Financial Accounting
14th Edition
ISBN: 9781305088436
Author: Carl Warren, Jim Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Question
Chapter 16, Problem 9DQ
To determine
Determine the effect of change in the method of statement of
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If a business decides to switch from the indirect method to the direct method for reporting cash flows from operating activities (this is permitted per GAAP), will the change in methods cause the amount of the net cash flow from operating activities to be: (a) smaller, (b) larger, or (c) the same? Explain.
Which of the following situations required us to make an downward adjustment to net income (subtracting) when computing operating cash flows? (check all that apply)
A. there was a depreciation expense
B. some property was sold for a gain on the net book value
C. some recognized expenses were for COGS to suppliers paid for on account
D. there were some recognized revenues in accounts receivable
Which of the following would not be added to net income in calculating cash flows from operating activities on a statement of cash flows prepared using
the indirect method?
Multiple Choice
A decrease in Accounts Receivable.
Amortization Expense.
A gain on sale of equipment.
An increase in Salaries and Wages Payable.
Chapter 16 Solutions
Financial Accounting
Ch. 16 - Prob. 1DQCh. 16 - Prob. 2DQCh. 16 - A corporation issued 2,000,000 of common stock in...Ch. 16 - A retail business, using the accrual method of...Ch. 16 - If salaries payable was 100,000 at the beginning...Ch. 16 - Prob. 6DQCh. 16 - A corporation issued 2,000,000 of 20-year bonds...Ch. 16 - Fully depreciated equipment costing 50,000 is...Ch. 16 - Prob. 9DQCh. 16 - Prob. 10DQ
Ch. 16 - Prob. 1PEACh. 16 - Prob. 1PEBCh. 16 - Pearl Corporations accumulated...Ch. 16 - Ya Wen Corporations accumulated...Ch. 16 - Alpenrose Corporations comparative balance sheet...Ch. 16 - Prob. 3PEBCh. 16 - Prob. 4PEACh. 16 - Staley Inc. reported the following data: Prepare...Ch. 16 - Prob. 5PEACh. 16 - IZ Corporation purchased land for 400,000. Later...Ch. 16 - Prob. 6PEACh. 16 - Prob. 6PEBCh. 16 - The cost of merchandise sold reported on the...Ch. 16 - The cost of merchandise sold reported on the...Ch. 16 - Prob. 8PEACh. 16 - Prob. 8PEBCh. 16 - Prob. 1ECh. 16 - State the effect (cash receipt or payment and...Ch. 16 - Prob. 3ECh. 16 - Prob. 4ECh. 16 - Prob. 5ECh. 16 - The net income reported on the income statement...Ch. 16 - Prob. 7ECh. 16 - The board of directors declared cash dividends...Ch. 16 - An analysis of the general ledger accounts...Ch. 16 - An analysis of the general ledger accounts...Ch. 16 - On the basis of the details of the following fixed...Ch. 16 - On the basis of the following stockholders equity...Ch. 16 - Prob. 13ECh. 16 - Prob. 14ECh. 16 - Prob. 15ECh. 16 - Prob. 16ECh. 16 - The comparative balance sheet of Pelican Joe...Ch. 16 - List the errors you find in the following...Ch. 16 - Prob. 19ECh. 16 - Prob. 20ECh. 16 - Prob. 21ECh. 16 - The income statement of Booker T Industries Inc....Ch. 16 - The income statement for Rhino Company for the...Ch. 16 - Prob. 24ECh. 16 - The financial statements for Nike, Inc., are...Ch. 16 - Lovato Motors Inc. has cash flows from operating...Ch. 16 - The comparative balance sheet of Cromme Inc. for...Ch. 16 - The comparative balance sheet of Del Ray...Ch. 16 - The comparative balance sheet of Whitman Co. at...Ch. 16 - The comparative balance sheet of Canace Products...Ch. 16 - Prob. 5PACh. 16 - Prob. 1PBCh. 16 - The comparative balance sheet of Harris Industries...Ch. 16 - Prob. 3PBCh. 16 - The comparative balance sheet of Martinez Inc. for...Ch. 16 - The comparative balance sheet of Merrick Equipment...Ch. 16 - Lucas Hunter, president of Simmons Industries...Ch. 16 - Prob. 2CPCh. 16 - Prob. 3CPCh. 16 - The Commercial Division of Tidewater Inc. provided...
