Question

1. When preparing the operating activities section of the statement of cash flows using the indirect method, non-operating losses are subtracted from net income. True or false?

2. When preparing the operating activities section of the statement of cash flows using the indirect method, decreases in current operating assets are subtracted from net income. True or false?

3. When preparing the operating activities section of the statement of cash flows using the indirect method, non-operating gains are subtracted from net income. True or false?

4. When preparing the operating activities section of the statement of cash flows using the indirect method, non-operating losses are added to net income.

True or false?

5. The cash flows from operating activities section of an indirect method of cash flows begins with net income or loss.

True or false?

6. When preparing the operating activities section of the statement of cash flows using the indirect method, decreases in current operating liabilities are added to net income.

True or false?

7. When preparing the operating activities section of the statement of cash flows using the indirect method, depreciation is subtracted from net income

True or false?

8. When preparing the operating activities section of the statement of cash flows using the indirect method, non-operating gains are added to net income.

True or false?

9. When preparing the operating activities section of the statement of cash flows using the indirect method, a decrease in accounts receivable is subtracted from net income.

True or false?

10. When preparing the operating activities section of the statement of cash flows using the indirect method, decreases in current operating assets are added to net income.

True or false?

11. Equipment costing $100,000 with accumulated depreciation of $40,000 is sold at a loss of $10,000. This implies that $40,000 cash was received from the sale.

True or false?

12. Equipment costing $400,000 with accumulated depreciation of $260,000 is sold at a gain of $10,000. This implies that $130,000 cash was received from the sale.

True or false?

13. Equipment costing $200,000 with accumulated depreciation of $160,000 is sold at a loss of $10,000. This implies that $30,000 cash was received from the sale.

True or false?

14. Equipment costing $400,000 with accumulated depreciation of $260,000 is sold at a gain of $10,000. This implies that $150,000 cash was received from the sale.

True or false?

Answer 1

Solution:

1. When preparing the operating activities section of the statement of cash flows using the indirect method, non-operating losses are subtracted from net income. True or false?

A: False. Non operating losses are added back to the net income to get to the operating cash flows.

2. When preparing the operating activities section of the statement of cash flows using the indirect method, decreases in current operating assets are subtracted from net income. True or false?

A:

False. Decrease in current assets is added back to net income as cash is released with the decrease in current assets.

3. When preparing the operating activities section of the statement of cash flows using the indirect method, non-operating gains are subtracted from net income. True or false?

A:

True. Non-operating gains are subtracted from net income to arrive at operating cash flows.

4. When preparing the operating activities section of the statement of cash flows using the indirect method, non-operating losses are added to net income.

True or false?

A:

False. Non operating losses are added back to the net income to get to the operating cash flows.

5. The cash flows from operating activities section of an indirect method of cash flows begins with net income or loss.

True or false?

A: True

6. When preparing the operating activities section of the statement of cash flows using the indirect method, decreases in current operating liabilities are added to net income.

True or false?

A: False. Decrease in current liabilities reduces cash, hence it is substracted from net income.

7. When preparing the operating activities section of the statement of cash flows using the indirect method, depreciation is subtracted from net income

True or false?

A: False. Depreciation is added back as it is a non-cash expense.

8. When preparing the operating activities section of the statement of cash flows using the indirect method, non-operating gains are added to net income.

True or false?

False. Non-operating gains are subtracted from net income to arrive at operating cash flows.

9. When preparing the operating activities section of the statement of cash flows using the indirect method, a decrease in accounts receivable is subtracted from net income.

True or false?

False.

10. When preparing the operating activities section of the statement of cash flows using the indirect method, decreases in current operating assets are added to net income.

True or false?

True

11. Equipment costing $100,000 with accumulated depreciation of $40,000 is sold at a loss of $10,000. This implies that $40,000 cash was received from the sale.

True or false?

A:False

Net Block = 100,000 – 40,000 = 60,000; 60,000 – loss of 10,000 = 50,000

12. Equipment costing $400,000 with accumulated depreciation of $260,000 is sold at a gain of $10,000. This implies that $130,000 cash was received from the sale.

True or false?

A: False

Net Block = 400,000 – 260,000 = 140000; 140000 + gain of 10,000= 150,000

13. Equipment costing $200,000 with accumulated depreciation of $160,000 is sold at a loss of $10,000. This implies that $30,000 cash was received from the sale.

True or false?

A:True

Net Block = 200,000 – 160,000 = 40,000; 40,000 - loss of 10,000= 30,000

14. Equipment costing $400,000 with accumulated depreciation of $260,000 is sold at a gain of $10,000. This implies that $150,000 cash was received from the sale.

True or false?

A: True

Net Block = 400,000 – 260,000 = 140000; 140000 + gain of 10,000= 150,000