Learning Objective 9-2
1) The direct method for the preparation of the statement of cash flows ________.
A) is required by the FASB
B) is in conformity with GAAP
C) is the preferred method used by most businesses
D) is required by the IASB
2) The direct method of preparing the statement of cash flows ________.
A) is preferred by business over the indirect method
B) provides greater clarity for users than the indirect method
C) reports a greater amount of cash than the indirect method
D) reports a smaller amount of cash than the indirect method
3) The direct method of preparing the operating activities section of the statement of cash flows ________.
A) lists each important item of cash inflows from operating activities
B) lists each important item of cash outflows from investing activities
C) adjusts accrual-basis income
D) adjusts cash-basis income
4) Which method of preparing the statement of cash flows would show increases in accounts receivable being subtracted from net income?
A) the direct method
B) the indirect method
C) accrual basis method
D) No method shows increases in accounts receivable being subtracted from net income.
5) The difference between the direct and indirect methods applies only to the ________ activities section(s) of the statement of cash flows.
A) operating
B) investing and financing
C) investing
D) operating and investing
6) A company that uses the direct method will show more cash from operating activities than a company that uses the indirect method.
7) There are two acceptable ways to report cash from operating activities: the direct method and the indirect method.
8) The only difference between the direct and indirect methods used for the preparation of the statement of cash flows is the way cash from operating activities is calculated.
9) There are two acceptable ways to report cash from operating activities: the investment method and the finance method.
10) Regardless of whether the statement of cash flows was prepared using the direct method or the indirect method, Cash collected from customers is reported as a line item under operating activities.
11) Regardless of whether the statement of cash flows was prepared using the direct method or the indirect method, Proceeds from the sale of land is reported as a line item under investing activities.
12) Wilson Wong is reviewing his financial statements for May. His dry cleaning business had net income of $13,000 for May, but his business checking account shows a decrease of $4,500. Explain to Wilson why the net income for the business and the ending balance in cash are not the same amounts.