Appendix 13A - Appendix 13A - The Direct Method of...

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Unformatted text preview: Appendix 13A - The Direct Method of Determining the Net Cash Provided by Operating Activities Appendix 13A The Direct Method of Determining the Net Cash Provided by Operating Activities True / False Questions 1. Under the direct method of determining the net cash provided by operating activities on the statement of cash flows, an increase in account receivable would be deducted from sales revenue to convert revenue to a cash basis. True False 2. Under the direct method of determining the net cash provided by operating activities on the statement of cash flows, an increase in accounts payable would be deducted from cost of goods sold to convert cost of goods sold to a cash basis. True False 3. Under the direct method of determining the net cash provided by operating activities on the statement of cash flows, an increase in taxes payable would be added to income tax expense to convert income tax expense to a cash basis. True False Multiple Choice Questions 4. During the year the balance in the accounts payable account decreased by $8,000. In order to adjust the company's net income to a cash basis using the direct method on the statement of cash flows, it would be necessary to: A. deduct the $8,000 from the sales revenue reported on the income statement. B. add the $8,000 to the sales revenue reported on the income statement. C. deduct the $8,000 from the cost of goods sold reported on the income statement. D. add the $8,000 to the cost of goods sold reported on the income statement. Appendix 13A-1 Appendix 13A - The Direct Method of Determining the Net Cash Provided by Operating Activities 5. During the year the balance in the accrued liabilities account increased by $12,000. In order to adjust the company's net income to a cash basis using the direct method on the statement of cash flows, it would be necessary to: A. deduct the $12,000 from the operating expenses on the income statement. B. add the $12,000 to the operating expenses on the income statement. C. deduct the $12,000 from the cost of goods sold reported on the income statement. D. add the $12,000 to the cost of goods sold reported on the income statement. 6. Under the direct method of determining net cash provided by operating activities on the statement of cash flows, a gain on the sale of plant assets would be: A. added to the amount of operating expenses reported under the accrual basis. B. deducted from the amount of operating expenses reported under the accrual basis. C. deducted from the amount of sales reported under the accrual basis. D. totally ignored since the gain is not a part of sales, cost of goods sold, or operating expenses. 7. Last year Cumley Company reported a cost of goods sold of $90,000. Inventories increased by $21,000 during the year, and accounts payable decreased by $14,000. The company uses the direct method to determine the net cash provided by operating activities on the statement of cash flows. The cost of goods sold adjusted to a cash basis would be: of cash flows....
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This note was uploaded on 05/03/2011 for the course ACC 1410 taught by Professor Bauser during the Spring '11 term at Marion Technical College.

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Appendix 13A - Appendix 13A - The Direct Method of...

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