Bob owns a used car dealership. All of his revenue is from cash sales or in-house financing. Which method of presenting cash flows should he use and why?
Question 1 options:
Direct method because some of his sales do not deal with direct cash
Direct method because all of his sales deal with cash or items that will be quickly converted to cash
Indirect method because he has sales that deal with financing customers and giving them loans
Indirect method because of the amount of money he has to invest in inventory
Using the direct method, how should taxes be treated on the cash flow statement?
Question 2 options:
Tax amounts are only included in the operating section of the cash flow statement
Tax amounts should be directly tied to the activity (operating, financing, investing)
Tax amounts are only included in the financing section of the cash flow statement
Tax amounts should not be included as an activity-related expense
Sara’s Cake Company is looking at the price of sugar and trying to find out if they can source a cheaper price for the sugar. What type of cash activity is this?
Question 3 options:
When looking at the following operating, investing, or financing activities, which of the following increases cash in the business?
Question 4 options:
Loaning to employees
When using the indirect method of calculating cash flows, what do you subtract from net income to get cash flow from operating activities?
Question 5 options:
Selling and administrative expenses
Cost of goods sold and liabilities
Inventory and payroll expenses
Current assets and current liabilities
When looking at the balance sheet, if you look at net income and pay out dividends, what do you have left in the business?
Question 6 options:
Which of the following transactions could increase revenue but not necessarily increase cash flow?
Question 7 options:
An increase in cash sales
A decrease in accounts payable
An increase in accounts receivable sales
A decrease in electricity bill
When calculating cash flows, which method starts with net income taken from the income statement?
Question 8 options:
The indirect method
The direct method
Always the direct and sometimes the indirect method
Both the indirect and direct methods
Which of the following is considered a financing activity?
Question 9 options:
Cash purchase of a building
Cash receipts from sales
Cash payment of notes payable
Cash received from interest on loans
Which of the following is considered a function of financing activities on the cash flow statement?
Question 10 options:
It allows buying and selling of treasury stock
It affects current assets and liabilities on the balance sheet
It affects net income on the income statement
It increases future long-term assets