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Assume that the direct method is used to prepare the operating activities section of the statement of cash flows.Which of the following statements is correct concerning a decrease in Accounts Payable?


A) Since the cash payments were more than the credit purchases,the decrease must be added to purchases to calculate cash payments to suppliers.
B) Since the cash payments were less than credit purchases,the decrease must be added to purchases to calculate cash payments to suppliers.
C) Since the cash payments were more than credit purchases,the decrease must be subtracted from purchases to cash payments to suppliers.
D) Since the cash payments were less than credit purchases,the decrease must be subtracted from purchases to calculate cash payments to suppliers.

E) B) and C)
F) A) and C)

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The direct exchange of debt for equipment would be shown:


A) on the statement of cash flows as an operating activity.
B) on the statement of cash flows as an investing activity.
C) on the statement of cash flows as a financing activity.
D) as a supplementary disclosure to the statement of cash flows.

E) B) and C)
F) A) and D)

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Mill Garden Company's income statement for the year shows a net loss of $135,000.Additional information for the year follows:  Depreciation Expense $60,000 Increase in Accounts Receivable 108,000 Decrease in Inventory 37,500 Decrease in Prepaid Rent 13,500 Decrease in Accounts Payable 16,500\begin{array}{lr}\text { Depreciation Expense } & \$ 60,000 \\\text { Increase in Accounts Receivable } & 108,000 \\\text { Decrease in Inventory } & 37,500 \\\text { Decrease in Prepaid Rent } & 13,500 \\\text { Decrease in Accounts Payable } & 16,500\end{array} What is the net cash provided by (used in) operating activities?


A) ($148,500)
B) $40,500
C) $19,500
D) ($67,500)

E) C) and D)
F) B) and D)

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When the indirect method is used,details from which of the following balance sheet accounts are used in calculating both operating and financing cash flows?


A) Bonds Payable
B) Taxes Payable
C) Retained Earnings
D) Common Stock

E) None of the above
F) A) and D)

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The reporting of financing activities is identical under the indirect and direct methods for the statement of cash flows on the statement of cash flows.

A) True
B) False

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Assume that a company chooses the indirect method to determine net cash flows from operating activities. Required: Part a.Explain why net income is the starting point when the indirect method is used to determine cash flows from operating activities. Part b.Briefly explain why a company's net income is most likely different in amount than its cash flows from operating activities.

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Part a
The cash flows from operating act...

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When preparing the operating activities section of the statement of cash flows using the indirect method,accumulated depreciation is added to net income in the operating section.

A) True
B) False

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Marion Manufacturing had the following cash flows for the current year.The company uses the direct method in preparing the statement of cash flows.  Cash receipts from issuance of stock 60,000 Bonds payable issued at face value 250,000 Cash dividends received from long-term investments 4,500 Cash paid for wages 20,000 Cash paid for dividends 5,000 Cash received from customers 42,500 Cash paid for other operating expenses 19,500 Cash paid to purchase equipment 100,000\begin{array}{lr}\text { Cash receipts from issuance of stock } & 60,000 \\\text { Bonds payable issued at face value } & 250,000 \\\text { Cash dividends received from long-term investments } & 4,500 \\\text { Cash paid for wages } & 20,000 \\\text { Cash paid for dividends } & 5,000 \\\text { Cash received from customers } & 42,500 \\\text { Cash paid for other operating expenses } & 19,500\\\text { Cash paid to purchase equipment }&100,000\end{array} What is the net cash provided by (used in) investing activities?


A) ($100,000)
B) $210,000
C) $205,000
D) ($95,000)

E) A) and B)
F) A) and C)

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Bailey Hill Co.uses the indirect method to determine its net cash flows from operating activities.During the course of the year,the company's Accounts Receivable increased by $28,000 and its Accounts Payable decreased by $14,000.If these are the only two adjustments required to convert net income to net cash provided by operating activities,the combined effect will be a(n) :


A) subtraction of $14,000.
B) addition of $14,000.
C) addition of $42,000.
D) subtraction of $42,000.

