11.4 Prepare the cash flow statement using the direct method
1) In the direct method, each line of the income statement is converted from the accrual basis to cash basis.
2) Gains and losses on the sale of plant, property, and equipment are ignored in the direct method of preparing a cash flow statement.
3) One formula for determining cash collections from customers is to take Sales plus the increase in Accounts Receivable.
4) Payments to suppliers include items such as employee compensation, interest, and income taxes.
5) Cash payments for inventory is computed as "Total inventory purchased plus a decrease in Accounts payable OR minus an increase in Accounts payable."
6) Cost of goods sold for the year was $850,000. Inventory was $60,000 at the beginning of the year and $90,000 at the end of the year. There were no changes in the amount in account payable for the year. Cash payment for merchandise to be reported under the direct method is:
A) $850,000.
B) $910,000.
C) $940,000.
D) $880,000.
E) $790,000.
7) Operating expenses—other than depreciation—for the year were $335,000. Prepaid expenses decreased by $7,000. Cash payments for operating expenses to be reported on the cash flow statement using the direct method would be:
A) $335,000.
B) $342,000.
C) $328,000.
D) $7,000.
E) $349,000.
8) Operating expenses other than depreciation for the year were $400,000. Accrued expenses increased by $35,000. Cash payments for operating expenses to be reported on the cash flow statement using the direct method would be:
A) $435,000.
B) $400,000.
C) $365,000.
D) $35,000.
E) $356,000.
9) The section of the cash flow statement from investing activities does NOT include:
A) the sale of common shares.
B) buying shares of other companies.
C) the cash purchases of equipment.
D) collecting the principal on loans.
E) the proceeds from the sale of equipment.
10) The proceeds from the sale of equipment under the direct method would be reported:
A) in the investing section of the cash flow statement.
B) in the operating section of the cash flow statement.
C) in the financing section of the cash flow statement.
D) as a separate disclosure.
E) in the management section of the cash flow statement.