Chapter 14 Appendix A The Direct Method of Determining the Net Cash Provided by Operating Activities
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Chapter 14 Appendix A The Direct Method of Determining the Net Cash
Provided by Operating Activities Answer Key
True / False Questions
1. If accounts receivable increase during a period, then the amount of cash collected from
customers will be greater than the amount of sales reported on the income statement for the
period.
2. Under the direct method of determining net cash provided by operating activities on the
statement of cash flows, the net income figure is adjusted for changes in current assets and
liabilities.
3. 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 added to cost of goods sold
to convert cost of goods sold to a cash basis.
Chapter 14 Appendix A The Direct Method of Determining the Net Cash Provided by Operating Activities
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4. Under the direct method of determining the net cash provided by operating activities on the
statement of cash flows, an increase in income taxes payable would be subtracted from
income tax expense to convert income tax expense to a cash basis.
Multiple Choice Questions
5. Wesi Corporation prepares its statement of cash flows using the direct method. Which of
the following should Wesi classify as an operating activity on its statement?
Chapter 14 Appendix A The Direct Method of Determining the Net Cash Provided by Operating Activities
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6. Olaf Corporation prepares its statement of cash flows using the direct method. The
following items were listed on Olaf’s income statement. Which of these items would also be
listed in the operating activities section of Olaf’s statement of cash flows?
7. During the year the balance in the Inventory account increased by $4,000. 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:
Chapter 14 Appendix A The Direct Method of Determining the Net Cash Provided by Operating Activities
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8. Baldock Corporation’s balance sheet and income statement appear below:
Cash dividends were $23. The company sold equipment for $14 that was originally purchased
for $10 and that had accumulated depreciation of $10. The net cash provided by (used in)
operating activities for the year was:
Chapter 14 Appendix A The Direct Method of Determining the Net Cash Provided by Operating Activities
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9. Last year Cumber Company reported a cost of goods sold of $70,000. Inventories
decreased by $12,000 during the year, and accounts payable increased by $8,000. 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:
Chapter 14 Appendix A The Direct Method of Determining the Net Cash Provided by Operating Activities
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10. The most recent balance sheet and income statement of Woodside Corporation appear
below:
Cash dividends were $13. The company did not retire or sell any property, plant, and
equipment during the year. The net cash provided by (used in) operating activities for the year
was:
Chapter 14 Appendix A The Direct Method of Determining the Net Cash Provided by Operating Activities
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Chapter 14 Appendix A The Direct Method of Determining the Net Cash Provided by Operating Activities
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11. Bennett Company reported sales on its income statement last year of $345,000. On the
company’s statement of cash flows, sales adjusted to a cash basis were $337,000. (The
company uses the direct method to determine the net cash provided by operating activities.)
Bennett Company reported the following account balances on its comparative balance sheet:
Based on this information, the beginning Accounts Receivable balance was:
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12. Severn Corporation prepares its statement of cash flows using the direct method. Last
year, Severn reported Income Tax Expense of $27,000. At the beginning of last year, Severn
had a $2,000 balance in the Income Taxes Payable account. At the end of last year, Severn
had a $5,000 balance in the account. On its statement of cash flows for last year, what amount
should Severn have shown for its Income Tax Expense adjusted to a cash basis (i.e., income
taxes paid)?
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13. Cridman Company’s selling and administrative expenses for last year totaled $180,000.
During the year the company’s prepaid expense account balance decreased by $5,000 and
accrued liabilities increased by $8,000. Depreciation for the year was $12,000. Based on this
information, selling and administrative expenses adjusted to a cash basis under the direct
method on the statement of cash flows would be:
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14. Carlton Company reported on its income statement sales for the year just ended of
$435,000. Sales during the year adjusted to the cash basis on its statement of cash flows
constructed using the direct method were $460,000. Carlton Company recorded the following
account balances:
Based on this information, the balance in Accounts Receivable at the beginning of the year
was:
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15. Sales reported on the income statement totaled $850,000. The beginning balance in
accounts receivable was $90,000. The ending balance in accounts receivable was $160,000.
Under the direct method of determining the net cash provided by operating activities on the
statement of cash flows, sales adjusted to a cash basis are:
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16. Last year Lawsby Company reported sales of $120,000 on its income statement. During
the year, accounts receivable increased by $10,000 and accounts payable increased by
$15,000. The company uses the direct method to determine the net cash provided by operating
activities on the statement of cash flows. The sales revenue adjusted to a cash basis for the
year would be:
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17. Prejean Corporation’s most recent comparative balance sheet and income statement appear
below:
Cash dividends were $32. The company did not retire or sell any property, plant, and
equipment during the year. The net cash provided by (used in) operating activities for the year
was:
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The changes in Tener Company’s balance sheet account balances for last year appear below:
The company’s income statement for the year appears below:
The company declared and paid $67,000 in cash dividends during the year. It did not dispose
of any property, plant, and equipment during the year. The company uses the direct method to
determine the net cash provided by operating activities.
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18. On the statement of cash flows, the sales revenue adjusted to a cash basis would be:
19. On the statement of cash flows, the cost of goods sold adjusted to a cash basis would be:
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20. On the statement of cash flows, the selling and administrative expense adjusted to a cash
basis would be:
21. On the statement of cash flows, the income tax expense adjusted to a cash basis would be:
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Alkine Company’s comparative balance sheet appears below:
Alkine reported the following net income for the year:
Dividends were declared and paid during the year. A gain of $8,000 was recorded on the sale
of the long-term investments. The company did not purchase any long-term investments or
dispose of any property, plant, and equipment during the year. It also did not issue any bonds
payable or repurchase any of its own common stock.