1. A company settles a long-term note payable plus interest by paying $68,000 cash toward the principal amount and $5,440 cash for the interest. Under the direct method of reporting interest, the $5,440 would be listed as a(n):

A) operating activity.

B) financing activity.

C) investing activity.

D) separate disclosure only.

2. A purchase of new equipment on a note payable under the direct method would be reported:

A) as a separate disclosure as a non-cash transaction.

B) in the investing section of the cash flow statement.

C) in the operating section of the cash flow statement.

D) in the financing section of the cash flow statement.

3. Of the following, which is NOT classified as an investing activity on the statement of cash flows?

A) Sale of equipment for cash

B) Purchasing land

C) Collecting the principal on loans

D) Selling goods and services

4. An increase in long-term mortgage payable would mean a(n):

A) increase in cash flow from investing activities.

B) decrease in cash flow from investing activities.

C) increase in cash flow from financing activities.

D) decrease in cash flow from financing activities.

5. Of the following, which would be added back to net income in the operating section of a cash flow statement using the indirect method?

A) Increase in inventory

B) Decrease in accounts payable

C) Increase in accounts receivable

D) Decrease in prepaid insurance

6. Which of the following would be added to net income in the indirect method of calculating cash flows from operations:

A) An increase in accounts receivable

B) A decrease in taxes payable

C) An increase in dividends payable

D) A decrease in inventory

7. The methods of calculating cash flows from operations are:

A) Operating and financing

B) Operating, investing, and financing

C) Operating and direct

D) Direct and indirect

8. Paying dividends is

A) A financing activity

B) An investing activity

C) A noncash activity

D) An operating activity

9. If a company uses Cash Received from Customers as the first line of the cash flows from operations:

A) The company is using the indirect method

B) The company is using the direct method

C) The company is incorrect and should use net income as the first line

D) The company is using the allowance method

10. The reason the FASB requires the indirect method to be shown when the direct method is used in presenting cash flows from operations is:

A) To provide a reconciliation of net income to cash flows

B) To provide a check on the direct method

C) To show errors or fraud

D) A company is only required to show one method in presenting cash flows from operations