E) None of the above
F) A) and B)

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Match each term with the appropriate definition.Not all definitions will be used. -Indirect Method


A) A measure of the amount by which current assets exceed current liabilities.
B) Cash inflows and outflows related to the sale or purchase of investments and long-lived assets.
C) Include assets that are very liquid and are purchased by the entity within three months of maturity.
D) These activities include only purchases made with borrowed funds.
E) Must include cash paid for interest and income tax in a separate schedule.
F) Measures the ability of a company to finance its interest payments with its operating cash flow before taxes and interest.
G) Cash inflows and outflows related to financing sources external to the company (owners and lenders) .
H) These activities include money lent by a company as well as money borrowed by a company.
I) Reports the components of cash flows from operating activities as gross receipts and gross payments.
J) This ratio uses net income instead of operating cash flow to analyze a company's ability to finance the cost of its debt.
K) Cash inflows and outflows related to components of net income.
L) Presents the operating activities section of the cash flow statement by adjusting net income to compute cash flows from operating activities.

M) B) and H)
N) A) and B)

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Which of the following would be reported as a cash outflow from investing activities?


A) Donating an old piece of equipment to charity.
B) Repaying the principal of a bond.
C) Buying another company's bonds with cash.
D) Acquiring an investment security by issuing company stock.

E) B) and C)
F) B) and D)

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Cash flows from financing activities can include:


A) selling goods on credit.
B) acquiring long-lived assets.
C) issuing long-term debt.
D) purchasing inventory on credit.

E) None of the above
F) C) and D)

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Maya Company's purchase of 100 shares of Labrador Inc.common stock would be reported as a financing activity on its statement of cash flows.

A) True
B) False

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Equipment with a cost of $20,000 and a book value of $6,000 was sold during the year for cash of $18,000.Additional equipment was purchased during the year for cash. The company uses the indirect method in preparing the statement of cash flows.What is the amount of depreciation expense that will be reported in the operating activities section of the statement? A) $8,000 B) $22,000 C) $14,000 D) $20,000 Equipment with a cost of $20,000 and a book value of $6,000 was sold during the year for cash of $18,000.Additional equipment was purchased during the year for cash. The company uses the indirect method in preparing the statement of cash flows.What is the amount of depreciation expense that will be reported in the operating activities section of the statement?


A) $8,000
B) $22,000
C) $14,000
D) $20,000

E) A) and B)
F) None of the above

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Cash provided by issuing stock to owners should be reported as cash:


A) inflows from financing activities.
B) outflows from financing activities.
C) inflows from investing activities.
D) outflows from investing activities.

E) A) and B)
F) A) and C)

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When the direct method is used to determine the cash flows from operating activities,other operating expenses are converted into cash outflows by:


A) adding changes in prepaid expenses and accrued liabilities to other expenses.
B) subtracting increases in prepaid expenses and subtracting decreases in accrued liabilities from other expenses.
C) adding increases in prepaid expenses and adding decreases in accrued liabilities to other expenses.
D) subtracting changes in prepaid expenses and accrued liabilities from other expenses.

E) C) and D)
F) None of the above

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Assume a company uses the indirect method to prepare its statement of cash flows.If the Supplies account decreases and Salaries and Wages Payable increases during an accounting period,what does the company do with the changes in these accounts to calculate cash flows from operating activities?


A) Both are subtracted from net income.
B) The change in Salaries and Wages Payable is added to net income;the change in Supplies is subtracted from net income
C) Both are added to net income.
D) The change in Supplies is added to net income;the change in Salaries and Wages Payable is subtracted from net income.

E) None of the above
F) B) and D)

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Ashley Co.uses the direct method in calculating its cash flow from operations.Which of the following items will not have an effect on cash flow from operating activities?


A) Increase in inventory.
B) Payment of dividends to stockholders.
C) Cash collections from customers.
D) Payment of interest to lenders.

E) B) and C)
F) All of the above

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Investing activities include receiving cash from the sale of land and also the resulting gain or loss on the sale.

A) True
B) False

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Almost all U.S.companies have used the indirect method of preparing the statement of cash flows:


A) because most users of the financial statements do not understand the direct method.
B) in spite of the FASB's stated preference for the direct method.
C) because it usually requires less space in the annual report.
D) so that stockholders cannot determine how much cash was spent on executives' salaries.

E) A) and C)
F) None of the above

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