1. A company uses the indirect method to prepare the statement of cash flows. In

Question

1. A company uses the indirect method to prepare the statement of cash flows. In determining the net cash flow from operating activities, which of the following items would be added to net income?

2. True or false. Investing activities include activities that affect the current asset section of the balance sheet.

3. A company purchases land using its common stock. If the company prepares the statement of cash flows using the indirect method or the direct method, where would this transaction appear?

4. Which of the following would be presented differently on the statement of cash flows under the direct method versus the indirect method?

Explanation / Answer

1.

under indirect method, all non cash income will deduct from net income and non cash expenses will add to net income. also, increase in current assets will deduct from net inome and decrease in current assets will add to net income. in case of current liabilities, increase in current liabilities will add to net income and decrease in current liabilties will deduct from net income.

in given case, answer is : a. A decrease in accounts payable would be added to net income.

3. Given case is non-cash transaction. so it will disclose under non cash investing and financing activities section under cash balance.

so, answer is a. The purchase of land would be presented in the non-cash investing and financing activities section under both methods.

4. Cash flow from operating activities section will be differ based on direct method and indirect method.

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