Reference no: EM133010350
Question 1: The most important reason for preparing a statement of cash flows is to compute the change in cash.
True
False
Question 2: Paid cash for office supplies, $9,000. What is the effect on working capital, the current ratio, and the acid-test ratio? Assume the current ratio is 1:1 before this transaction occurred.
Option 1: Increase working capital and current ratio, decrease acid-test ratio.
Option 2: No effect on all three items.
Option 3: No effect on working capital and current ratio, decrease acid-test ratio.
Option 4: Decrease all three items.
Question 3: Depreciation provides cash for replacing plant assets; and this is the reason depreciation is shown as an inflow of cash on the statement of cash flows.
True
False
Question 4: The indirect method of computing cash flows from operating activities adjusts net income rather than each income statement item to a cash basis.
True
False
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