CFA Level I:FSA : understanding cash flow statements(Reading 27) 习题精选 statements

cityboy

1. A firm sells 20-year bond at a premium. Relative to a bond issued at par, the cumulative effect over the first two years on cash flow from financing activities (CFF) and cash flow from operations (CFO) (assuming that cash paid for interest is reported in CFO) will be: CFF CFO A. Overstated Overstated B. Understated Overstated C. Overstated Understated

Ans:C Interest expense=market rate at issue * bond liability Since the liability with a discount premium is more than that with a par bond, interest expense in all years will be more than with a par bond. Therefore, assuming that cash paid for interest is reported in CFO, CFO with premium bond will be understated. On the other hand, CFF with premium bonds will be overstated relative to CFF with par bonds. At issue date, CFF will be higher since more cash is received. Subsequent to issuance, there is no additional CFF effect. Thus, the total CFF in the first two years will be higher due to issuance premium.

cityboy

2. Compared to a firm that appropriately expenses recurring maintenance costs, a firm that capitalizes these costs will most likely have cash flow from operations (CFO) that are: A. Lower B. Higher C. The same

Ans: B Capitalizing costs takes them out of expenses, which results in increased CFO and will be subtracted from Cash Flow from Investments. So CFO will be higher.

cityboy

3. Under IFRS, interest paid and dividends paid can be categorized as either: A. Operating or financing section of the cash flow statement. B. Operating or investing section of the cash flow statement. C. Investing or financing section of the cash flow statement.

Ans: A. The following table indicates the cash flow classification differences between U.S.GAAP and IFRS: Transaction U.S.GAAP IFRS Interest received CFO CFO/CFI Interest paid CFO CFO/CFF Dividends received CFO CFO/CFI Dividends paid CFF CFO/CFF Taxes paid CFO CFO/CFI/CFF

cityboy

4. Huskie Company reported the following amounts on its most recent financial statements: 20x3 20x4 Accounts receivable, net $680,000 $870,000 Merchandise inventory 520,000 740,000 Accounts payable 375,000 320,000 Net sales $6,500,000 $7,200,000 Cost of goods sold 3,900,000 4,400,000 Cash paid to suppliers during 20x4 is closet to: A. $4,180,000 B. $4,620,000 C. $4,675,000

Ans: C. Cash paid to suppliers is calculated as: Cash paid to suppliers =COGS+?Inventory- ?Accounts payable =$4,400,000+(740,000-520,000)-(320,000-375,000) =$4,675,000

cityboy

5. Selected information from a company’s comparative income statements and balance sheets is presented below.

Selected Income Statement Data for the year ended August 31st (US$ thousands)
	2011	2010
Sales revenue	100,000	95,000
Cost of goods sold	47,000	47,500
Depreciation expense	4,000	3,500
Net income	11,122	4,556

Selected Balance Sheet Data as of August 31st (US$ thousands)
Current assets
	2011	2010
Cash & investments	21,122	25,000
Accounts receivable	25,000	13,500
Inventories	13,000	8,500
Total current assets	59,122	47,000
Current liability
Accounts payable	15,000	15,000
Other current liabilities	7,000	9,000
Total current liabilities	22,000	24,000

The cash collected from customers in 2011 is closest to:
A. $88,500.
B. $96,100.
C. $111,500.

cityboy

6. Selected data for a company is presented below: Balance sheet data 20x3 20x2   Cash $50 $42   Accounts receivable 440 397   Inventory 275 201   Accounts payable 172 161   Accrued liabilities 256 203 Income statement data   Net sales 2,008 1,962   Cost of goods sold 1,071 1,101   Selling general & administrative expenses 913 940 The company’s cash conversion cycle for 20x3 is closest to: A. 58 days. B. 100 days. C. 104 days.

Ans: C. The cash conversion cycle measures the average time between the outlay of cash to purchase inventory and the cash recovery from collecting accounts receivable. The cash conversion cysle is calculated using the following formulas: cash conversion cycle=days of inventory on hand (DOH) +das of sales outstanding (DSO)                                    -number of days of payables DOH=365/()=365/()=81.1 DSO=365/()=365/()=76.1 Number of days of payable=365/ ()                                             =365/()=53.1 *purchases=ending inventory – beginning inventory + COGS                       =$275-201+1,071 =1,145 NOTE: it is preferable to use Purchases rather tan COGS to calculate days of payables, if it is available or can be calculated. cash conversion cycle= 81.1 +76.1 – 53.1 =104 A is incorrect. This choice was probably derived by incorrectly subtracting DSO and adding the number of days of payables in calculating the cash conversion cycle. B is incorrect. This choice is derived by incorrectly calculating the number of days of payables using the COGS rather than inventory purchase. Purchasing should be used when it can be derived from the available data.

cityboy

7. Under U.S. GAAP, interest paid is most likely included in which of the following cash flow activities? A. Operating only B. Financing only C. Either operating or financing

Ans: A. The following table indicates the cash flow classification differences between U.S.GAAP and IFRS: Transaction U.S.GAAP IFRS Interest received CFO CFO/CFI Interest paid CFO CFO/CFF Dividends received CFO CFO/CFI Dividends paid CFF CFO/CFF Taxes paid CFO CFO/CFI/CFF Bank overdrafts CFF N/A* *under IFRS, bank overdrafts are considered part of cash equivalents and are not reported on the cash flow statement.

cityboy

8.The following items are from a company’s cash flow statement. Classification of cash flow Description Amount (￡000s) Operating activities Cash received from customers 55,000 Investing activities Interest and dividends received 10,000 Financing activities Net repayment of revolving credit loan 12,000 Which of the following standards and formats did the company most likely use in the preparation of its financial statements? A. IFRS, direct format B. IFRS, indirect format C. Either IFRS or U.S. GAAP, direct format

Ans: A. The direct method of cash flow statement presentation shows the specific cash inflows and outflows that result in reported cash flow from operating activities (cash from customers, cash to suppliers, etc.). Companies using IFRS can decide to report interest and dividend receipts as either an investing or operating activity, whereas under U.S. GAAP, they must report such income as an operating activity. The listed operating and investment activities indicate that the company reports under IFRS, using the direct method.

cityboy

9. Which of the following is least likely a benefit of the direct method for reporting cash flow from operating activities? Compared with the indirect method, the direct method provides: A. supplementary data under U.S. GAAP. B. details on the specific sources of operating receipts and payments. C. insight on differences between net income and operating cash flows.

Ans: C. Under the direct method, cash flow from operations accumulates cash received from customers, cash paid to suppliers, cash paid to employees, cash paid for interest, etc. This method provides specific detail on a firm’s operating cash receipts and cash payments for a given reporting period, while eliminating the effects of accrual accounting. It provides supplementary data under U.S. GAAP. Providing insight on the differences between net income and cash flow is a benefit of the indirect method. The indirect method starts with net income and integrates a series of adjustments to calculate cash flow from operations.

cityboy

10. A firm reported the following financial statement items: Cash Flow Item (€) Net income 2,100 Non-cash charges 400 Interest expense 300 Capital expenditure 210 Working capital expenditures 0 Net borrowing 1,600 Tax rate 40% The free cash flow to the firm is closest to: A. €2,110. B. €2,470. C. €2,590.

Ans: B. Cash Flow Item Amount (€) Net income 2,100 Plus non-cash charges 400 Plus interest expense (1 – Tax rate) 300 (1 – 0.40) 180 Less capital expenditure (210) Less working capital expenditures 0 FCFF €2,470