Q: Which formula correctly represents the calculation of net cash flow from operating activities using the indirect method?

$$\text{Net Income} + \text{Noncash Expenses} + \text{Decrease in Current Assets} + \text{Increase in Current Liabilities}$$

Question 1

Which of the following best explains why the statement of cash flows is considered a crucial financial document for analysts?

Accepted Answer

It is the only financial statement that shows how a company generates and uses cash, revealing the ability to translate earnings into cash.

Question 2

Which of the following is classified as an investing activity on the statement of cash flows?

Accepted Answer

Purchase of equipment

Question 3

A company receives cash from the sale of its old delivery truck. How should this transaction be classified on the statement of cash flows?

Accepted Answer

Investing activity – inflow

Question 4

Which of the following is NOT considered a cash equivalent?

Accepted Answer

Inventory

Question 5

Which of the following would be classified as a financing activity?

Accepted Answer

Payment of cash dividends

Question 6

A company’s net income for the year is $$50,000. During the year, depreciation expense was 5$$,000, accounts receivable increased by $$2,000, and accounts payable increased by 3$$,000. Using the indirect method, what is the net cash flow from operating activities?

Accepted Answer

$56,000

Question 7

Which formula correctly represents the calculation of net cash flow from operating activities using the indirect method?

Accepted Answer

$$	ext{Net Income} + 	ext{Noncash Expenses} + 	ext{Decrease in Current Assets} + 	ext{Increase in Current Liabilities}$$

Question 8

Which of the following would result in net cash flow from operating activities being higher than net income?

Accepted Answer

Depreciation expense

Question 9

If a company pays interest on its long-term debt, how is this transaction classified on the statement of cash flows?

Accepted Answer

Operating activity – outflow

Question 10

Which of the following is an example of a cash inflow from financing activities?

Accepted Answer

Proceeds from issuing the firm's own equity securities

Question 11

A company reports the following changes: Increase in inventory of $$4,000, decrease in accounts payable of 2$$,000, and depreciation expense of $$3,000. If net income is 20$$,000, what is the net cash flow from operating activities using the indirect method?

Accepted Answer

$17,000

Question 12

Which of the following transactions would be classified as an outflow in investing activities?

Accepted Answer

Purchase of property, plant, and equipment

Question 13

Which of the following is true regarding the direct and indirect methods for calculating cash flow from operating activities?

Accepted Answer

Both methods yield identical figures for net cash flow from operating activities.

Question 14

Which of the following would be added to net income when using the indirect method to calculate cash flow from operating activities?

Accepted Answer

Depreciation expense

Question 15

A company issues new shares of stock for $56,000. How is this transaction reflected on the statement of cash flows?

Accepted Answer

Financing activity – inflow

Question 16

Which of the following would NOT affect cash flow from operating activities?

Accepted Answer

Payment of cash dividends

Question 17

If a company purchases treasury stock, how is this transaction classified on the statement of cash flows?

Accepted Answer

Financing activity – outflow

Question 18

Which of the following is a correct example of an operating activity cash inflow?

Accepted Answer

Cash received from sales of goods or services

Question 19

A company’s statement of cash flows shows the following: cash provided by operating activities $$10,000, cash used by investing activities (5$$,000), cash provided by financing activities $2,000. What is the net increase in cash and cash equivalents?

Accepted Answer

$7,000

Question 20

Which of the following best describes the effect of a declaration (without payment) of a cash dividend on the statement of cash flows?

Accepted Answer

It does not affect cash flow.

Statement of Cash Flows: Concepts, Classification, and Calculation Methods

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