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When using the spreadsheet approach for preparing a Statement of Cash Flows using the indirect method, one half of the spreadsheet reflects changes in balance sheet accounts and the other half is used to demonstrate their effect on cash flows.

A) True
B) False

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Which of the following are used to determine cash flows from financing activities?


A) Short-term debt, accrued liabilities, contributed capital, and notes payable.
B) Long-term debt, contributed capital, and retained earnings.
C) Short-term debt, accrued liabilities, retained earnings, and bonds payable.
D) Long-term debt, notes payable, interest expense, and bonds payable.

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

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Which of the following statements regarding the calculation of cash flows from operating activities under the direct method is true?


A) When the direct method is used, each revenue and expense account on the income statement is individually adjusted to calculate net cash flows from operating activities.
B) Noncash revenues and expenses must be included in net cash flows from operating activities when preparing a Statement of Cash Flows using the direct method.
C) Depreciation is reported as a cash inflow in the cash flows from operating activities when the direct method is used.
D) A loss on the sale of a long-term asset is subtracted in the cash flows from operating activities when the

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

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If net cash flow from operating activities is unchanged, but net income is increasing, the quality of income ratio will:


A) rise, which may signal that revenue is being recorded later and/or expenses earlier than in the past.
B) fall, which may signal that revenue is being recorded later and/or expenses earlier than in the past.
C) fall, which may signal that revenue is being recorded earlier and/or expenses later than in the past.
D) rise, which may signal that revenue is being recorded earlier and/or expenses later than in the past.

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

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Which of the following statements regarding calculation of cash flows from operating activities under the indirect method is true?


A) When the indirect method is used, changes in current liabilities are subtracted while changes in current assets are added to convert net income to net cash flows from operating activities.
B) When the indirect method is used, depreciation expense is added to net income as a step in the process of calculating net cash flows from operating activities.
C) When the indirect method is used, gains on the sale of property, plant and equipment are added to convert net income to net cash flows from operating activities.
D) When the indirect method is used, changes in long-term liabilities are subtracted to convert net income to net cash flows from operating activities.

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

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When a company uses the direct method to determine the net cash flows from operating activities, cash flows from operating activities will:


A) be identical to the amount reported using the indirect method.
B) be larger if there is a net cash inflow and smaller if there is a net cash outflow compared to the amount reported using the indirect method.
C) always be larger than the amount reported using the indirect method.
D) be larger if there is a net cash outflow and smaller if there is a net cash inflow co mpared to the amount reported using the indirect method.

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

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A company loaned $1,000,0000 with interest at 7% to another company. The interest revenue from this loan would be reported on the statement of cash flows as


A) cash inflows from operating activities.
B) cash inflows from investing activities.
C) cash inflows from financing activities.
D) noncash transaction in a supplemental disclosure.

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

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Brighton, Inc., 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 $10,000 and its accounts payable decreased by $5,000. As a result of these two items, the calculation to determine cash flows from operating activities will be:


A) increased by $5,000.
B) decreased by $5,000.
C) increased by $15,000.
D) decreased by $15,000.

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

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What is the first step in calculating cash flows from operations when the indirect method is used?


A) Find net income on the income statement.
B) Calculate the net change in the cash account.
C) Add the change in accounts receivable to sales revenue.
D) Identify the balance sheet accounts that relate to operating activities.

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

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If accounts receivable are increasing faster than net income, other things being equal, net cash flows from operating activities will:


A) increase, so the Quality of Income Ratio will fall.
B) decrease, so the Quality of Income Ratio will fall.
C) increase, so the Quality of Income Ratio will rise.
D) decrease, so the Quality of Income Ratio will rise.

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

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Consider the following information: Consider the following information: The company would report a net cash inflow from operating activities of: A) $17,500. B) $18,500. C) $21,500. D) $23,300. The company would report a net cash inflow from operating activities of:


A) $17,500.
B) $18,500.
C) $21,500.
D) $23,300.

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

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When preparing the operating activities section of the statement of cash flows using the indirect method, a decrease in accounts receivable is subtracted from net income.

A) True
B) False

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A toy store with a calendar year-end is likely to have:


A) unpredictable fluctuations in cash flow from quarter to quarter.
B) the largest cash inflow from operations in the second and third quarters (April - September) .
C) a fairly stable cash flow across all four quarters.
D) the largest cash inflow from operations in the fourth and firstquarters (October - March) .

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

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Major investing and financing activities that do not involve cash do not have to be reported on the statement of cash flows.

A) True
B) False

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B. Darin Company loaned $3,000,000 at 7% interest to S. Dee Company. B. Darin Company would report this as an investing activity on the statement of cash flows. TRUE

A) True
B) False

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Your company owned equipment with a book value of $120,000 that was sold during this accounting period for $30,500 in cash, and purchased new equipment for cash of $148,000. Your company would record:


A) a debit of $148,000 and a credit of $30,500 to the cash account for a net cash inflow of $117,500.
B) a debit of $148,000 and a credit of $89,500 to the cash account for a net cash inflow of $58,500.
C) a debit of $30,500 and a credit of $148,000 to the cash account for a net cash outflow of $117,500.
D) a debit of $89,500 and a credit of $148,000 to the cash account for a net cash outflow of $58,500.

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

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Treasury stock purchases made with cash are cash outflows in the financing activities section of the statement of cash flows.

A) True
B) False

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Cash flows from investing activities include cash:


A) inflows and outflows reflecting revenues and expenses.
B) outflows from the sale of long-term investments.
C) inflows from the sale of long-term investments.
D) inflows from the sale of a company's own stock to its stockholders.

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

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Use the information provided above to calculate the company's: a. net income for 2011. b. net cash flow from operating activities in 2011 using the indirect method.

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