Question

1. A company accrued estimated income taxes for the period. These taxes will be paid next year. Indicate the section and the effect that would be reported.

A. Cash Flow from operations add

B. Cash Flow from operations deduct

C. Cash Flow from Investing add

D. Cash Flow from Investing deduct

E. Cash Flow from Financing add

F. Cash Flow from Financing deduct

G. None

2. LaBoeuf company paid cash for insurance in a period but prepaid insurance increased during the period. When preparing a statement of cash flows, in determining cash flows from operating activities what is the impact?

A. Direct Method Increase & Indirect Method Decrease

B. Direct Method Decrease & Indirect Method Increase

C. Direct Method Increase & Indirect Method Increase

D. Direct Method Decrease & Indirect Method Decrease

Answer 1

Question 1

Correct answer-------------A. Cash Flow from operations add

.

Income tax expense decrease net income but it will decrease cash only when cash is paid for income taxes. Income tax payable is increasing which will be reported as an addition to net income in cash flow statement in operating section.

Question 2

Correct answer-------------D. Direct Method Decrease & Indirect Method Decrease

Increase in prepaid insurance insicate that cash paid for insurance is more than insurance expense of the year hence in both direct and indirect format cash flow insurance paid will be deducted.