Question

1/ Both the direct method and the indirect method of computing net cash flow from operating...

1/ Both the direct method and the indirect method of computing net cash flow from operating activities convert accrual-based income statement amounts into cash flows. TRUE/ FALSE

2/ Under the indirect method, when machinery is sold at a gain, the gain is added in the operating section of the statement of cash flows and the cost is added in the investing section. TRUE/FALSE

3/ All of the following are financing activities except: Multiple Choice

* 

Selling capital stock.


* 

Lending money.


* 

Borrowing money.


* 

Paying dividends.


4/ Free cash flow is computed as net cash flow from operating activities plus cash used to acquire plant assets minus cash paid for dividends. True or False

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Homework Answers

Answer #1

1.False

Direct Method considers cash paid to creditors and cash collected from debtors etc to compute cash flow

Indirect Method converts accrual based income into cash flows

2.False, Entire sale proceeds are added to the cash flow from investing activities.

Gain is reduced from operating section since it was included in net income

3.Lending Money is not financing activity

It is an investing activity

Rest all relates to raising of finance and are a part of financing activities

4.False

Free cash flow is computed as net cash flow from operating activities MINUS cash used to acquire plant assets minus cash paid for dividends.

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