Question

19. Which of the following should be deducted from net income in calculating net cash flow from operating activities using the indirect method? a depreciation expense b. gain on sale of land c a loss on the sale of equipment d dividends declared and paid 

20. Which of the following below increases cash? a depreciation expense b. acquisition of treasury stock c. borrowing money by issuing a six-month note d. the declaration of a cash dividend 

21. Which one of the following below would not be classified as an operating activity? a interest expense b. income taxes c. payment of dividends d selling expenses 

22. Which one of the following below should be added to net income in calculating net cash flow from operating activities using the indirect method? a. again on the sale of land b. a decrease in accounts payable c. an increase in accrued liabilities d. dividends paid on common stock 

23. On the statement of cash flows prepared by the indirect mcthod, 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 c 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 

24. Accounts receivable from sales transactions were $44,000 at the beginning of the year and $53,000 at the end of the year. Net income reported on the income statement for the year was $105,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows prepared by the indirect method is a. S105,000 b. $114,000 c. 596,000 d. $158,000 

25.A building with a book value of $ 46,000 is sold for $51,000 cash Using the indirect method, this transaction should be shown on the statement of cash flows as follows: a. an increase of $46,000 from investing activities b. an increase of $51,000 from investing activities and a deduction from net income of $5,000

Answer 1

19)
Depreciation expense is a non cash expense , therefore added to Net income
Loss on sale of equipment is not an operating activity, therefore added to Net Income
Dividends declared and paid is an investing activity , No effect on net income
Gain on sale of land is not an operating activity , therefore deducted from Net Income
Answer is b)
b) Gain on sale of land
20)
Depreciation is a non cash expense , therefore cash is unaffected
Acquision of Treasury stock required cash , therefore there is cash outflow
Declaration of cash dividend , requires cash payment, therefore there is cash outflow
Borrowing money by issuing a six month note results in loan taken, therefore there is inflow of cash
which would result in increase of cash in Financing activity
Answer is c)
Borrowing money by issuing a six month note
21)
Interest expense is an expense incurred for loan taken to run operations of business, therefore operating activity
Income taxes are taxes paid on income of business, therefore operating activity
Selling Expenses are expenses incuured to make sales, sales and selling expense is an operating activity
Payment of dividends is an Financing activity , as dividends are paid to investors
Answer is c)
Payment of dividends
22)
Gain on sale of land is not an operating activity , therefore deducted from Net Income
Decrease in Accounts Payable means that the accounts payable are made payments , therefore cash would reduce,
therefore deducted from Net Income
Dividends paid on common stock is an financing activity, therefore no effect on net income
Increase in Accrued Liabilities , results in cash generation, as Liability is generated and yet to be paid, therefore
added in Net Income
Answer is c)
Increase in Accrued Liabilities
23)
Option b) Gain will not be added in net income , as it is a Non Operating Income
Option c) Dividends declared is an financing actibvity , therefore not be added in Financing activity, gain is not an Financing Activity
Option d) Dividends declared is an financing actibvity , therefore not be deducted in Financing activity, gain is not an Financing Activity
Option a) It would be deducted from Net income , as it is not an operating activity, it is a financing activity.It is Deducted from
Net income because Net income includes Gain on sale of investment, therefore to be excluded
Answer is a)
24)	opening	closing
Accounts Receivable	$44,000	$53,000
Cash flow under indirect method
Net Income	$105,000
Less:Increase in Acccounts Receivable	($9,000)	($44000-$53000)
Cash flow from Operating Activity	$96,000
Answer is c)
$96,000
25)
Selling price	$51,000
Book value	($46,000)
Profit on sale	$5,000
This profit is included in Net income , therefore to be Deducted from Net Income,to arrive at operating activity
Selling price of building sold $51000 is to be added in Investing activity , as building is an investment, sale process
should be added to arrive at Investing activity
Answer is b)