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Which of the following statements is false?


A) The method of preparing the operating activities section of a statement of cash flows which adjusts net income to remove the effects of deferrals and accruals for revenues and expenses is the indirect method.
B) The method of preparing the operating activities section of a statement of cash flows which reports major classes of gross cash receipts and cash payments for revenues and expenses is the direct method.
C) The FASB prefers the direct method of preparing the operating activities section of the statement of cash flows.
D) Most companies use the direct method of preparing the operating activities section of the statement of cash flows.

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

Correct Answer

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When using the direct method, how is the retirement of bonds payable at their maturity date shown on the statement of cash flows?


A) Operating activity
B) Investing activity
C) Financing activity
D) Noncash investing and financing activity

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

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Cuero Co.reported a net loss of $30,000 for 2015, yet its cash balance increased during the year.Which financial statement should Cuero's management refer to for an explanation of this situation?


A) Balance sheet
B) Income statement
C) Statement of Retained Earnings
D) Statement of Cash Flows

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

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Under the indirect method, a loss from the retirement of bonds is to net income in the operating activities section of the statement of cash flows.

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Issuance of stock results in cash inflows that appear in the financing section of the statement of cash flows.

A) True
B) False

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Cash flows from issuing and repurchasing stock or issuing and repaying retiring) debt are classified as


A) operating activities.
B) investing activities.
C) financing activities.
D) borrowing activities.

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

Correct Answer

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When using the indirect method, how is depreciation expense recorded on the statement of cash flows?


A) Operating activity
B) Investing activity
C) Financing activity
D) Noncash investing and financing activity

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

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Which of the following is not a current reporting requirement for a statement that reports changes in cash over a period of time?


A) This statement must classify cash flows into three categories: operating, investing, and financing activities.
B) Cash equivalents must be combined with cash in preparing this statement.
C) Working capital may be used as a substitute for cash in preparing this statement.
D) The title for this statement is "Statement of Cash Flows."

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

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are items which are readily convertible into a known amount of cash and have an original maturity to the investor of three months or less.

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Because the cash received from the sale of long-term assets is reported in the investing activities section of the statement of cash flows, any gain or loss is built into the cash received under the direct method.

A) True
B) False

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O'Bryan Company began the year with a balance of $18,000 in Salaries and Wages Payable and ended the year with $11,000 in the account.Salaries and Wages Expense for the period amounted to $91,000.Under the direct method, O'Bryan will report cash payments for salaries and wages of:


A) $84,000
B) $102,000
C) $109,000
D) $98,000

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

Correct Answer

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Which of the following statements is false?


A) A balance sheet reports a company's cash balance at a specific date.
B) An income statement reports the amounts of revenue and expense on an accrual basis, not the amount of cash received from revenues or paid for expenses.
C) A statement of retained earnings reports the amount of cash received from operating activities and the amount of cash paid for dividends.
D) A statement of cash flows explains the changes in cash from operating, investing, and financing activities.

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

Correct Answer

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Cash flows from acquiring and disposing of long-term assets are classified as


A) operating activities.
B) investing activities.
C) financing activities.
D) purchasing activities.

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

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Use the equation presented below to answer the question that follows: Cash = CL + LTL + CS + RE - NCCA - LTA Where: CL = Current liabilities LTL = Long-term liabilities CS = Common stock RE = Retained earnings NCCA = Noncash current assets LTA = Long-term assets Which of the following activities results in a cash inflow?


A) Increases in noncash current assets NCCA)
B) Decreases in current liabilities CL)
C) Increases in common stock CS)
D) Decreases in retained earnings RE)

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

Correct Answer

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The direct method of reporting cash flows from operating activities involves reconciling net income and cash flow from operations.

A) True
B) False

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Klein Corp.acquired land by issuing its common stock.How should this transaction be disclosed when a statement of cash flows is prepared?


A) In a supplemental schedule of noncash investing and financing activities or in a note.
B) The acquisition of land should be reported as an investing activity and the issuance of the stock as a financing activity.
C) Using the master T-account approach.
D) The transaction does not need to be disclosed.

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

Correct Answer

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Suma Corp.reported the following information for 2015 and 2016. Suma Corp.reported the following information for 2015 and 2016. How much cash was paid for salaries during 2016? A) $55,100 B) $55,200 C) $57,000 D) $58,900 How much cash was paid for salaries during 2016?


A) $55,100
B) $55,200
C) $57,000
D) $58,900

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

Correct Answer

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Which of the following operating activities results in a cash outflow?


A) Paying creditors for merchandise
B) Collecting accounts receivable
C) Making cash sales
D) Receiving deposits recorded as unearned revenue

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

Correct Answer

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Which of the following transactions is a significant noncash investing and financing activity?


A) Land is purchased for cash.
B) Bonds are issued for cash.
C) Cash equivalents are purchased.
D) Equipment is acquired by issuing a long-term note.

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

Correct Answer

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Which of the following is not an investing activity?


A) Purchase of investments for cash.
B) Purchase of equipment for cash.
C) Sale of merchandise for cash.
D) Sale of land for cash.

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

Correct Answer

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