Question

Question 5

1. When preparing the statement of cash flows under the indirect method, an appropriate procedure would be to

   		subtract an increase in accounts receivable.
   		subtract an increase in wages payable.
   		subtract amortization expense.
   		determine cash paid to suppliers.
   		add a gain from the sale of a fixed asset.

1 points

Question 6

1. Which of the following statements is incorrect, regarding the effect of depreciation on a statement of cash flows using the indirect method?

   		Depreciation expense is not an outflow of cash.
   		Ignoring income tax effects, increasing depreciation expense will increase cash flows from operations.
   		Depreciation expense is not a source of cash.
   		Depreciation expense is added in the cash flow from operations section.
   		Depreciation expense will reduce the net income used in determining cash flows from operations.

1 points

Question 7

1. All of the following would be included in a company's financing activities except

   		purchasing treasury stock.
   		issuing equity securities.
   		borrowing cash from a bank.
   		interest payments.
   		repayment of amounts borrowed.

Answer 1

5

Explanation for incorrect options:

subtract an increase in wages payable: increase in wages payable is deemed cash inflow. It is added but not subtracted.

subtract amortization expense: Amortization expense is not outflow of cash. It is added back but not subtracted.

determine cash paid to suppliers: it is not relevant in indirect method. It is calculated under direct method.

add a gain from the sale of a fixed asset: it is not direct inflow of cash. It is subtracted but not added.

Explanation for correct option:

subtract an increase in accounts receivable: Increase in accounts payable is deemed cash outflow and is subtracted. It is correct answer choice.

6

Statement that is incorrect regarding the effect of depreciation on a statement of cash flow from the given answer choices is:

Depreciation expense will reduce the net income used in determining cash flows from operations.

7

Interest payments are not part of company’s financing activities. Other answer choices are part of financing activities.

Please RATE the answer.