Question

Multiple Choice (REQUIRED - 20 POINTS) Identify the choice that best completes the statement or answers the question. 1. On the statement of cash flows prepared by the indirect method, the cash flows from operating activities section would include a receipts from the sale of investments b. amortization of premium on bonds payable c. payments for cash dividends d. receipts from the issuance of capital stock 2. Which of the following should be added to net income in calculating net cash flow from operating activities using the indirect method? a. an increase in inventory b. a decrease in accounts payable c. preferred dividends declared and paid d. a decrease in accounts receivable 3. On the statement of cash flows prepared by the indirect method, a $50,000 gain on the sale of investments would be a. deducted from net income in converting the net income reported on the income statement to cash flows from operating activities b. added to net income in converting the net income reported on the income statement to cash flows from operating activities added to dividends declared in converting the dividends declared to the cash flows from financing activities related to dividends d. deducted from dividends declared in converting the dividends declared to the cash flows from financing activities related to dividends 4. The net income reported on the income statement for the current year was $275,000. Depreciation recorded on fixed assets and amortization of patents for the year were $40,000 and $9,000, respectively. Balances of current asset and current liability accounts at the end and at the beginning of the year are as follows: Cash Accounts receivable Inventories Prepaid expenses Accounts payable (merchandise creditors) End $ 50,000 112,000 105,000 4,500 75,000 Beginning $ 60,000 108,000 93,000 6,500 89,000 What is the amount of cash flows from operating activities reported on the statement of cash flows prepared by the indirect method? a. S198,000 b. $324,000 c. $352,000 d. $296,000

Answer 1

(1) Correct Answer is option B.. ophon a will be included in Cash flow from .. 1 Innesting activity & option C&D will be in financing Activity Ammortization of premium is a non-carle expendinue, therefore included in operating Acnuity. (2) Opsion c .. It will we be included in Net Income to get operating income other option A, BRD accounts for working Capital changes that are adjusted on Operating Income. 3. Gain on sale of Investment it is show in shown in Credit side of Prosit & lon Alc. option is correct. option B is incorrect as it would overstate the operating income. option C&D are unrong because after at deducting from Net Income. sale of Investment is shown in Investing Activity ca Scanned with CamScanner

cash flow from operating Activiting Net Income Depreciation of Add Ammor $275000 . 49000 324 000 Оролоці? Іост working Capital changes Increase in Works AR (4000) een lovenpory [ 12000) Decrease in Prepaid Exp. 2000 Decrease in AP ( 14000) (28000) $296000 Cash flow Option from operating Achivities is correcto cs Scanned with CamScanner