Reference no: EM132795019

Problem 1: Olsen Company sells paper products to restaurants and stores across the country. Recently Olsen purchased a new machine for $100,000 by paying cash of $20,000 and signing a note payable for the remainder. How is this transaction reported on the statement of cash flows?

a. Financing activity-outflow of $100,000

b. Financing activity-outflow of $20,000

c. Operating activity- inflow of $20,000

d. Investing activity-outflow of $100,000

e. Investing activity-outflow of $20,000

Problem 2: Which of the following is true of the method used to determine the cash flows from operating activities?

a. FASB prefers the indirect method over the direct method.

b. Under direct method, the calculation starts with the amount of net income.

c. Noncash expenses are considered in the calculation when using direct method.

d. The procedures involved in direct method can be used to calculate the cash flows from financing activities.

e. Both direct and indirect method arrives at the same total of operating cash flow.