Chapter 23

The first step in the preparation of the statement of cash flows requires the use of information included in which comparative financial statements?

balance sheets

Crabbe Company reported $80,000 of selling and administrative expenses on its income statement for the past year. The company had depreciation expense and an increase in prepaid expenses associated with the selling and administrative expenses for the year. Assuming use of the direct method, how would these items be handled in converting the accrual based selling and administrative expenses to the cash basis?

deducted from depreciation. added to increase in prepaid expenses.

The amortization of bond premium on long-term debt should be presented in a statement of cash flows (using the indirect method for operating activities) as a(n)

deduction from net income

An increase in inventory balance would be reported in a statement of cash flows using the indirect method (reconciliation method) as a(n)

deduction from net income in arriving at net cash flow from operating activities.

An objective of the statement of cash flows is to

provide information about the operating, investing, and financing activities of an entity during a period.

Which of the following is false concerning the statement of cash flows?

The FASB requires companies to classify all income taxes paid as operating cash outflows.

Which of the following statements about the statement of cash flows is correct?

The direct method is more consistent with the primary purpose of the statement of cash flows.

How should significant noncash transactions be reported in the statement of cash flows according to FASB Statement No. 95?

These noncash transactions are not to be incorporated in the statement of cash flows. They may be summarized in a separate schedule at the bottom of the statement or appear in a separate supplementary schedule to the financials.

When preparing a statement of cash flows (indirect method), which of the following is not an adjustment to reconcile net income to net cash provided by operating activities?

a change in dividends payable

In a statement of cash flows, the cash flows from investing activities section should report

a major repair to machinery charged to accumulated depreciation.

The primary purpose of the statement of cash flows is to provide information

about the cash receipts and cash payments of an entity during a period

Dolan Company reports its income from investments under the equity method and recognized income of $25,000 from its investment in Moss Co. during the current year, even though no dividends were declared or paid by Moss during the year. On Dolan's statement of cash flows (indirect method), the $25,000 should

be shown as a deduction from net income in the cash flows from operating activities section.

When preparing a statement of cash flows (indirect method), an increase in ending inventory over beginning inventory will result in an adjustment to reported net earnings because

cost of goods sold on an accrual basis is lower than on a cash basis.

To arrive at net cash provided by operating activities, it is necessary to report revenues and expenses on a cash basis. This is done by

eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash.

In reporting unusual items on a statement of cash flows (indirect method), the

gross amount of an unusual gain should be deducted from net income.

Which of the following would be classified as a financing activity on a statement of cash flows?

payment of a bond payable

In determining net cash flow from operating activities, a decrease in accounts payable during a period

requires an increase adjustment to cost of goods sold under the direct method.

A statement of cash flows typically would not disclose the effects of

stock dividends declared

Xanthe Corporation had the following transactions occur in the current year: 1. Cash sale of merchandise inventory. 2. Sale of delivery truck at book value. 3. Sale of Xanthe common stock for cash. 4. Issuance of a note payable to a bank for cash. 5. Sale of a security held as an available-for-sale investment. 6. Collection of loan receivable. How many of the above items will appear as a cash inflow from investing activities on a statement of cash flows for the current year?

three items

When preparing a statement of cash flows, a decrease in accounts receivable during a period would cause which one of the following adjustments in determining cash flow from operating activities?

Direct Method: Increase. Indirect Method:Increase

Declaration of a cash dividend on common stock affects cash flows from operating activities under the direct and indirect methods as follows:

Direct Method: No Effect Indirect Method: No Effect

Of the following questions, which one would not be answered by the statement of cash flows?

Were all the cash expenditures of benefit to the company during the period?

When preparing a statement of cash flows, an increase in accounts payable during a period would require which of the following adjustments in determining cash flows from operating activities?

Indirect Method: Increase Direct Method: Decrease

Which of the following is shown on a statement of cash flows?

None of these answers are correct. (A stock dividend. A stock split. An appropriation of retained earnings

A company borrows $10,000 and signs a 90-day nontrade note payable. In preparing a statement of cash flows (indirect method), this event would be reflected as a(n)

cash inflow from financing activities.

Cash equivalents are

All of these answers are correct. (treasury bills, commercial paper, and money market funds purchased with excess cash. Investments with original maturities of 3 months or less, readily convertible into known amounts of cash.)

When using the indirect method to prepare the operating section of a statement of cash flows, which of the following is added to net income to compute cash provided by/used by operating activities?

Amortization of patent.

When using the indirect method to prepare the operating section of a statement of cash flows, which of the following is deducted from net income to compute cash provided by/used by operating activities?

Gain on sale of land

When preparing a statement of cash flows, the following are used for which method in determining cash flows from operating activities?

Gross Accounts Receivable: Direct Net Accounts Receivable: Indirect

When preparing a statement of cash flows, a decrease in prepaid insurance during a period would require which of the following adjustments in determining cash flows from operating activities?

Indirect Method: Increase Direct Method: Decrease