The direct method ________.
ANSWER
INCORRECT
·
is a method of presenting the cash flows from operating activities that begins with the company’s net income, which is prepared on an accrual basis, and then reconciles it back to the cash basis through a series of adjustments
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THE CORRECT ANSWER
is a method of presenting cash flows from operating activities that separately lists the receipt and payment of cash for specific operating activities
·
YOU WERE SURE AND INCORRECT
represents the amount of excess cash a business generates after taking into consideration the capital expenditures necessary to maintain its business
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is a comparison of two fiscal periods, usually highlighting the changes in each account
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I DON'T KNOW YET
The direct method is a method of presenting cash flows from operating activities that separately lists the receipt and payment of cash for specific operating activities. The other answers are not correct.
A comparative balance sheet is a balance sheet that presents (i.e. compares) two fiscal periods, usually highlighting the changes in each account.
Free cash flow represents the amount of excess cash a business generates after taking into consideration the capital expenditures necessary to maintain its business.
The indirect method is a method of presenting the cash flows from operating activities that begins with the company’s net income, which is prepared on an accrual basis, and then reconciles it back to the cash basis through a series of adjustments.
Sapphire Industries’ accountant uses the indirect method to prepare the statement of cash flows. The accountant reported $5,575,000 of beginning property, plant, and equipment (PP&E). The company sold equipment during the year that originally cost $50,000, which resulted in an ending balance of $6,220,000 in property, plant, and equipment (PP&E).
How much cash was paid for new property, plant, and equipment (PP&E) during the year?
ANSWER
INCORRECT
·
$675,000
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THE CORRECT ANSWER
$695,000
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$605,000
·
YOU WERE SURE AND INCORRECT
$659,000
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I DON'T KNOW YET
$695,000 was paid for for new property, plant, and equipment (PP&E) during the year. The other answers are not correct.
Beginning PP&E + Purchases of PP&E – Original cost of PP&E sold = Ending PP&E
= $5,575,000 + ? - $50,000 = $6,220,000
Purchases of PP&E = $6,220,000 + $50,000 - $5,575,000
= $695,000
If a decrease in a current asset account occurs, then on the statement of cash flows, the amount ________.
ANSWER
INCORRECT
·
is netted with current liability changes
·
YOU WERE SURE AND INCORRECT
is subtracted from net income
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THE CORRECT ANSWER
is added to net income
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has no effect on net income
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I DON'T KNOW YET
If a decrease in a current asset account occurs, then on the statement of cash flows, the amount is added to net income. The other answers are incorrect.
The ________ shows how the company generated and used cash during the year.
ANSWER
INCORRECT
·
accrual basis of accounting
·
direct method
·
YOU WERE SURE AND INCORRECT
indirect method
·
THE CORRECT ANSWER
statement of cash flows
·
I DON'T KNOW YET
The statement of cash flows shows how the company generated and used cash during the year. The other answers are not correct.
The direct method lists the receipt and payment of cash for specific activities.
The accrual basis of accounting requires that revenues are recorded when they are earned instead of when cash is received on the sale.
The indirect method begins with the company’s net income and then reconciles it back to the cash basis through a series of adjustments.
Farmer Industries’ accountant reported $30,000 in the beginning balance of prepaid insurance. The insurance expense during the year was $40,000, and there was $35,000 in the ending balance of prepaid insurance account.
What were the payments for insurance during the year?
ANSWER
INCORRECT
·
$45,000
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$15,000
·
YOU WERE SURE AND INCORRECT
$25,000
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THE CORRECT ANSWER
$35,000
·
I DON'T KNOW YET
The payments for insurance during the year were $35,000. The other answers are not correct.
Beginning balance of prepaid insurance + Payment for insurance – Insurance expense = Ending balance, prepaid insurance
$30,000 + ? - $40,000 = $35,000
Insurance payments = $35,000 + $30,000 - $40,000
= $45,000
Which of the following is NOT a true statement about the direct method?
ANSWER
INCORRECT
·
FASB and IASB both recommend that companies use the direct method.
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THE CORRECT ANSWER
The direct method requires less analysis than the indirect method.
·
YOU WERE SURE AND INCORRECT
The direct method shows cash receipts and cash payments in a much more straightforward manner than the indirect method.
·
Most companies use the indirect method.
·
I DON'T KNOW YET
The direct method requires less analysis than the indirect method is NOT a true statement about the direct method. The direct method requires more analysis than the indirect method. The other choices are not correct because they are true statements about the indirect method and the direct method.
The direct method shows cash receipts and cash payments in a much more straightforward manner than the indirect method.
FASB and IASB both recommend that companies use the direct method.
Most companies use the indirect method.
A comparative balance sheet ________.
ANSWER
INCORRECT
·
represents the amount of excess cash a business generates after taking into consideration the capital expenditures necessary to maintain its business
·
YOU WERE SURE AND INCORRECT
is a method of presenting the cash flows from operating activities that begins with the company’s net income, which is prepared on an accrual basis, and then reconciles it back to the cash basis through a series of adjustments
·
is the original cost of a plant or equipment asset less its accumulated depreciation
·
THE CORRECT ANSWER
is a balance sheet that presents (i.e. compares) two fiscal periods, usually highlighting the changes in each account
·
I DON'T KNOW YET
A comparative balance sheet is a balance sheet that presents (i.e. compares) two fiscal periods, usually highlighting the changes in each account. The other answers are not correct.
Net book value is the original cost of plant or equipment less its accumulated depreciation.
Free cash flow represents the amount of excess cash a business generates after taking into consideration the capital expenditures necessary to maintain its business.
The indirect method is a method of presenting the cash flows from operating activities that begins with the company’s net income, which is prepared on an accrual basis, and then reconciles it back to the cash basis through a series of adjustments.
Which of the following represents the amount of excess cash a business generates after taking into consideration the capital expenditures necessary to maintain its business?
ANSWER
INCORRECT
·
Indirect method
·
YOU WERE SURE AND INCORRECT
Comparative balance sheets
·
THE CORRECT ANSWER
Free cash flow
·
Net book value
·
I DON'T KNOW YET
Free cash flow represents the amount of excess cash a business generates after taking into consideration the capital expenditures necessary to maintain its business. The other answers are not correct.
A comparative balance sheet is a balance sheet that presents (i.e. compares) two fiscal periods, usually highlighting the changes in each account.
Net book value is the original cost of a plant or equipment asset less its accumulated depreciation.
The indirect method is a method of presenting the cash flows from operating activities that begins with the company’s net income, which is prepared on an accrual basis, and then reconciles it back to the cash basis through a series of adjustments.
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