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Purchasing equipment in exchange for a long-term note

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1. Which of the following statements is TRUE regarding the indirect method of preparing a statement of cash flows?

A) A decrease in inventory is subtracted from net income.
B) A loss on the sale of an investment is added to net income.
C) Depreciation expense is subtracted from net income.
D) An increase in wages payable is subtracted from net income.

2. Which of the following statements is TRUE regarding the direct method of preparing a statement of cash flows?

A) Depreciation expense is added as a reconciling item.
B) It is easier and less costly to prepare than the indirect method.
C) A supplementary schedule reconciling net income to the cash basis must also be provided.
D) All of the statements above are correct.

3. Which of the following is an example of noncash investing and financing activity that is disclosed in a supplementary schedule accompanying the statement of cash flows or in a footnote to the financial statements?

A) Selling goods on credit
B Paying the amount due a creditor
C) Purchasing equipment in exchange for a long-term note
D) Gain on the sale of land

Reference no: EM131771115

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