Company P purchased inventory of 50 on credit and later paid cash of 35 to suppliers during the period. How should these two transactions be reported in the statement of cash flows (direct method)?
Explanation
Only actual cash payments are shown in direct cash flow schedule; purchases on credit alter working capital and are accounted when reconciling accruals to cash (chapter: cash paid to suppliers).
Other questions
Which of the following best describes the purpose of the statement of cash flows?
Under the direct method, how is cash received from customers derived using income statement and balance sheet data?
Acme Corp reports revenue of 100, accounts receivable at the beginning of the year of 12 and ending accounts receivable of 20. Using the direct method, cash received from customers equals:
To compute cash paid to suppliers for a merchandising company in a period, which formula is correct?
A company has Cost of Goods Sold of 500, inventory increase of 40, and accounts payable increase of 10. What is cash paid to suppliers?
Under the indirect method, which of the following items is subtracted from net income when reconciling to net cash provided by operating activities?
Which of the following is added back to net income under the indirect method?
If a company reports interest paid in the financing section under IFRS, what adjustment (if any) should the analyst make when computing FCFF (free cash flow to the firm)?
Acme received a 100 cash sale of equipment that had cost 250 with accumulated depreciation 160 and a gain on sale of 10 reported on the income statement. Which of the following is the correct reconciliation for cash flows from investing activities for the sale?
Which of the following statements about investing activities is correct?
A company reports net income of 50, depreciation of 10, an increase in accounts receivable of 6, increase in inventory of 4, increase in accounts payable of 5, and a gain on sale of equipment of 3. Under the indirect method, net cash provided by operating activities is:
Which of the following is a required reconciliation or disclosure when a company presents operating cash flows using the direct method?
A company purchased equipment for cash of 200 during the year and sold other equipment at a cash inflow of 60. How should these items be presented on the statement of cash flows?
Which statement about classification of interest and dividends is correct under US GAAP and IFRS?
Company X invests 100,000 in a fixed-income security with semiannual coupon and receives a coupon payment of 2,500 after six months. The market value of the security increases by 2,000 in that period. Under the fair value through profit and loss classification, how much impact is recorded in profit for the six-month period (ignore taxes)?
Which of the following methods will typically require the most reconciliation work to produce a direct-method operating cash flow schedule when only indirect data are available?
When converting from indirect to direct method, which of these signs of working capital changes indicates a cash source (i.e., added back to net income)?
Which of the following formulas is an acceptable way to compute free cash flow to the firm (FCFF)?
Which cash flow ratio best indicates a firm’s ability to meet interest obligations using operating cash flow?
A firm reports CFO of 300, capital expenditures of 120, and net debt repayment of 40. What is free cash flow to equity (FCFE)?
Which common-size cash flow presentation expresses each inflow as a percentage of total cash inflows and each outflow as a percentage of total cash outflows?
An analyst wants to forecast capital expenditures as a percent of revenue. Which common-size approach is most helpful?
Which of these is NOT a cash flow coverage ratio discussed in the chapter?
Which of the following most directly indicates the company’s ability to pay dividends from operating cash flow?
Which of the following is true about the effect of a non-cash impairment loss on the statement of cash flows?
A company reports an increase in accounts payable of 30 during the period. Under the direct format operating cash flow schedule, how should this change be treated when deriving cash paid to suppliers?
Which of the following cash flow statement items is commonly used to compute free cash flow to equity (FCFE)?
During a period, a fixed-income security classified as 'available-for-sale' under old US GAAP has an unrealized holding gain. Where is this gain reported before realization?
An analyst is reconciling net income to operating cash flow under the indirect method. Which of these adjustments correctly treats a reversal of an earlier impairment that was recorded in prior periods?
When computing cash paid for income taxes for the period, which balance sheet changes are relevant?
Which of the following best describes a LIFO liquidation and its potential effect on cost of goods sold and gross profit?
Which cash flow classification is most commonly used for dividends paid under US GAAP?
Which of the following items is most likely classified as an investing activity under both IFRS and US GAAP?
Which of the following statements about noncash investing and financing activities is correct?
Which of the following steps is NOT part of the three-step process to approximate the direct method from the indirect method?
Which of the following is the correct effect on the cash flow statement when a company repurchases its own common stock for cash?
Which of the following adjustments is needed in the indirect method when a company records amortization of bond premium during the period?
A company's net income is 120, depreciation expense is 20, and it recorded a noncash gain on sale of equipment of 8. Change in working capital: increase in AR 5, increase in inventory 10, decrease in AP 3. What is net cash provided by operating activities (indirect method)?
Which of the following describes how dividends paid can be computed using balance sheet and income statement data?
A company has CFO of 90, capex of 60, issued 40 of new debt and repaid 10 of old debt. What is the net cash effect of financing activities and free cash flow to the firm (FCFF = CFO + Int*(1 - t) - Capex, assume interest in CFO already included so skip Int adjustment)?
Under IFRS, which of the following classifications is allowed for interest paid?
If an entity classifies an investment as 'held to maturity' under older US GAAP, how are unrealized gains recognized in the financial statements before sale?
Which of the following would cause cash from operations (CFO) to be larger than net income consistently for a mature, stable company?
A company reports a significant increase in cash and cash equivalents during the year despite reporting a net loss. Which of the following is the most likely explanation?
Which of the following is most important to check when converting an indirect-format cash flow to a direct-format approximation?
Which of the following is a reason an analyst might prefer the direct method operating cash flow presentation over the indirect method?
When a company classifies a portion of its marketable securities as 'available-for-sale' under older US GAAP, which financial statement element is directly affected by unrealized gains or losses?
If a firm reports an unrealized holding gain on a trading security under either US GAAP or IFRS, where will the gain appear?