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Charger Corporation offers extended payment terms to its customers. In order to finance its accounts receivable, Charger is considering two alternatives. The first alternative is to borrow against the receivables. The second alternative is to securitize the receivables through a special purpose entity. Which alternative would result in lower operating cash flow and lower financing cash flow?

Lower operating cash flow

Lower financing cash flow

A)

Borrow

Securitize

B)

Securitize

Securitize

C)

Securitize

Borrow




The cash received from borrowing would be reported as a financing inflow. The cash received from securitizing the receivables would be reported as an operating inflow. So, borrowing would result in lower operating cash flow and higher financing cash flow. Securitizing would result in lower financing cash flow and higher operating cash flow.

TOP

Which of the following statements about cash flow are correct or incorrect?

Statement #1:

The cash effects of decreasing accounts payable turnover are unlimited.

Statement #2:

The tax benefits from employee stock options can result in a significant source of investing cash flow.

     Statement #1

     Statement #2

A)

Correct

Incorrect

B)

Incorrect

Correct

C)

Incorrect

Incorrect




Statement #1 is an incorrect statement. The cash effects of decreasing accounts payable turnover are limited. Suppliers will eventually stop extending credit because of delayed payments. Statement #2 is an incorrect statement. The tax benefits from employee stock options can result in a significant source of operating and financing cash flows. Tax benefits do not affect investing cash flows

TOP

Earlier this year, Barracuda Company issued 5,000 employee stock options. Recently, 2,000 options were exercised at a price of $10 per share. To avoid dilution, Barracuda purchased 2,000 shares at an average price of $12 per share. Barracuda reported both transactions as financing activities in its cash flow statement. For analytical purposes, what adjustment is necessary to better reflect the substance of the stock repurchase?

     Operating cash flow

       Financing cash flow

A)

Decrease $4,000

No adjustment

B)

No adjustment

Increase $4,000

C)

Decrease $4,000

Increase $4,000



Barracuda reported a $4,000 net outflow from financing activities [2,000 options × ($12 average market price – $10 exercise price)]. However, since the options are a form of compensation, the $4,000 outflow should be reclassified as an operating activity for analytical purposes. This is accomplished by increasing financing cash flow $4,000 and decreasing operating cash flow $4,000.

TOP

Charger Corporation offers extended payment terms to its customers. In order to finance its accounts receivable, Charger is considering two alternatives. The first alternative is to borrow against the receivables. The second alternative is to securitize the receivables through a special purpose entity. Which alternative would result in lower operating cash flow and lower financing cash flow?

Lower operating cash flow

Lower financing cash flow

A)

Borrow

Securitize

B)

Securitize

Securitize

C)

Securitize

Borrow




The cash received from borrowing would be reported as a financing inflow. The cash received from securitizing the receivables would be reported as an operating inflow. So, borrowing would result in lower operating cash flow and higher financing cash flow. Securitizing would result in lower financing cash flow and higher operating cash flow.

TOP

Which of the following statements about cash flow are correct or incorrect?

Statement #1:

The cash effects of decreasing accounts payable turnover are unlimited.

Statement #2:

The tax benefits from employee stock options can result in a significant source of investing cash flow.

     Statement #1

     Statement #2

A)

Correct

Incorrect

B)

Incorrect

Correct

C)

Incorrect

Incorrect




Statement #1 is an incorrect statement. The cash effects of decreasing accounts payable turnover are limited. Suppliers will eventually stop extending credit because of delayed payments. Statement #2 is an incorrect statement. The tax benefits from employee stock options can result in a significant source of operating and financing cash flows. Tax benefits do not affect investing cash flows

TOP

Earlier this year, Barracuda Company issued 5,000 employee stock options. Recently, 2,000 options were exercised at a price of $10 per share. To avoid dilution, Barracuda purchased 2,000 shares at an average price of $12 per share. Barracuda reported both transactions as financing activities in its cash flow statement. For analytical purposes, what adjustment is necessary to better reflect the substance of the stock repurchase?

     Operating cash flow

       Financing cash flow

A)

Decrease $4,000

No adjustment

B)

No adjustment

Increase $4,000

C)

Decrease $4,000

Increase $4,000




Barracuda reported a $4,000 net outflow from financing activities [2,000 options × ($12 average market price – $10 exercise price)]. However, since the options are a form of compensation, the $4,000 outflow should be reclassified as an operating activity for analytical purposes. This is accomplished by increasing financing cash flow $4,000 and decreasing operating cash flow $4,000.

TOP

Charger Corporation offers extended payment terms to its customers. In order to finance its accounts receivable, Charger is considering two alternatives. The first alternative is to borrow against the receivables. The second alternative is to securitize the receivables through a special purpose entity. Which alternative would result in lower operating cash flow and lower financing cash flow?

Lower operating cash flow

Lower financing cash flow

A)

Borrow

Securitize

B)

Securitize

Securitize

C)

Securitize

Borrow




The cash received from borrowing would be reported as a financing inflow. The cash received from securitizing the receivables would be reported as an operating inflow. So, borrowing would result in lower operating cash flow and higher financing cash flow. Securitizing would result in lower financing cash flow and higher operating cash flow.

TOP

Which of the following statements about cash flow are correct or incorrect?

Statement #1:

The cash effects of decreasing accounts payable turnover are unlimited.

Statement #2:

The tax benefits from employee stock options can result in a significant source of investing cash flow.

     Statement #1

     Statement #2

A)

Correct

Incorrect

B)

Incorrect

Incorrect

C)

Incorrect

Correct




Statement #1 is an incorrect statement. The cash effects of decreasing accounts payable turnover are limited. Suppliers will eventually stop extending credit because of delayed payments. Statement #2 is an incorrect statement. The tax benefits from employee stock options can result in a significant source of operating and financing cash flows. Tax benefits do not affect investing cash flows

TOP

c

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上一主题:Reading 42: Financial Statement Analysis: Applications L
下一主题:Reading 40: Financial Reporting Quality LOSg习题精选