Fundamentals Of Financial Accounting
6th Edition
ISBN: 9781260159516
Author: PHILLIPS
Publisher: MCG
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Chapter 12, Problem 4MC
To determine
To identify: The action that should be taken on the statement of
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If the balance in Prepaid Expenses increased during theyear, what action should be taken on the statement of cashflows when following the indirect method, and why?a. The change in the account balance should be subtractedfrom net income because the net increase in PrepaidExpenses did not impact net income but did reduce thecash balance.b. The change in the account balance should be added to netincome because the net increase in Prepaid Expenses didnot impact net income but did increase the cash balance.c. The net change in Prepaid Expenses should be subtractedfrom net income to reverse the income statement effectthat had no impact on cash.d. The net change in Prepaid Expenses should be added tonet income to reverse the income statement effect thathad no impact on cash.
Why might the revenue and cost figures shown on a standard income statement not be representative of the actual cash inflows and outflows that occurred during a period?
Using the indirect method for preparing the statement of cash flows, which of the following would not be included as an adjustment to net income?
A decrease in Prepaid Insurance.
An increase in Accounts Payable.
An increase in Equipment.
An increase in Accounts Receivable.
None of the answer choices is correct.
→ Question 23
Which of the following is not an advantage of using the indirect method to prepare the statement of cash flows?
The indirect method provides a link between net income and cash flows from operating activities by reconciling the two amounts.
The indirect method typically takes less time to prepare than the direct method..
Accounting systems are better suited to generate information needed for the indirect method.
The indirect method is more accurate than the direct method.
None of the answer choices is correct.
Chapter 12 Solutions
Fundamentals Of Financial Accounting
Ch. 12 - Compare the purposes of the income statement, the...Ch. 12 - Prob. 2QCh. 12 - Prob. 3QCh. 12 - What are the major categories of business...Ch. 12 - Prob. 5QCh. 12 - Describe the types of items used to compute cash...Ch. 12 - Under the indirect method, depreciation expense is...Ch. 12 - Prob. 8QCh. 12 - Explain why a 50,000 increase in inventory during...Ch. 12 - Prob. 10Q
Ch. 12 - As a junior analyst, you are evaluating the...Ch. 12 - Prob. 12QCh. 12 - Prob. 13QCh. 12 - Prob. 14QCh. 12 - (Supplement 12A) How is the sale of equipment...Ch. 12 - Prob. 1MCCh. 12 - Prob. 2MCCh. 12 - Prob. 3MCCh. 12 - Prob. 4MCCh. 12 - Which of the following would not appear in the...Ch. 12 - Prob. 6MCCh. 12 - Prob. 7MCCh. 12 - Prob. 8MCCh. 12 - The total change in cash as shown near the bottom...Ch. 12 - Prob. 10MCCh. 12 - Prob. 1MECh. 12 - Matching Items Reported to Cash Flow Statement...Ch. 12 - Determining the Effects of Account Changes on Cash...Ch. 12 - Computing Cash Flows from Operating Activities...Ch. 12 - Prob. 5MECh. 12 - Computing Cash Flows from Investing Activities...Ch. 12 - Computing Cash Flows from Financing Activities...Ch. 12 - Computing Cash Flows Under IFRS Using the data...Ch. 12 - Prob. 9MECh. 12 - Interpreting Cash Flows from Operating, Investing,...Ch. 12 - Matching Items Reported to Cash Flow Statement...Ch. 12 - Computing Cash Flows from Operating Activities...Ch. 12 - Prob. 13MECh. 12 - Matching items Reported to Cash Flow Statement...Ch. 12 - Prob. 2ECh. 12 - Prob. 3ECh. 12 - Prob. 4ECh. 12 - Prob. 5ECh. 12 - Prob. 6ECh. 12 - Prob. 7ECh. 12 - Prob. 8ECh. 12 - Reporting and Interpreting Cash Flows from...Ch. 12 - Prob. 10ECh. 12 - Prob. 11ECh. 12 - Inferring Balance Sheet Changes from the Cash Flow...Ch. 12 - Prob. 13ECh. 12 - Prob. 14ECh. 12 - Prob. 15ECh. 12 - Prob. 16ECh. 12 - Prob. 17ECh. 12 - Prob. 18ECh. 12 - Prob. 19ECh. 12 - Prob. 20ECh. 12 - Prob. 21ECh. 12 - Prob. 22ECh. 12 - (Supplement 12B) Preparing a Statement of Cash...Ch. 12 - Determining Cash Flow Statement Effects of...Ch. 12 - Prob. 2CPCh. 12 - Prob. 3CPCh. 12 - Preparing and Interpreting a Statement of Cash...Ch. 12 - Prob. 5CPCh. 12 - Prob. 6CPCh. 12 - (Supplement 12A) Preparing and Interpreting a...Ch. 12 - Prob. 1PACh. 12 - Prob. 2PACh. 12 - Prob. 3PACh. 12 - Preparing and Interpreting a Statement of Cash...Ch. 12 - Computing Cash Flows from Operating Activities...Ch. 12 - Prob. 6PACh. 12 - (Supplement 12A) Preparing and Interpreting a...Ch. 12 - Prob. 1PBCh. 12 - Prob. 2PBCh. 12 - Prob. 3PBCh. 12 - Preparing and Interpreting a Statement of Cash...Ch. 12 - Prob. 5PBCh. 12 - Prob. 6PBCh. 12 - Prob. 1SDCCh. 12 - Prob. 2SDCCh. 12 - Prob. 6SDCCh. 12 - Prob. 7SDCCh. 12 - Prob. 8SDCCh. 12 - Prob. 9SDCCh. 12 - Prob. 1CC
