1.When preparing cash flow statements using the direct method and the indirect method, an increase in accrued liabilities for rent during the year would result in what adjustment to “rent expense” recorded on the income statement?

A)  Increase                              Decrease

B)  Decrease                             Decrease

C)  Decrease                             Increase

D)  Increase                               Increase

2.For the year ended December 31, 2007, Challenger Company reported the following financial information:

Calculate cash flow from operating activities using the direct method and the indirect method.

A)  $31,000                               $34,000

B)  $34,000                               $34,000

C)  $34,000                               $31,000

D)  $31,000                               $31,000

答案和详解如下：

1.When preparing cash flow statements using the direct method and the indirect method, an increase in accrued liabilities for rent during the year would result in what adjustment to “rent expense” recorded on the income statement?

Direct method

Indirect method

A)  Increase                              Decrease

B)  Decrease                             Decrease

C)  Decrease                             Increase

D)  Increase                               Increase

The correct answer was B)

Under both the direct and indirect methods of presenting cash flow from operating activities, an increase in an accrued liability for rent expense will result in a decrease in rent expense to calculate cash rent paid.

2.For the year ended December 31, 2007, Challenger Company reported the following financial information:

Revenue	$100,000
Cost of goods sold	(40,000)
Cash operating expenses	(20,000)
Depreciation expense	(5,000)
Tax expense	(3,000)
Net income	$32,000
Increase in accounts receivable	$7,500
Decrease in inventory	$2,500
Increase in short-term notes payable	$3,000
Decrease in accounts payable	$1,000

Calculate cash flow from operating activities using the direct method and the indirect method.

Direct method

Indirect method

A)  $31,000                               $34,000

B)  $34,000                               $34,000

C)  $34,000                               $31,000

D)  $31,000                               $31,000

The correct answer was D)

CFO is the same under both methods, the only difference is presentation. Direct method: $92,500 cash collections ($100,000 revenue – $7,500 increase in receivables) – $38,500 cash paid to suppliers (– $40,000 COGS + $2,500 decrease in inventory – $1,000 decrease in payables) – $20,000 cash operating expenses – $3,000 tax expense = $31,000. Indirect method: $32,000 net income + $5,000 depreciation expense – $7,500 increase in receivables + $2,500 decrease in inventory – $1,000 decrease in payables = $31,000. The increase in short-term notes payable is a financing activity.