1. A decrease in accounts receivable is added to net income to obtain operating cash flows because
a. Cash collections from customers were greater than the revenues reported.
b. Cash collections from customers were less than the revenues reported.
c. Cash collections decreased due to declining sales.
d. Cash collections increased due to increasing sales.
e. None of the above.

2. An increase in inventories is deducted from net income to arrive at operating cash flow because
a. Cash payments to customers were larger than the purchases made during the period.
b. Cash payments to customers were less than the purchases made during the period.
c. Purchases are larger than the cost of goods sold by the amount that inventories increased.
d. Purchases are less than the cost of goods sold by the amount that inventories increased.
e. All of the above.

3. The gain on sale of equipment is deducted from net income to arrive at operating cash flows because
a. The sale of long-term assets is a non-operating activity.
b. The gain does not reveal the total cash received.
c. All of the cash received from the sale is reported in the investing section.
d. All of the above.
e. None of the above.

4. Which of the following is an investing activity?
a. Issuance of a mortgage
b. Purchase of land
c. Increase in accounts receivable
d. Increase in inventories
e. All of the above

5. Which of the following is a financing activity?
a. Issuance of a mortgage
b. Purchase of land
c. Increase in accounts receivable
d. Increase in inventories
e. All of the above

6. Which method calculates operating cash flows by adjusting the income statement on a line-by-line basis?
a. The working paper approach
b. The indirect method
c. The direct method
d. The income method
e. None of the above

7. A worksheet approach to preparing the statement of cash flows
a. Is a useful aid.
b. Uses a spreadsheet format.
c. Offers an efficient and logical way of organizing the data.
d. Allows an easy extraction of the needed data.
e. All of the above.

8. In a completed worksheet,
a. The debit column contains the cash outflows.
b. The debit column contains the cash inflows.
c. The credit column contains the cash inflows.
d. The credit column contains only operating cash flows.
e. None of the above.