1.Bob owns a used car dealership. All of his revenue is from cash sales or in-house financing. Which method of presenting cash flows should he use and why?

Direct method because some of his sales do not deal with direct cash

Direct method because all of his sales deal with cash or items that will be quickly converted to cash

Indirect method because he has sales that deal with financing customers and giving them loans

Indirect method because of the amount of money he has to invest in inventory

2.Using the direct method, how should taxes be treated on the cash flow statement?

Tax amounts should not be included as an activity-related expense

Tax amounts are only included in the operating section of the cash flow statement

Tax amounts should be directly tied to the activity (operating, financing, investing)

Tax amounts are only included in the financing section of the cash flow statement

3. Sara's Cake Company is looking at the price of sugar and trying to find out if they can source a cheaper price for the sugar. What type of cash activity is this?

Investing activity

Marketing activity

Financing activity

Operating activity

4.When looking at the following operating, investing, or financing activities, which of the following increases cash in the business?

Loaning to employees

Adjusting payroll

Encouraging retirement

Issuing stock

5.When using the indirect method of calculating cash flows, what do you subtract from net income to get cash flow from operating activities?

Inventory and payroll expenses

Cost of goods sold and liabilities

Selling and administrative expenses

Current assets and current liabilities

6.When looking at the balance sheet, if you look at net income and pay out dividends, what do you have left in the business?

Retained earnings

Dividends payable

Amortization

Gross profit

7. Which of the following transactions could increase revenue but not necessarily increase cash flow?

A decrease in accounts payable

An increase in cash sales

A decrease in electricity bill

An increase in accounts receivable sales

8.When calculating cash flows, which method starts with net income taken from the income statement?

The direct method

Both the indirect and direct methods

Always the direct and sometimes the indirect method

The indirect method

9.Which of the following is considered a financing activity?

Cash receipts from sales

Cash received from interest on loans

Cash payment of notes payable

Cash purchase of a building

10. Which of the following is considered a function of financing activities on the cash flow statement?

It increases future long-term assets

It affects net income on the income statement

It allows buying and selling of treasury stock

It affects current assets and liabilities on the balance sheet