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Similar questions
- 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 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_forwardIf a organization's accounts payable balance decreases during the period, when the indirect method is used: Multiple Choice The amount of the decrease is added within the operating activities section of the statement of cash flows. The amount of the decrease is subtracted within the operating activities section of the statement of cash flows. The amount of the decrease is added within the investing activities section of the statement of cash flows. The amount of the decrease is subtracted within the investing activities section of the statement of cash flows.arrow_forwardThis is an accounting question about reconciling direct-method cash flow from operations to net income. I have read that generally for a simple noninventory situation the approach would be something like: Net Income Plus depreciation Minus Change in Current Assets Plus Change in Current Liabilities --> Should equal cash flows from operations in the cash flow statement. My question is about purchasing a long-term asset on account. A journal entry is made: credit accounts payable/debit long-term asset. If I generate a cash flow statement, the increase in current liabilities caused by that entry will be a part of the equation above. But that amount is not an operating cash flow, it is an investing cash flow. So my reconciliation to operating activities will be off by that amount. It seems like there's a missing adjustment in the equation, like "Minus assets purchased on account" or something like that. Example: Say my company just started and so far only has $5K contibuted cash in the…arrow_forward
- When 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_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. A decrease in accounts receivable. C. Preferred dividends declared and paid. D. An increase in inventory.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_forward
- A statement of cash flows prepared in accordance with IAS7 Statements of cash flows opens with the calculation of cash flows from operating activities from the net profit before taxation. Which of the following lists of items consists only of items that would be ADDED to net profit before taxation in that calculation? A. Decrease in inventories, depreciation, profit on sale of non-current assets. В. Increase in trade payables, decrease in trade receivables, profit on sale of non-current assets. C. Loss on sale of non-current assets, depreciation, increase in trade receivables. D. Decrease in trade receivables, increase in trade payables, loss on sale of non-current assets.arrow_forwardWhich of the following is an advantage of cash basis accounting vs. accrual basis accounting? It provides a more accurate representation of cash generated in a specific period. It usually leads to better adherence to the matching principle. It usually provides less volatile year-to-year operating results. It provides a better indication of the entity’s long-run cash-generating ability.arrow_forwardWhich of the following would be subtracted from net income when using the indirect method to derive net cash from operating activities? a. Decrease in accounts payable b. Loss on sale of investments c. Decrease in accounts receivable d. Depreciation expensearrow_forward
- Which of the following items is deducted from net income to arrive at cash flow from operations when using the indirect method? a) Decrease in accounts payable b) Depreciation expense c) Amortization expense d) Decrease in accounts receivablearrow_forwardAn intern at Block Financials, specializing in block chain transactions is preparing the operating activities section of the statement of cash flows. How is a decrease in current liabilities handled? Multiple Choice It is subtracted from net income in the cash flows fror operating activities section. It is added to inventory purchases in the cash flows from investing activities section. It is added to net income in the cash flows from operating activities section. It is subtracted from current assets in the cash flows from financing activities section.arrow_forwardWhich of the following statements about the direct and indirect methods for presenting Cash Flow Statement is NOT true? According to the indirect method, cash flows begin with net income or loss and is followed by subsequent additions to or deductions from that amount for non-cash revenue and expense items, resulting in cash flow from operating activities. The direct method is based on use of actual cash inflows and outflows from a company’s operations. Using direct and indirect methods leads to different amounts shown as cash flow from operations, investing, and financing activities. The cash flow statement, income statement and balance sheet are interconnected: the cash flow amount is equal to the corresponding income statement amount plus or minus the change in the related balance sheet account.arrow_forward
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