COB 242 - Unit 1

1.      Which of the following statements are true concerning the statement of cash flows?

• The broad definition of cash includes both cash and cash equivalents.

• Commercial paper is a cash equivalent, but treasury bills are not.

• Cash equivalents can be easily converted into cash.

• Investments in commercial real estate are cash equivalents.

Depreciation expense is ___ net income when preparing the operating activities section using the ___ method.

• added to, indirect

• subtracted from, indirect

• added to, direct

• subtracted from, direct

Investing activities include ___.

• payment of dividends to the stockholds

• purchase of machinery for cash

• sale of land for cash

• depreciation charges

Financing activities include ___.

• payment of interest

• repurchasing common stock

• purchase of equipment

• borrowing money

When preparing the operating activities section of the statement of cash flows using the indirect method ___.

• cash collected from customer is reported instead of revenue.

• items that do not affect cash flow are removed from net income.

• net income is adjusted to a cash basis.

• only cash payments for expenses are reported.

Financing and investing activities are reported ___.

• at gross amounts on the statement of cash flows

• only when using the indirect method

• at net amounts on the statement of cash flows

• only when using the direct method

  When preparing the operating activities section using the indirect method, which of the following are added back to net income?

• Decrease in accounts payable

• Increase in wages payable

• Increases in prepaid expenses

• Decreases in accounts receivable

Operating activities include ___.

• interest on notes receivable or notes payable

• corporate income taxes payments

• dividend payments to stockholders

• wage payments to employees

A gain on the sale of an asset is deducted in the operating activities section of the statement of cash flows because the ______.

• gain increases net income, but is not a cash flow

• entire proceeds from the sale must be reported in the investing section of the statement

• entire proceeds from the sale must be reported in the financing section of the statement

• gain does not increase net income, but it increases net cash flow

A common-size financial statement is a ___ analysis.

• vertical

• horizontal

• trend