1. Which sections of the cash flow statement are affected by the difference in the direct and indirect approaches of presenting a cash flow statement?

I. Operating activities section

II. Investing activities section

III. Financing activities section

I

II

III

I, II, and III

2. Which of the following observations concerning the comparisons between the direct and indirect approaches of presenting a cash flow statement is true?

a. The final number of cash flows from operating activities is different under the two approaches.

b. The direct approach provides a clearer picture of cash flows related to operations.

c. Authoritative bodies have generally expressed a preference for the indirect method.

d. A separate reconciliation of operating cash flows and net income is required under the indirect approach.

3. Dividends paid to noncontrolling shareholders:

I. are reported as a cash outflow in the consolidated cash flow statement.

II. represent funds that are no longer available to the consolidated entity.

III. are reported in the consolidated retained earnings statement.

Observation I alone is true.

Observation III alone is true.

Observations I and II are true.

Observations I, II, and II are true.

4. For a subsidiary to be eligible to be included in a consolidated tax return, at least _____ of its stock must be held by the parent company or another company included in the consolidated return.

a. 50 percent

b. 40 percent

c. 75 percent

d. 80 percent

5. Jupiter Corporation's consolidated cash flow statement for the year ended December 31, 20X8, reported operating cash inflows of $160,000, financing cash outflows of $90,000, and investing cash outflows $55,000, and an ending cash balance of $75,000. Jupiter acquired 75 percent of Ganymede Company's common stock on July 1, 20X6, at book value. At that date, the fair value of the noncontrolling interest was equal to 25 percent of Ganymede Company's book value. Ganymede reported net income of $20,000, paid dividends of $8,000 in 20X8, and is included in Jupiter's consolidated statements. Jupiter paid dividends of $25,000 in 20X8. The indirect method is used in computing cash flow from operations.

Based on the information provided, what was the consolidated cash balance at January 1, 20X8?

$60,000

$85,000

$15,000

$380,000

6. Winter Corporation's consolidated cash flow statement for the year ended December 31, 20X2, reported operating cash inflows of $100,000, financing cash inflows of $30,000, investing cash outflows of $120,000, and an ending cash balance of $50,000. Winter acquired 60 percent of Snowboard Company's common stock on April 1, 20X0 at book value. At that date, the fair value of the noncontrolling interest was equal to 40 percent of Snowboard's book value. Snowboard reported net income of $30,000, paid dividends of $20,000 in 20X2, and is included in Winter's consolidated statements. Winter paid dividends of $40,000 in 20X2. The indirect method is used in computing cash flows from operations.

Based on the information provided, what was the consolidated cash balance at January 1, 20X2?

$300,000

$100,000

$60,000

$40,000

7. Dividends paid to noncontrolling shareholders:

I. are reported as a cash outflow in the consolidated cash flow statement.

II. represent funds that are no longer available to the consolidated entity.

III. are reported in the consolidated retained earnings statement.

Observation I alone is true.

Observation III alone is true.

Observations I and II are true.

Observations I, II, and II are true.

8. Catalyst Corporation acquired 90 percent of Trigger Corporation's common stock on September 30, 20X8 for $225,000. At that date, the fair value of the noncontrolling interest was $25,000. On January 1, 20X8, Trigger reported the following stockholders' equity balances:

Common Stock ($5 par value) $100,000

Additional Paid-In Capital 25,000

Retained Earnings 75,000

Total Stockholders Equity 200,000

Trigger reported net income of $80,000 in 20X8, earned uniformly throughout the year, and declared and paid dividends of $10,000 on June 30 and $30,000 on December 31, 20X8. Catalyst reported retained earnings of $250,000 on January 1, 20X8, and had 20X8 income of $120,000 from its separate operations. Catalyst paid dividends of $50,000 on December 31, 20X8. Catalyst accounts for its investment in Trigger Corporation using the fully adjusted equity method.

Based on the information provided, what is the amount of consolidated retained earnings as of December 31, 20X8?

$340,000

$250,000

$338,000

$388,000

9. For a subsidiary to be eligible to be included in a consolidated tax return, at least _____ of its stock must be held by the parent company or another company included in the consolidated a. return.

a. 50 percent

b. 40 percent

c. 75 percent

d. 80 percent