71. Which of the following statements regarding the direct and indirect methods of reporting cash flow from operating activities is false?
A. Although both methods result in the same net increase or decrease in cash for the year, net cash flow from operating activities will be different under the two methods.
B. The direct method shows the specific cash inflows and outflows constituting the operating activities of the business.
C. Under the indirect method, the computation of net cash flow from operating activities begins with net income as shown in the income statement.
D. The FASB permits both the direct and the indirect methods, but has expressed a preference for the direct method.
72. Which of the following would not be presented in the cash flows from operating activities section of the statement of cash flows when the direct method is used?
A. Dividends paid.
B. Dividends received.
C. Neither A nor B would be shown.
D. Both A and B would be shown.
73. An example of a non-cash investing or financing activity that is disclosed in a supplementary schedule accompanying the statement of cash flows is:
A. Recording depreciation expense for the current year.
B. Declaring, but not paying, dividends on common stock.
C. Selling land in exchange for a note receivable.
D. Transferring cash from a checking account into a money market fund.
74. When equipment is sold at a loss:
A. The net proceeds are shown in the investing section.
B. The book value of the asset is shown in the investing section.
C. The book value of the asset is shown in the investing section, and the loss is shown in the operating section.
D. The net proceeds are shown in the financing section.
75. When net cash flow from operating activities is presented by the direct method, the statement of cash flows is accompanied by a supplementary schedule reconciling:
A. Net cash flow from operating activities with net sales.
B. Net income with the net increase or decrease in cash and cash equivalents.
C. Net income with net cash flow from operating activities.
D. Net cash flow from operating activities shown in the statement with that which would result from use of the indirect method.
76. Which of the following is not true regarding the direct and indirect methods of computing net cash flow from operating activities?
A. Both methods result in the same dollar amount of cash flow from operating activities.
B. Both methods involve adjusting entries to the company's books so that the accounting records reflect the figures shown in the statement of cash flows.
C. Both methods are acceptable to the FASB for reporting purposes.
D. Both methods convert accrual-based income statement amounts to cash flow results.
77. When equipment is purchased entirely through a loan:
A. The equipment is shown as an increase in the investing activities section.
B. The equipment is shown as a decrease in the investing activities section.
C. The loan is shown as an increase in the financing section.
D. Neither the loan nor the purchase of equipment is shown in the investing or the financing sections.
78. From the viewpoint of stockholders or potential investors, which of the following cash flow measurements would be of least importance?
A. The dollar amount of net cash flow from operating activities for the current year.
B. The trend in net cash flow from operating activities from year to year.
C. The corporation's free cash flow for the current year.
D. The dollar amount of overall increase or decrease in cash for the current year.
79. Craig Corporation's reported net income for 2009 is less than its net cash flow from operating activities. One reason for this could be:
A. The sale of machinery at a loss in 2009
B. An increase in inventory levels during 2009
C. The sale of investments at a gain in 2009
D. An error in the preparation of the statement of cash flows; net income should be greater than or equal to net cash flow from operating activities.
80. The Nelson Corporation reported net income in excess of its net cash flow from operating activities for the current year. An explanation for this may be:
A. A loss on the sale of equipment in the current year.
B. An increase in accounts payable during the year.
C. Depreciation expense recognized for the year.
D. A gain on the sale of investments during the year.