Learning Objective 9-5
1) The direct method for the preparation of the statement of cash flows ________.
A) starts with net income and makes adjustments for all the items that are not cash.
B) starts by converting every number on the income statement to its cash amount.
C) starts by estimating the sources of cash and the uses of cash.
D) all of these
2) The indirect method for the preparation of the statement of cash flows starts ________.
A) with net income and makes adjustments for all the items that are not cash
B) by converting every number on the income statement to its cash amount
C) by estimating the sources of cash and the uses of cash
D) with cash collected from customers
3) The statement of cash flows is designed to ________.
A) reconcile the differences between the beginning and ending balances in the cash account
B) reconcile the differences between net income and the ending cash balance
C) explain the difference between the sources and uses of cash
D) explain the changes in assets
4) The indirect method of preparing the statement of cash flows ________.
A) is preferred by business over the direct method
B) provides greater clarity for users than the direct method
C) reports a greater amount of cash than the direct method
D) starts by converting net income into an accrual-based number
5) To prepare the statement of cash flows using the indirect method ________.
A) net income is added to cash
B) depreciation expense is added to net income
C) an increase in accounts receivable is added to net income
D) net income is subtracted from cash
6) To prepare the statement of cash flows using the indirect method ________ net income.
A) a decrease in inventory is subtracted from
B) a purchase of a machine is subtracted from
C) cash paid for dividends is added to
D) a decrease in accounts payable is subtracted from
7) To prepare the statement of cash flows using the indirect method, interest income is ________.
A) added to net income
B) subtracted from net income
C) already included in net income
D) included as an item in the financing section
8) Depreciation expense, using the indirect method of preparing the statement of cash flows, is ________.
A) added to net income
B) subtracted from net income
C) subtracted from investing activities
D) added to investing activities
9) To prepare the statement of cash flows using the indirect method, dividends paid are ________.
A) added to net income
B) subtracted from net income
C) already included in net income
D) included as an item in the financing section
10) To prepare the statement of cash flows using the indirect method, depreciation expense is ________.
A) added to net income
B) subtracted from net income
C) included as an item in the financing section
D) included as an item in the investing section