Chapter 15

Managerial Accounting

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Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows True/False Questions 1. An increase in inventory is classified as a “use” of cash for purposes of constructing the statement of cash flows. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 2. In the statement of cash flows, dividend payments to the company's stockholders are treated as a “use” rather than as a “source” of cash. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 3. Under the indirect method of determining the net cash flow from operating activities on the statement of cash flows, a gain on the sale of equipment would be added to net income. Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Hard 4. Under the indirect method of determining the net cash provided by operating activities on the statement of cash flows, increases in current liabilities such as accounts payable are added to net income. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium 5. Under the indirect method of determining the net cash provided by operating activities on the statement of cash flows, dividends are added to net income. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium 6. Interest paid on borrowed funds would be included as part of a company's financing activities on the statement of cash flows. Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Hard Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 15-5
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Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows 7. The net cash provided by operating activities on the statement of cash flows would include interest paid to creditors and dividends paid to the company's own shareholders. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium 8. A change in deferred taxes is considered to be an operating activity on the statement of cash flows. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium 9. Lending money to another company would be classified as a financing activity on the statement of cash flows. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium 10. The direct method of preparing the statement of cash flows will usually show a greater total increase in cash than the indirect method. Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4 Level: Easy 11. Under the direct method of determining the net cash provided by operations on the statement of cash flows, the cost of goods sold is converted to a cash basis by adjusting it for changes in inventories and changes in accounts payable during the
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Chapter 15 - Chapter 15 "How Well Am I...

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