Chpt 20 HW questions ACCT370

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Liberty University *

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370

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Finance

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Apr 3, 2024

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1. Cash flows that result from the purchase or sale of productive assets are Multiple choice question. financing activities. operating activities. incorrect investing activities. Correct AnswerQuestion investing activities. 2. Categories of cash inflows and outflows of operating activities that are required to be reported under the direct method include Multiple select question.  income taxes paid. correct  interest received. incorrect  issuance of stock.  interest paid. correct  dividends paid. incorrect Correct AnswerQuestion  income taxes paid.  interest received.  interest paid.

3. True or false: Both the direct method and indirect method will arrive at the same amount for cash flow from operating activities. True false question. True Falseincorrect Reason: This is true. They are just different methods of arriving at the same amount. Correct AnswerQuestion True 4. True or false: The majority of public companies use the direct method of preparing cash flows from operating activities. True false question. Trueincorrect Reason: Most companies use the indirect method False Correct AnswerQuestion False 5. Gratiot Corporation reported income tax expense of $13,500 on its income statement. It had income taxes payable of $4,000 at the beginning of the year and $3,475 at the end of the year. How does this affect cash provided by operating activities in a cash flow statement? Multiple choice question. The cash paid for income taxes is $12,975. incorrect The decrease in income taxes payable $525 is subtracted from net income using the indirect method.

The decrease in income taxes payable $525 is added to net income using the indirect method. The cash paid for income taxes is $13,500. Correct AnswerQuestion The decrease in income taxes payable $525 is subtracted from net income using the indirect method. 6. Firms using the direct method of reporting operating activities Multiple choice question. must add back depreciation because it does not include the outflow of cash. incorrect must present major classes of gross receipts and disbursements. do not include investing and financing sections on the statement of cash flows. must add back income taxes paid. Correct AnswerQuestion must present major classes of gross receipts and disbursements. 7. Which of the following are reasons that the overwhelming majority of public companies use the indirect method of preparing cash flow statements? Multiple select question.  The indirect method produces a higher amount of cash provided by operating activities. incorrect 

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The indirect method does not require a reconciliation of net income to net operating cash flow.  The indirect method characterizes cash flow in a way that many analysts find useful. incorrect  The indirect method relies exclusively on data already available in accrual accounts. correct Correct AnswerQuestion  The indirect method characterizes cash flow in a way that many analysts find useful.  The indirect method relies exclusively on data already available in accrual accounts. 8. Which of the following are true of deferred income taxes with regards to an indirect method cash flow statement? Multiple select question.  An increase in net deferred tax liabilities must be added to accrual- basis net income in the cash flow statement. incorrect  A decrease in net deferred tax liabilities must be subtracted from accrual-basis net income. correct  An increase in net deferred tax liabilities must be subtracted from accrual-basis net income in the cash flow statement.  A decrease in net deferred tax liabilities must be added to accrual- basis net income in the cash flow statement. incorrect Correct AnswerQuestion  An increase in net deferred tax liabilities must be added to accrual- basis net income in the cash flow statement.

 A decrease in net deferred tax liabilities must be subtracted from accrual-basis net income. 9. Which of the following items would be subtracted from accrual-basis net income in determining cash flows from operating activities using the indirect method? Multiple choice question. a decrease in accounts receivable incorrect loss on the sale of equipment a increase in salaries and wages payable an increase in inventory Correct AnswerQuestion an increase in inventory 10. True or false: The majority of public companies use the direct method of preparing cash flows from operating activities. True false question. Trueincorrect Reason: Most companies use the indirect method False Correct AnswerQuestion False 11. An increase in prepaid expenses Multiple choice question.

is added to accrual earnings to obtain operating cash flows using the indirect method. incorrect is deducted from accrual earnings to obtain operating cash flows using the indirect method. is included in investing cash flows using the indirect method. is included in financing cash flows using the indirect method. Correct AnswerQuestion is deducted from accrual earnings to obtain operating cash flows using the indirect method. 12. An increase in income tax payable Multiple choice question. is added to net income in calculating operating cash flows using the direct method. incorrect is subtracted from net income in calculating operating cash flows using the indirect method. is subtracted from net income in calculating investing cash flows using the direct method. is added to net income in calculating operating cash flows using the indirect method. Correct AnswerQuestion is added to net income in calculating operating cash flows using the indirect method. 13. An increase in accrued expenses Multiple choice question.

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is shown in financing cash flows using the indirect method. is shown as an addition to accrual earnings to arrive at operating cash flows using the indirect method. is shown as a deduction from accrual earnings to arrive at operating cash flows using the indirect method. incorrect does not impact the cash flow statement. Correct AnswerQuestion is shown as an addition to accrual earnings to arrive at operating cash flows using the indirect method. 14. Which of the following is not generally helpful in reconciling differences that result from year-to-year changes in comparative balance sheet accounts not coinciding with the changes implied from amounts reported on the cash flow statements? Multiple choice question. Information in the operating activities section of the cash flow statement IRS tax code. Information in the income statement Disclosures in notes incorrect Correct AnswerQuestion IRS tax code.

15. Which of the following is a reason that some claim to justify their preference of the direct method over the indirect method for computing net cash provided by operating activities? Multiple choice question. The direct method discloses operating cash flows by category which facilitates cash flow predictions. The direct method provides yardsticks for evaluating quality of earnings. The indirect method will result in less conservative net cash provided by operating activities. The direct method will result in higher net cash provided by operating activities. incorrect Correct AnswerQuestion The direct method discloses operating cash flows by category which facilitates cash flow predictions. 16. Firms using the indirect method are required to separately disclose the amount of Multiple choice question. interest received. incorrect interest paid. interest accrued. dividends received.. Correct AnswerQuestion interest paid.

17. A decrease in accrued expenses Multiple choice question. is shown as an addition to accrual earnings to arrive at operating cash flows using the indirect method. incorrect is shown in financing cash flows using the indirect method. does not impact the cash flow statement. is shown as a deduction from accrual earnings to arrive at operating cash flows using the indirect method. Correct AnswerQuestion is shown as a deduction from accrual earnings to arrive at operating cash flows using the indirect method. 18. Zero-coupon bond settlement should be Multiple choice question. included in operating cash flows only. allocated between operating and financing cash flows. included in investing cash flows only. incorrect allocated between investing and financing cash flows. Correct AnswerQuestion allocated between operating and financing cash flows.

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