11) To prepare the statement of cash flows using the indirect method ________.
A) an increase in inventory is subtracted from net income
B) a purchase of a machine is added to net income
C) cash paid for dividends is subtracted from net income
D) an increase in accounts payable is subtracted from net income
12) The indirect method for the preparation of the statement of cash flows ________.
A) is recommended by the FASB
B) is not in conformity with GAAP
C) is the preferred method used by businesses
D) is not in conformity with IFRS
13) In applying the indirect method, depreciation expense is ________.
A) added to net income because it does not require a payment of cash
B) subtracted from net income because it is a non-cash expense
C) subtracted from cash from operating activities because it is a non-cash expense
D) not shown on the statement of cash flows prepared using the indirect method
14) In applying the direct method, depreciation expense is ________.
A) added to net income because purchases of the depreciable long-term assets are investing activities
B) subtracted from net income because it is a non-cash expense
C) subtracted from cash from operating activities because it is a non-cash expense
D) not shown on the statement of cash flows prepared using the direct method
15) The indirect method is ________.
A) recommended by the FASB
B) considered easier to prepare than the direct method
C) used less than the direct method
D) not in conformity with IFRS
16) The preparation of the statement of cash flows using the indirect method involves the conversion from the accrual basis to the cash basis.
17) The FASB requires that a company using the direct method must provide a reconciliation between net income and cash from operating activities.
18) The FASB requires that a company using the indirect method must provide a reconciliation between net income and cash from operating activities.
19) The Financial Accounting Standards Board prefers that companies use the indirect method of reporting cash from operating activities.
20) Most companies use the indirect method of reporting cash from operating activities.
21) If a company uses the indirect method of calculating cash from operating activities, its statement of cash flows begins with cash collected from customers.
22) If a company uses the indirect method of calculating cash from operating activities, net income is adjusted for non-cash transactions.
23) If a company uses the direct method of calculating cash from operating activities, net income is adjusted for non-cash transactions.