# Some easy questions -Indirect Method -Cash Flows

1. An analyst contemplates using the indirect method to create the projected statement of cash flows. He decides to research the differences between the direct and indirect methods. Which of the following is NOT included in the statement of cash flows under the indirect method? A) Cash taxes. B) Depreciation. C) Payment of dividends. D) Increase in inventories. 2)The net income for Miller Bat Company was \$3 million for the year ended December 31, 2004. Additional information is as follows: Depreciation on fixed assets \$1,500,000 Gain from cash sales of land 200,000 Increase in accounts payable 300,000 Dividends paid on preferred stock 400,000 The net cash provided by operating activities in the statement of cash flows for the year ended December 31, 2004 is: A) \$4,600,000. B) \$4,200,000. C) \$4,500,000. D) \$4,800,000.
1. B 2. D

A & B ?

1. An analyst contemplates using the indirect method to create the projected statement of cash flows. He decides to research the differences between the direct and indirect methods. Which of the following is NOT included in the statement of cash flows under the indirect method? A) Cash taxes. B) Depreciation. C) Payment of dividends. D) Increase in inventories. Answer: A. 2)The net income for Miller Bat Company was \$3 million for the year ended December 31, 2004. Additional information is as follows: Depreciation on fixed assets \$1,500,000 Gain from cash sales of land 200,000 Increase in accounts payable 300,000 Dividends paid on preferred stock 400,000 The net cash provided by operating activities in the statement of cash flows for the year ended December 31, 2004 is: A) \$4,600,000. B) \$4,200,000. C) \$4,500,000. D) \$4,800,000. CFO: 3 (NI)+ 1.5 (depr) - .2 (gain from sale of land) + .3 (AP) = 4.6 M Ans A

A and A —Second question is asking for operating activities …

GOT A and A as well

Got A for 2nd question. But why not C for question 1?

maparam Wrote: ------------------------------------------------------- > Got A for 2nd question. > But why not C for question 1? Gotta read the question carefully. they asked about the whole statement of CF, not just CFO.

Payment of dividends is included in calculation of CFF for both Indirect and Direct methods

Because it’s an item in the indirect CFF statement, repectively an outflow

Wouldn’t proceeds from sale of land go under CFI? I get B for 2nd question.

It says – Gain from sale of land – which is a CFO Outflow. Proceeds from Sale of Land – would be a CFI inflow. minor but important distinction.

1. A A) Cash taxes --> Answer [I guess only ‘Deferred Taxes’ are considered for CFO calculations???] B) Depreciation. —> CFO C) Payment of dividends. —> CFF D) Increase in inventories. —> CFO 2. A Net Income + add back depreciation (no real cash flow) + subtract gain from sales of land (to avoid double counting the gains, as the complete proceeds are added in CFI) + Increase in accounts payable 300,000 Dividends paid on preferred stock are CFI as per US GAAP So ans is 3000K + 1500K - 200K + 300K = 4600K - Dinesh S