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Unformatted text preview: Question: SCF-0001 In a statement of cash flows, which of the following would increase reported cash flows from operating activities using the direct method? (Ignore income tax considerations.) Answers A : Dividends received from investments. B : Gain on sale of equipment. C : Gain on early retirement of bonds. D : Change from straight-line to accelerated depreciation. Answer Explanations A. Answer A is correct. SFAS 95 specifically states that dividends received from investments be reported separately under operating activities when the direct method is used. B. Answer B is incorrect. With the direct method, gains on sales of equipment would affect the cash flow of fixed assets under investing activities. C. Answer C is incorrect. With the direct method, a gain on early retirement of bonds would affect cash flows from financing activities. D. Answer D is incorrect. A change in depreciation method would be a change in accounting estimate effected by a change in accounting principle. Such a change would not be classified under operating activities using the direct method. Question: SCF-0002 Reed Co.s 2007 statement of cash flows reported cash provided from operating activities of $400,000. For 2007, depreciation of equipment was $190,000, amortization of patent was $5,000, and dividends paid on common stock were $100,000. In Reeds 2007 statement of cash flows, what amount was reported as net income? Answers A : $105,000 B : $205,000 C : $305,000 D : $595,000 Answer Explanations A. Answer A is incorrect because it is calculated by also deducting dividends paid, which is incorrect because dividends paid are included in cash flows from financing activities. Also, it is a cash outflow. B Answer B is correct and is calculated by taking cash flows from operations of $400,000 and deducting the depreciation of equipment and amortization of the patent, which are expenses that do not result in cash outflows ($400,000 $190,000 $5,000 = $205,000). Answer C is incorrect because it is calculated by adding dividends paid. Answer D is incorrect because it is calculated by adding depreciation and amortization to cash provided from operating activities. Question: SCF-0003 A companys accounts receivable decreased from the beginning to the end of the year. In the companys statement of cash flows (operating activities shown using direct approach), the cash collected from customers would be Answers A : Sales revenues plus accounts receivable at the beginning of the year. B : Sales revenues plus the decrease in accounts receivable from the beginning to the end of the year. C : Sales revenues less the decrease in accounts receivable from the beginning to the end of the year....
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This note was uploaded on 12/08/2009 for the course FAR 5745 taught by Professor Philoreily during the Spring '09 term at Nova Southeastern University.
- Spring '09