Two Methods Are Available to Prepare the Operating Activities Section

question 152

Multiple Choice

Two methods are available to prepare the Operating Activities section of a statement of cash flows.Which of the following statements regarding these two methods is false?

• A)If a company uses the indirect method,it must separately disclose the cash payments made for interest and income taxes.
• B)If a company uses the direct method,it must present a separate schedule that reconciles net income to net cash from operating activities.
• C)Advocates of the direct method believe that the indirect method reveals too much by telling readers gross amounts of cash receipts and cash payments from operations.
• D)The FASB prefers the direct method,while most companies use the indirect method in practice.

Understand how to separate mixed costs into their fixed and variable components.

Project future costs or expenses based on given data.

Calculate the total variable manufacturing cost per unit.

Apply cost estimation techniques to administrative expenses and utilities.

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Definitions:

Jawless Fish

Fish with a skeleton of cartilage, no fins or jaws; a lamprey or hagfish.

Wiggling

Moving with short, quick movements from side to side or up and down, often seen in small creatures or as a way to adjust position.

Parasitic

Describes organisms that live on or in a host organism and cause harm to the host.