MC - STATEMENT OF CASHFLOWS

Under the indirect method of determining net cash provided by operating activities, which of the following would be recorded as a deduction from net income?

• A decrease in accounts receivable.

• An increase in salaries payable.

• A decrease in accounts payable.

• An increase in deferred tax liability

An increase in the Inventory account of a company from $10,000 at the beginning of the year to $15,000 at the end of the year would be shown on the company's statement of cash flows prepared under the indirect method as:

• An addition to net income of $5,000 in order to arrive at cash flows from operating activities.

• A deduction from net income of $5,000 in order to arrive at cash flows from operating activities.

• An addition to net income of $15,000 in order to arrive at cash flows from operating activities.

• A deduction from net income of $10,000 in order to arrive at cash flows from operating activities.

An increase in the Interest Payable account of a company from $0 at the beginning of the year, to $1,000 at the end of the year, would be shown on the company's statement of cash flows prepared under the indirect method as:

• An addition to net income of $1,000 in order to arrive at cash flows from operating activities.

• A deduction from net income of $1,000 in order to arrive at cash flows from operating activities.

• A cash flow of $1,000 under the Investing Activities

  heading.

• A cash flow of $1,000 under the Financing Activities

  heading.

Which of the following would be considered a "use" of cash for purpose of constructing a statement of cash flows?

• Selling the company's own common stock to investors.

• Issuing long-term debt.

• Purchasing equipment.

• Amortizing a patent

Answer explanation

Purchasing equipment.

Which of the following would be considered a "use" of cash for purposes of constructing a statement of cash flows?

• An increase in accounts receivable.

• A decrease in prepaid expenses.

• An increase in bonds payable.

• An increase in accumulated depreciation

Which of the following would be considered a "use" of cash for purposes of constructing a statement of cash flows?

• An increase in accounts payable.

• An increase in prepaid expenses.

• An increase in accrued liabilities.

• An increase in accumulated depreciation.

An increase in the prepaid expenses account of $1,000 over the course of a year would be shown on the company's statement of cash flows prepared under the indirect method as:

• An addition to net income of $1,000 in order to arrive at net cash provided by operating activities.

• A deduction from net income of $1,000 in order to arrive at net cash provided by operating activities.

• An addition of $1,000 under financing activities.

• A deduction of $1,000 under financing activities.

When using the indirect method to prepare the statement of cash flows, amortization of goodwill should be presented as a(n):

• Cash flow from investing activities.

• Cash flow from financing activities.

• Deduction from net income.

• Addition to net income.

• Investing and financing activity not affecting cash.

During the year the balance in the accounts payable account decreased by $8,000. In order to adjust the company's net income to a cash basis using the direct method on the statement of cash flows, it would be necessary to:

• Deduct the $8,000 from the sales revenue reported on the income statement.

• Add the $8,000 to the sales revenue reported on the income statement.

• Deduct the $8,000 from the cost of goods sold reported on the income statement.

• Add the $8,000 to the cost of goods sold reported on the income statement.

During the year the balance in the accrued liabilities account increased by $12,000. In order to adjust the company's net income to a cash basis using the direct method on the statement of cash flows, it would be necessary to:

• Deduct the $12,000 from the operating expenses on the income statement.

• Add the $12,000 to the operating expenses on the income statement.

• Deduct the $12,000 from the cost of goods sold reported on the income statement.

• Add the $12,000 to the cost of goods sold reported on the income statement.