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Use the direct method, to compute the net cash provided by operating activities. (Accrued Liabilities
relate to other operating expense.)
A) $(55,700)
B) $39,700
C) $(39,700)
D) $55,700
22) Which of the following appears on a statement of cash flows prepared using the direct method?
A) adjustments to net income
B) cash payments for salaries
C) adjustments for gains and losses on sale of property
D) increase/decrease in current assets
23) Which of the following items are included as an operating activity on the statement of cash flows,
using the direct method?
A) purchase of treasury stock
B) payment of dividends
C) issuance of stock
D) payment of interest expense
24) The financing activities section of a statement prepared using the direct method includes changes in
________.
A) Accounts Payable
B) Accounts Receivable
C) Merchandise Inventory
D) Long-term Notes Payable
25) Merchandise Inventory increased $28,000 and Accounts Payable decreased $19,700 during the year.
Accounts Payable relates only to the acquisition of merchandise inventory. Sales were $795,600 and Cost
of Goods Sold was $549,700. Compute the payment made to the suppliers for inventory.
A) $577,700
B) $569,400
C) $597,400
D) $47,700
26) Artist Paints Company uses the direct method for preparing its statement of cash flow. Artist reports
the following information regarding 2019:
From the income statement:
Sales Revenues, $265,000
Cost of Goods Sold, $214,000
Operating Expenses, $33,000
From the balance sheet:
Beginning Balance
Ending Balance
Accounts Receivable
$14,800
$17,900
Merchandise Inventory
23,700
18,500
Accounts Payable
6900
14,000
Accrued Liabilities
4500
2000
What amount will be shown for collections from customers?
A) $261,900
B) $268,100
C) $265,000
D) $32,700
27) Designer Paints Company uses the direct method for preparing its statement of cash flow. Designer
Paints reports the following information regarding 2018:
From the income statement:
Sales Revenues, $268,000
Cost of Goods Sold, $210,000
Operating Expenses, $33,000
From the balance sheet:
Beginning Balance
Ending Balance
Accounts Receivable
$14,800
$18,400
Merchandise Inventory
23,700
18,100
Accounts Payable
6900
13,900
Accrued Liabilities
4000
1600
What amount will be shown for payments to suppliers for Merchandise Inventory purchases? (Assume
that Accounts Payable are for purchases of merchandise inventory only.)
A) $204,400
B) $211,400
C) $197,400
D) $208,600
28) Outdoor Paints Company uses the direct method for preparing its statement of cash flow. Outdoor
reports the following information regarding 2019:
From the income statement:
Sales Revenues, $270,000
Cost of Goods Sold, $213,000
Operating Expenses, $31,000
From the balance sheet:
Beginning Balance
Ending Balance
Accounts Receivable
$15,000
$18,200
Merchandise Inventory
24,200
18,300
Accounts Payable
6900
13,800
Accrued Liabilities
4700
1600
What amount will be shown for payments to suppliers for operating expenses? (Accounts Payable are for
purchases of merchandise inventory only, and Accrued Liabilities relate to operating expenses.)
A) $34,100
B) $31,000
C) $29,400
D) $35,700
29) Optics Company uses the direct method for preparing its statement of cash flow. Optics reports the
following information regarding 2019:
From the income statement:
Sales Revenues, $266,000
Cost of Goods Sold, $210,000
Operating Expenses, $32,000
Net Income $24,000
From the balance sheet:
Beginning Balance
Ending Balance
Accounts Receivable
$14,800
$18,200
Merchandise Inventory
23,500
17,900
Accounts Payable
6600
13,500
Accrued Liabilities
4300
2000
Assume that there were no sales of long-term assets, no interest revenue, and no expenses other than the
expenses shown above. Also, assume that Accounts Payable are for purchases of merchandise inventory
only. Accrued liabilities relate to operating expenses. What amount will be shown for the net cash
provided by operating activities?
A) $65,100
B) $30,800
C) $24,000
D) $17,100
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Copyright © 2018 Pearson Education, Inc.
Explanation: B)
Accounts Receivable, beginning balance $14,800
Add: Sales Revenues 266,000
Less: Accounts Receivable, ending balance (18,200)
Collections from Customers (a) $262,600
Merchandise Inventory, ending balance $17,900
Add: Cost of Goods Sold 210,000
Less: Merchandise Inventory, beginning balance (23,500)
Purchases $204,400
Add: Accounts Payable, beginning balance 6600
Less: Accounts Payable, ending balance (13,500)
Cash Paid for Merchandise Inventory (b) $197,500
Accrued Liabilities, beginning balance $4300
Add: Operating Expenses 32,000
Less: Accrued Liabilities, ending balance ($2000)
Cash Paid for Operating Expenses (c) $34,300
Diff: 2
LO: 14-4
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2: Cash Flows From Operating Activities
30) Which of the following is a cash inflow from an operating activity on a statement of cash flows
prepared using the direct method?
A) sold treasury stock for cash
B) issued common stock
C) received interest revenue in cash
D) borrowed money on a long-term note
31) The payment of interest on a loan is considered a ________ on a statement of cash flows prepared
using the direct method.
A) cash outflow for operating activities
B) cash outflow for investing activities
C) cash outflow for financing activities
D) non-cash activity
32) On a statement of cash flows prepared using the direct method, cash received from selling
merchandise is considered a ________.
A) cash inflow from investing activities
B) cash inflow from operating activities
C) cash outflow from financing activities
D) cash outflow from investing activities
33) Which of the following is considered an operating activity on the statement of cash flows prepared
using the direct method?
A) dividends paid to stockholders
B) sale of merchandise inventory for cash
C) payment to purchase equipment
D) the receipt of cash from sale of equipment
90
34) Colonial Company uses the direct method to prepare its statement of cash flows. Refer to the
following financial statement information for the year ending December 31, 2019:
Colonial Company
Comparative Balance Sheet
December 31, 2019 and 2018
2019
2018
Increase
(Decrease)
Cash
$33,000
$13,000
$20,000
Accounts Receivable
29,000
36,000
(7,000)
Merchandise Inventory
56,000
29,000
27,000
Plant and Equipment, net
126,000
92,000
34,000
Total Assets
$244,000
$170,000
$74,000
Accounts Payable
$9,000
$13,000
$(4,000)
Accrued Liabilities
7,000
3,000
4,000
Long-term Notes Payable
70,000
79,000
(9,000)
Total Liabilities
$86,000
$95,000
$(9,000)
Common Stock
$55,000
$3,000
$52,000
Retained Earnings
115,000
78,000
37,000
Treasury Stock
(12,000)
(6,000)
(6,000)
Total Stockholders' Equity
$158,000
$75,000
$83,000
Total Liabilities and Stockholders' Equity
$244,000
$170,000
$74,000
Colonial Company
Income Statement
Year Ended December 31, 2019
Sales Revenue
$291,300
Interest Revenue
1,000
Gain on Sale of Plant Assets
6,000
Total Revenues and Gains
$298,300
Cost of Goods Sold
145,000
Salaries and Wages Expense
49,000
Depreciation Expense—Plant Assets
16,000
Other Operating Expense
25,000
Interest Expense
3,500
Income Tax Expense
7,800
Total Expenses
246,300
Net Income
$52,000
