1. Under the direct method, depreciation expense is __________ in the Operating Activities section.
a. added
b. deducted
c. ignored
d. None of these choices are correct.
2. The difference between the direct and indirect methods lies in the presentation of the cash flows from __________ activities.
a. financing
b. investing
c. operating
d. All of these choices are correct.
3. Russell Corporation had the following activities:
• Recorded depreciation of $5,000.
• Purchased $10,000 of equipment with cash.
• Paid $4,000 in interest payments.
• Received $8,000 cash for the sale of an asset.
4. What is the amount of net cash flows from (used for) investing activities?
a. $(2,000)
b. $2,000
c. $(11,000)
d. None of these choices are correct.
5. Russell Corporation had the following activities:
• Recorded depreciation of $5,000.
• Received cash from the sale of common stock, $20,000.
• Purchased $10,000 of equipment with cash.
• Paid $4,000 income tax.
• Received $8,000 cash for the sale of an asset.
• Paid cash dividends, $10,000.
6. What is the amount of net cash flows from (used for) financing activities?
a. $25,000
b. $10,000
c. $(14,000)
d. None of these choices are correct.
7. Cash flows from __________ activities are the cash flows from transactions that affect investments in the noncurrent assets of the company.
a. operating
b. investing
c. financing
d. None of these choices are correct.
8. Cash flows from __________ activities are the cash flows from transactions that affect the net income of a company.
a. operating
b. investing
c. financing
d. None of these choices are correct.
9. Cash flows from __________ activities are the cash flows from transactions that affect the debt and equity of the company.
a. investing
b. operating
c. financing
d. None of these choices are correct.
10. Free cash flow is calculated as
a. cash flow from operating activities plus investments in PP&E needed to maintain current production.
b. cash flow from operating activities less investments in PP&E needed to maintain current production.
c. cash flow from operating activities less cash flow from investing activities less cash flow from financing activities.
d. None of these choices are correct.
11. An increase in free cash flow from one year to the next is considered
a. unfavorable.
b. irrelevant.
c. favorable.
d. favorable or unfavorable, depending on other circumstances.