1. Which of the following statements about the reporting of operating cash flows using the direct method is correct?

Although most U.S. companies use the indirect method, the Financial Accounting Standards Board (FASB) prefers the direct method of accounting for cash flows from operating activities.

The FASB prefers the indirect method of calculating cash flows from operating activities because it gives a more accurate calculation of cash provided by operating activities.

The direct method results in a larger amount of cash flow from operating activities than does the indirect method.

The direct and indirect methods use different presentations for cash flows from investing and financing activities.

2.

MC Qu. 189 Using the T-account approach:

Using the T-account approach:

Net income appears on the debit side of the Cash account under operating activities.

Payment of long-term debt appears on the debit side of the Cash account under financing activities.

Purchase of equipment appears on the credit side of the Cash account under operating activities.

An increase in Accounts Receivable appears on the debit side of the Cash account under operating activities.

3.

In arriving at cash from operating activities, subtracting a decrease in Salaries and Wages Payable from net income includes the cash effects of transactions that:

increased cash, but did not affect net income.

increased cash and increased net income.

decreased cash, but did not affect net income.

decreased cash and decreased net income.