Q: Which formula correctly calculates dividends paid using net income and change in retained earnings?

$$\text{Dividends Paid} = \text{Net Income} - \text{Change in Retained Earnings}$$

Question 1

Which section of the statement of cash flows would you find the cash paid for the purchase of property, plant, and equipment (PP&E)?

Accepted Answer

Investing activities

Question 2

Firm A reported net income of $$75,000 and a change in retained earnings of 70$$,000. What is the amount of dividends paid by Firm A? Use the formula $$	ext{Net Income} - 	ext{Change in Retained Earnings} = 	ext{Dividends}.$$

Accepted Answer

$$5,000$$

Question 3

Which of the following adjustments is subtracted from net income when preparing the statement of cash flows using the indirect method?

Accepted Answer

Increase in accounts receivable

Question 4

AddieMae Inc. had net income of $$6,200, depreciation of 500$$, a decrease in accounts receivable of $$500, and an increase in inventory of 6$$,900. What is the net cash provided by operating activities before considering other adjustments?

Accepted Answer

$$6,200 + 500 + 500 - 6,900 = 300$

Question 5

Which of the following is NOT considered a cash flow from financing activities?

Accepted Answer

Purchase of long-term investments

Question 6

If a company records an increase in prepaid expenses, how does this affect the cash flow from operating activities under the direct method?

Accepted Answer

It is subtracted from cash flow from operating activities

Question 7

Firm B paid $$35,000 in dividends and reduced long-term debt by 10$$,000. What is the total cash outflow from financing activities for Firm B?

Accepted Answer

$$45,000$$

Question 8

Which of the following best explains why AddieMae Inc.'s cash flow from operating activities is much lower than its net income?

Accepted Answer

Significant growth in inventories and receivables

Question 9

When preparing the statement of cash flows using the indirect method, which of the following is added to net income?

Accepted Answer

Depreciation expense

Question 10

A company had the following cash flows: cash provided by operating activities $$500, cash used in investing activities 1$$,000, and cash provided by financing activities $2,800. What is the net increase in cash for the period?

Accepted Answer

$$500 - 1,000 + 2,800 = 2$$,300$

Question 11

Which of the following is a qualitative issue that can affect the statement of cash flows?

Accepted Answer

Recording operating expenses as capital expenditures

Question 12

If a company increases its accounts payable, what is the effect on cash flow from operating activities under the indirect method?

Accepted Answer

It increases cash flow from operating activities

Question 13

Which formula correctly calculates dividends paid using net income and change in retained earnings?

Accepted Answer

$$	ext{Dividends Paid} = 	ext{Net Income} - 	ext{Change in Retained Earnings}$$

Question 14

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

Accepted Answer

Increase in accounts receivable

Question 15

A company reports the following: net income $$10,000, depreciation 2$$,000, increase in inventory $$3,000, and decrease in accounts payable 1$$,000. What is the cash flow from operating activities using the indirect method?

Accepted Answer

$$10,000 + 2,000 - 3,000 - 1,000 = 8$$,000$

Question 16

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

Accepted Answer

Sale of common stock

Question 17

If a company sells inventory for cash, which section of the statement of cash flows is affected?

Accepted Answer

Operating activities

Question 18

Which of the following is a reason why cash flow from operations may differ from net income?

Accepted Answer

Changes in current assets and liabilities

Question 19

A company had the following: net income $$5,000, depreciation 1$$,000, increase in accounts receivable $$2,000, decrease in inventory 500$$, and increase in accounts payable $1,500. What is the cash flow from operating activities using the indirect method?

Accepted Answer

$$5,000 + 1,000 - 2,000 + 500 + 1,500 = 6$$,000$

Question 20

Which of the following is a qualitative issue that can distort the cash flow from operations?

Accepted Answer

Management of current asset and liability accounts

Statement of Cash Flows: Concepts, Preparation, and Analysis

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