Preparing the operating activities section of the statement of cash flows using the direct method.
1) The method of reporting cash flows from operating activities under which revenues and expenses on the income statement are adjusted to reflect the amount of cash received or expended for each item is the
A) direct method.
B) indirect method.
C) combination method.
D) adjustment method.
2) Many accountants prefer which method of computing cash flow from operating activities?
A) Combination method
B) Direct method
C) Indirect method
D) Adjusting method
3) Amortization on factory equipment would be reported in the statement of cash flows prepared by the indirect method in
A) the operating activities section.
B) the financing activities section.
C) the investing activities section.
D) None of the above.
4) Cost of merchandise sold for the year was $850,000. Inventories were $60,000 and $90,000 at the beginning and end of the year, respectively. There were no changes in accounts payable from the beginning to the end of the year. Cash payment for merchandise to be reported on the cash flow statement using the direct method is
5) Operating expenses other than amortization for the year were $335,000. Prepaid expenses decreased by $7,000. Cash payments for operating expenses to be reported on the cash flow statement using the direct method would be
6) Operating expenses other than amortization for the year were $400,000. Accrued expenses increased by $35,000. Cash payments for operating expenses to be reported on the cash flow statement using the direct method would be
7) Which would not go into the operating activities section of a statement of cash flows using the direct method?
A) Amortization expense
B) Payment for dividends
C) Selling of plant, property and equipment
D) All of the above.
8) Under the direct method, each line of the income statement is converted to cash paid or received.
9) Amortization is shown only when using the direct method of preparing a statement of cash flow.
10) The direct method must be used to report cash flows from operating activities in the statement of cash flows.
11) To determine cash received from customers for the cash flow statement using the direct method, a decrease in accounts receivable is added to sales.
12) When amortization expense is added back to net income, the direct method is being applied.
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