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When the direct method is used,each revenue and expense account on the income statement is individually adjusted to calculate net cash flow from operating activities.

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When calculating net cash flow from financing activities,a company must convert interest expense to cash payments for interest.

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As a general rule,financing cash flows affect


A) noncurrent assets and liabilities.
B) current assets and liabilities.
C) noncurrent liabilities or shareholders equity.
D) noncurrent assets.

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Which of the following would be used to determine the ability of a company to pay dividends and interest on borrowings?


A) the income statement.
B) the statement of cash flows.
C) the balance sheet.
D) management discussion and Analysis.

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The net cash flow from operating activities is an inflow of $37,042,the net cash flow from investing activities is an outflow of $16,831,and the net cash flow from financing activities is an outflow of $26,397.If the beginning cash account balance is $11,283,what is the ending cash account balance?


A) $5,097
B) ($6,186)
C) $38,759
D) $27,476

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Interest and dividends from investments held by a company are reported as cash inflows from investing activities on the statement of cash flows.

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Cinno Company reported net income of $20,000 for the year ended December 31,2018.During the year,inventories decreased by $7,000,accounts payable decreased by $8,000,depreciation expense was $10,000,and accounts receivable increased by $6,500.Net cash provided by operations in 2018,computed using the indirect method,was:


A) $10,500.
B) $22,500.
C) $38,500.
D) $51,500.

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A negative cash flow is referred to as a cash outflow.

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Cash flows from investing includes everything,except,the


A) purchase of property,plant and equipment.
B) sale of property,plant and equipment.
C) receiving dividends and interest.
D) disposal of property,plant and equipment.

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If inventory decreases and deferred revenue increase during an accounting period while the indirect method is used,what does the company do with the changes in these accounts to calculate net cash flows from operating activities?


A) Both are added to net income.
B) The change in inventory is added to net income; the change in unearned revenue is subtracted.
C) Both are subtracted from net income.
D) The change in unearned revenue is added to net income; the change in inventory is subtracted.

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The supplies account decreases and accounts payable increases during an accounting period.When the indirect method is used,what does the company do with the changes in these accounts to calculate net cash flows from operating activities?


A) Both are added to net income.
B) The change in accounts payable is added to net income; the change in supplies is subtracted.
C) Both are subtracted from net income.
D) The change in supplies is added to net income; the change in accounts payable is subtracted.

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If the calculation of net cash flows from operating activities starts with net income,the company:


A) is using the net income method.
B) will then remove all noncash items included in the calculation of net income.
C) is using the direct method.
D) will then add all additional noncash items not included in the calculation of net income.

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Brighton,Inc.,uses the indirect method to determine its net cash flow from operating activities.During the course of the year,Brighton,Inc.'s accounts receivable increased by $10,000 and its accounts payable decreased by $5,000.As a result of these two items,the calculation of cash flow from operations will be:


A) increased by $5,000.
B) decreased by $5,000.
C) increased by $15,000.
D) decreased by $15,000.

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The statement of cash flows uses the same transactions that have been reported in the income statement and balance sheet; it simply converts them from the accrual basis to a cash basis.

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A company bought $250,000 of equipment with an expected life of ten years and no salvage value.After six years the company sold the equipment for $94,000.If it uses straight-line depreciation and the indirect method is used to determine net cash flows from operating activities,which of the following reflects the way the sale of the equipment would be reported in the statement of cash flows?


A) $94,000 is recorded as a cash inflow from investing activities and no other sections of the statement are affected.
B) $94,000 is recorded as a cash inflow from investing activities and $6,000 is added to convert net income to net cash flow from operating activities.
C) $94,000 is recorded as a cash inflow from investing activities and $6,000 is subtracted to convert net income to net cash flow from operating activities.
D) $94,000 is recorded as a cash inflow from operating activities. The depreciation taken is $250,000/10 * 6 = $150,000; the book value at the date of sale is $100,000 ($250,000 - $150,000) ; the loss on the sale is $6,000 ($100,000 - $94,000) .

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Cash received from the sale of land would be classified in the statement of cash flows as investing activity.

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Inventory and accounts payable increase during the accounting period.What is done with these changes to determine the net cash flow from operating activities when the direct method is used?


A) The changes in each account are both added to net income.
B) The change in inventory is subtracted from cost of goods sold and the change in accounts payable is added to cost of goods sold to find the cash paid to suppliers.
C) The changes in each account are both subtracted from net income.
D) The change in inventory is added to cost of goods sold and the change in accounts payable is subtracted from cost of goods sold to find the cash paid to suppliers.

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Free cash flow is a positive cash flow:


A) beyond what is needed to replace current property,plant,and equipment and pay dividends.
B) across all three activity components of the statement of cash flows.
C) beyond what has been allotted for future property,plant,and equipment replacement and expansion.
D) across both financing and investing activities.

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A company could have a net increase in cash while reporting a net loss in income.

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In general,the cash flow from operating activities is considered by many to be the most important component of the Statement of Cash Flows.

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