Question 1 When cash flow from operations is presented as net income adjusted for noncash changes and credits as well as changes in current assets and current liabilities, this is the A Direct method. B Indirect method. C Income method. D Accrual method. Question 2 Under the direct method, what is the cash paid for goods held for resale? Sales $77,000 Cost of goods sold 46,000 Returns and allowances 6,000 Decrease in inventory 10,000 Increase in accounts receivables 11,000 Increase in accounts payable for goods held for resale 5,000 Decrease in accounts payable for for administrative services 4,000 Net income 26,000 Depreciation 3,000 A $31,000 B $35,000 C $36,000 D $41,000 Question 3 What is the cash provided by operations under the indirect method? Sales $77,000 Cost of goods sold 46,000 Returns and allowances 6,000 Decrease in inventory 10,000 Increase in accounts receivables 11,000 Increase in accounts payable for goods held for resale 5,000 Decrease in accounts payable for for overhead services 4,000 Net income 26,000 Depreciation 3,000 A $23,000 B $29,000 C $31,000 D $25,000 Question 4 An increase in inventory under the direct method A Acts to increase the cash paid to suppliers of goods held for resale. B Is treated as a decrease in cash provided by operations. C Is an investing activity. D Is a financing activity. Question 5 An increase in inventory under the indirect method A Acts to increase the cash paid to suppliers of goods held for resale. B Is treated as a decrease in cash provided by operations. C Is an investing activity. D Is a financing activity. Question 6 Under the indirect method, increases to all of the following accounts are added back to net income EXCEPT A Accounts Payable B Interest Payable C Accounts Receivable D Deferred Tax Liability Question 7 Undistributed earnings of equity-method investments are ______ when using the indirect method. A Recorded in the supplementary section of noncash activities. B Added back in the financing section. C Subtracted from in the operating section. D Ignored when preparing the statement of cash flows. Question 8 If the direct method is used, A The operating section of the indirect method must be provided in a separate schedule. B Gross cash receipts and payments from operating activities are presented. C Interest paid must be presented. D All of the above. Question 9 The __________ will be the same regardless of using the indirect or direct method of preparation. 1. I. Net Cash Flow from operating activities. 2. II. Presentation of data gathered in the operating activities section. 3. III. Disclosure of noncash investing activities. 4. IV. Inclusion of a financing section A I, II & IV B I & II C II D I, III & IV Question 10 When computing cash payments for operating activities, all of the following are considered except A Administrative expenses. B Decrease or increase i ...

1. Question 1
When cash flow from operations is presented as net income
adjusted for noncash changes and credits as well as changes in
current assets and current liabilities, this is the
A
Direct method.
B
Indirect method.
C
Income method.
D
Accrual method.
Question 2
Under the direct method, what is the cash paid for goods held
for resale?
Sales
$77,000
Cost of goods sold
46,000
Returns and allowances
6,000
Decrease in inventory
10,000

2. Increase in accounts receivables
11,000
Increase in accounts payable for
goods held for resale
5,000
Decrease in accounts payable for
for administrative services
4,000
Net income
26,000
Depreciation
3,000
A
$31,000
B
$35,000
C
$36,000
D
$41,000
Question 3
What is the cash provided by operations under the indirect

3. method?
Sales
$77,000
Cost of goods sold
46,000
Returns and allowances
6,000
Decrease in inventory
10,000
Increase in accounts receivables
11,000
Increase in accounts payable for
goods held for resale
5,000
Decrease in accounts payable for
for overhead services
4,000
Net income
26,000
Depreciation
3,000
A
$23,000
B
$29,000
C
$31,000

4. D
$25,000
Question 4
An increase in inventory under the direct method
A
Acts to increase the cash paid to suppliers of goods held for
resale.
B
Is treated as a decrease in cash provided by operations.
C
Is an investing activity.
D
Is a financing activity.
Question 5
An increase in inventory under the indirect method
A
Acts to increase the cash paid to suppliers of goods held for
resale.

5. B
Is treated as a decrease in cash provided by operations.
C
Is an investing activity.
D
Is a financing activity.
Question 6
Under the indirect method, increases to all of the following
accounts are added back to net income EXCEPT
A
Accounts Payable
B
Interest Payable
C
Accounts Receivable
D
Deferred Tax Liability

6. Question 7
Undistributed earnings of equity-method investments are
______ when using the indirect method.
A
Recorded in the supplementary section of noncash activities.
B
Added back in the financing section.
C
Subtracted from in the operating section.
D
Ignored when preparing the statement of cash flows.
Question 8
If the direct method is used,
A
The operating section of the indirect method must be provided
in a separate schedule.
B
Gross cash receipts and payments from operating activities are
presented.
C

7. Interest paid must be presented.
D
All of the above.
Question 9
The __________ will be the same regardless of using the
indirect or direct method of preparation.
1. I. Net Cash Flow from operating activities.
2. II. Presentation of data gathered in the operating activities
section.
3. III. Disclosure of noncash investing activities.
4. IV. Inclusion of a financing section
A
I, II & IV
B
I & II
C
II
D

8. I, III & IV
Question 10
When computing cash payments for operating activities, all of
the following are considered except
A
Administrative expenses.
B
Decrease or increase in accrued liabilities.
C
Amortization of a bond.
D
Selling expenses.
Question 11
Under the direct method, what is the cash paid for goods held
for resale?
Sales
$77,000
Cost of goods sold
46,000
Returns and allowances
6,000
Decrease in inventory

9. 10,000
Increase in accounts receivables
11,000
Increase in accounts payable for
goods held for resale
5,000
Decrease in accounts payable for
for administrative services
4,000
Net income
26,000
Depreciation
3,000
A
$31,000
B
$35,000
C
$36,000
D
$41,000
Question 12
Which rule is incorrect regarding the indirect method?

10. A
An increase in current operating liabilities is subtracted from
net income.
B
A decrease in current operating assets is added to net income.
C
An increase in current operating assets is subtracted from new
income.
D
A decrease in current operating liabilities is subtracted from net
income.
Question 13
The equation for figuring cash collected from sales when using
the direct method is
A
Sales – Cost of Goods Sold + Decrease in Inventory.
B
Sales + Decrease (or – Increase) in Accounts Receivable.
C

11. Net Income – Cost of Goods Sold + Decrease (or – Increase) in
Accounts Receivable.
D
Revenue – Dividends paid + Retained Earnings.
STUDY UNIT TEN
1. Accrual basis accounting – measures and reports net income
for an accounting period, such as a month or a year, based on
accrual accounting income and expense recognition rules.
Accrual accounting requires single cash transactions (e.g.,
purchase of equipment, building, etc.) to be accounted for over
their useful lives (e.g., 5, 10, 20, or more years).
2. Cash basis accounting – measures and reports net income
based on revenue recognition at cash receipt and expense
recognition at cash payment.
3. Direct method – the method of presenting the operating
activities section of the statement of cash flow recording net
cash from gross receipts and gross payments.
4. Indirect method – the method of presenting the operating
activities section of the statement of cash flows that adjusts net
income to compute cash flow from operating activities.
5.