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Similar questions
- In computing the periods net operating cash flows, why are noncash expenses added back to net income?arrow_forwardWhich of the following should be deducted from net income in computing net cash flows from operating activities using the indirect method? a.a decrease in accounts receivable b.preferred dividends declared and paid c.a decrease in accounts payable d.a decrease in inventoryarrow_forwardWhich of the following should be added to net income in calculating net cash flow from operating activities using the indirect method? a.a decrease in accounts payable b.an increase in inventory c.preferred dividends declared and paid d.a decrease in accounts receivablearrow_forward
- Which of the following should be added to net income in calculating net cash flow from operating activities using the INDIRECT method? A. A decrease in accounts payable. B. A decrease in accounts receivable. C. Preferred dividends declared and paid. D. An increase in inventory.arrow_forwardWhen using the Indirect Method of preparing the Statement of Cash Flows, in the operating section, some accounts are added and some costs are subtracted. If you had to explain to someone why an increase in accounts receivable is subtracted and the opposite as to why a decrease In accounts recelvable is added, what information would you relay to them? (Include in your response the concept of accruals, FASB guidelines, sales and net income on the income statement, and the balance sheet). Answer should be in a paragraph form.arrow_forwardmore than one answers is correct ( )Which of the following should NOT be added to net income in calculating net cash flow from operating activities using the indirect method? A an increase in inventory B a decrease in accounts payable C a decrease in accounts receivable D preferred dividends declared and paidarrow_forward
- When using the Indirect Method of preparing the Statement of Cash Flows, in the operating section, some accounts are added and some costs are subtracted. If you had to explain to someone why an increase in accounts receivable is subtracted and the opposite as to why a decrease in accounts receivable is added, what information would you relay to them? (Include in your response the concept of accruals, FASB guidelines, sales and net income on the income statement, the balance sheet). Answer should be in a paragraph form.arrow_forwardWhen preparing a statement of cash flows, a decrease in accounts receivable during a period would cause which one of the following adjustments in determining cash flow from operating activities? Direct Method Indirect Method IncreaseDecrease DecreaseIncrease IncreaseIncrease DecreaseDecreasearrow_forwardAn increase in Accounts Receivables is : a A negative item for calculating Operating Cash Flow b Not included in the calculation of Operating Cash Flow. c A capital expenditure. d A positive item for calculating Operating Cash Flowarrow_forward
- Which of the following items is reported on a statement of cash flows prepared using the direct method?a. Bad debts expense.b. Increase in accounts receivable.c. Depreciation expense.d. Cash payments to suppliers.arrow_forwardIn comparing accounting net income and operating cash fl ow, name two items you typically find in net income that are not in operating cash flow. Explain what each is and why it is excluded in operating cash flow.arrow_forwardHow does a decrease in income taxes receivables on the balance sheet, impact cash flow? What is the journal entry to reflect this?arrow_forward
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