will help her assess the accuracy of her results. What should Joann do to quickly find a check figure?

Calculate the change in the beginning and ending balance of cash

the following statements best describes the reason depreciation expense is added to net income when preparing the statement of cash flows

Depreciation expense originally reduced net income, but it is a noncash expense.

the following are nonoperating items that require adjustments under the indirect method

Gains on the sale of long-term assets Losses on the sale of long-term assets

The balance of retained earnings:

decreases with dividends declared increases with net income

the items that would be subtracted from net income in order to prepare the operating activities section of a statement of cash flows - indirect method.

gain on sale of land decrease in current liability

The starting point for preparing the operating activities section using the indirect method is:

net income

An increase in prepaid insurance is subtracted from net income because

the company paid additional premiums this period in excess of the insurance expense recorded on the income statement.

Under the indirect method of preparing the statement of cash flows, depreciation expense is added back to net income because it

was subtracted in deriving net income. did not require an outflow of cash.

the following represents the first step in preparing a statement of cash flows in the correct order

calculate the net cash flows from operating activities

Combining cash from operating, investing, and financing activities should yield a number that is identical to the

change in cash balance during the year

Using the indirect method to report cash flows from operating activities, a(n) ___ (increase/decrease) in the accounts receivable from the prior period is added to net income in the ____ activities section of the statement of cash flows.

decrease; operating

The two acceptable methods for U.S. GAAP for reporting cash flows from operating activities are the ___ method and the __ method.

direct; indirect

items that would be subtracted from net income in order to prepare the operating activities section of a statement of cash flows - indirect method

gain on sale of land decrease in current liability

The ____ method of reporting cash flows from operating activities begins with net income.

indirect

One of the purposes of adjusting net income for changes to certain balance sheet accounts is to

convert items included in net income to cash.

Using the ____ method of reporting cash flows from operating activities, we show cash received from customers and cash paid to employees.

direct

When using the indirect method to prepare the operating activities section of the statement of cash flows, the first amount listed is

net income

Noncash items, nonoperating items, and changes in current assets and liabilities are necessary adjustments to ____ to prepare the operating section for the indirect format of the statement of cash flows.

net income

the following methods for reporting cash flows from operating activities begins with net income and works backward to calculate net cash flow from operating activities

Indirect method

Adjustments to net income in calculating operating cash flows include:

Noncash items Nonoperating items Changes in current assets and current liabilities

True or false: If a company chooses to prepare the operating section of the statement of cash flows using the direct method, it must also report using the indirect method.

True Reason: The indirect method of presenting the operating section is a required disclosure when the direct method is used.

When reporting cash flows from operating activities using the indirect method, an increase in accounts payable is ______ net income because payments to suppliers are ______ than new purchases.

added to; less

the following are common noncash items requiring adjustment to net income under the indirect method

amortization expense depreciation expense

When cash from operating activities is presented using the indirect method, net income must be adjusted for increases and decreases in balance sheet accounts that relate to

amounts presented in the income statement.

The direct method for preparing the statement of cash flows reports

cash received and cash paid from operating activities.

The direct method for reporting cash flows from operating activities reports cash inflows and outflows from operations such as:

cash received from customers payments for inventory

the following represents the final step in preparing a statement of cash flows in the correct order

combine operating, investing, and financing activities

When cash flows from operating activities are reported using the indirect method, a(n) ______ in accounts payable will be subtracted from net income.

decrease

When the indirect method is used to report cash flows from operating activities, a decrease in accrued liabilities, such as wages payable, is subtracted from net income to include the effects of transactions that ______ cash, but ______ net income.

decrease; do not affect

The primary purpose of the statement of cash flows is to report activities that increased or decreased cash during the year and to group those activities based on

operating, investing, and financing

In a statement of cash flows, the sum of cash inflows and outflows is equal to

the change in the cash balance.

Wiese Company presents its statement of cash flows using the direct method. Wiese must also prepare the operating section using the indirect method and report it:

either along with the direct method on the face of the statement or in the financial statement notes

Western Inc.'s income statement showed net income of $60,000 and depreciation expense of $10,000. Accounts receivable decreased $3,000, Inventory increased $4,000, Supplies increased $1,000, and Accounts payable increased $3,000. Western's net cash flows from operating activities was ______.

$71,000 Reason: Net cash flow from operating activities = $60,000 + 10,000 + 3,000 - 4,000 - 1,000 + 3,000

Grant's income statement reveals a loss from the sale of land. In preparing the operating activities section of the statement of cash flows using the indirect format, the loss should be

added to net income.

An _____ in accrued liabilities, such as interest payable, will be added to net income when determining net cash flow from operating activities using the indirect method.

increase

Depreciation expense is added back to net income when preparing the cash flow from operating activities section because depreciation represents a(n) ______ reduction to net income.

noncash

The basic purpose of the statement of cash flows is to

report the activities that changed the cash balance during the year

Using the indirect method to report cash flows from operating activities, an increase in the inventory account will be ______ net income to arrive at net cash flow provided by operating activities.

subtracted from

The two types of adjustments to net income for the indirect method are adjustments for

changes in operating assets and liabilities during the period that affected cash and were not in net income. components of net income that do not affect cash.

the items that would be added to net income in order to prepare the operating activities section of a statement of cash flows - indirect method.

depreciation expense decrease in current asset loss on sale of land

During the current period, Kunze Corp. disposed of old equipment for $2,000, purchased new equipment for $20,000, collected an accounts receivable balance of $2,500, and purchased an investment for $3,000. Net cash from investing activities is

$21,000 net outflow. Reason: 2,000 - 20,000 - 3,000

the following would result in a cash outflow from investing activities

Purchase of a machine for cash.