Shaw Associates Uses the Indirect Method for Preparing the Statement

question 44

Multiple Choice

Shaw Associates uses the indirect method for preparing the statement of cash flows.The following accounts and balances were drawn from the company's accounting records: $$\begin{array} { l c c } \text { Account Title } & \text { Beginning } & \text { Ending } \\\text { Accounts receivable } & \$ 30,000 & \$ 40,000 \\\text { Prepaid insurance } & \$ 24,600 & \$ 1,000 \\\text { Accounts payable } & \$ 24,000 & \$ 25,800 \\\text { Unearned revenue } & \$ 6,400 & \$ 3,800\end{array}$$ Net income for the period was $42,000.The net cash flows from operating activities equal:

• A) $37,200.
• B) $34,800.
• C) $49,200.
• D) $40,000.

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Definitions:

Net Cash Flows

The difference between a company's cash inflows and cash outflows over a specific period.

Average Rate of Return Method

A technique used in capital budgeting to estimate the profitability of potential investments.

Consideration

Something of value given by both parties to a contract that induces them to enter into the agreement to exchange mutual performances.

Time Value

The concept that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.