Which of the Following Statements About the Calculation of Cash

question 101

Multiple Choice

Which of the following statements about the calculation of cash flows from operating activities under the direct method is correct?

• A)When the direct method is used,each revenue and expense account on the income statement is individually examined to calculate the cash flows from operating activities.
• B)Noncash revenues and expenses must be included in cash flows from operating activities when preparing a statement of cash flows using the direct method.
• C)Depreciation is reported as a cash inflow in the cash flows from operating activities when the direct method is used.
• D)A loss on the sale of a long-term asset is subtracted in the cash flows from operating activities when the direct method is used.

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Definitions:

Comparison Universe

A benchmark or group of benchmarks used to evaluate the performance of an investment or fund.

Mutual Funds

Investment vehicles that pool money from multiple investors to buy a diversified portfolio of stocks, bonds, or other securities.

Jensen's Measure

A performance metric that evaluates the excess return of an investment portfolio over the predicted return by the Capital Asset Pricing Model (CAPM), adjusted for market risk.

Market Portfolio

A hypothetical collection of all market assets, each proportioned by its market value.