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标题: Financial Reporting and Analysis 【Reading 27】Sample [打印本页]
作者: ikoreaii    时间: 2012-3-26 15:09     标题: [2012 L1] Financial Reporting and Analysis 【Session 8 - Reading 27】Sample

If Jackson Ski Company issues common stock, and uses the proceeds to purchase fixed assets such as equipment:
A)
both cash flow from operations and cash flow from financing would increase.
B)
cash flow from financing would decrease and cash flow from investing would increase.
C)
cash flow from financing would increase and cash flow from investing would decrease.


Cash flow from financing increases when stock is issued, while cash flow from investing decreases when spending for purchases of fixed assets.
作者: ikoreaii    时间: 2012-3-26 15:10

When a U.S. company pays dividends to its stockholders, which type of cash flow does this represent?
A)
Financing.
B)
Operating.
C)
Investing.


Dividends paid to stockholders are considered cash outlays from financing according to U.S. GAAP.
作者: ikoreaii    时间: 2012-3-26 15:10

Which of the following choices most accurately illustrates an operating liability and which most accurately illustrates a financing liability?
Operating liabilities Financing liabilities
A)
Accounts payable Current portion of long-term debt
B)
Short-term note payable Current portion of long-term debt
C)
Customer advances Accrued liabilities


Operating liabilities result from the operations of the firm and consist of operating and trade liabilities such as accounts payable, customer advances, and accrued liabilities. Financing liabilities are a result of prior financing inflows. Financing liabilities (current) include short-term notes payable and the current maturities of long-term debt.
作者: ikoreaii    时间: 2012-3-26 15:11

Which of the following items is least appropriately described as a liability arising from an operating activity for a non-financial company?
A)
Cash advances from customers.
B)
Trade payables.
C)
The current portion of long-term debt.


The current portion of long-term debt arises from a financing activity. The other items listed arise from operating activities.
作者: ikoreaii    时间: 2012-3-26 15:11

Which of the following items would least likely be included in cash flow from financing?
A)
Dividends paid to shareholders.
B)
Purchase of treasury stock.
C)
Gain on sale of stock of a subsidiary.


Gains or losses will be found in cash flow from investments.
作者: ikoreaii    时间: 2012-3-26 15:12

Which of the following is NOT a category on the statement of cash flows? Cash flow from:
A)
sales.
B)
financing.
C)
operations.


There are only three types of cash flows: financing, investing, and operating.
作者: ikoreaii    时间: 2012-3-26 15:12

Which of the following items would NOT be included in cash flow from investing?
A)
Proceeds related to acquisitions.
B)
Buying or selling a building.
C)
Selling stock of the company.


Selling stock of the company would be a financing cash flow.
作者: ikoreaii    时间: 2012-3-26 15:13

Which of the following is least likely a cash flow in the calculation of cash flow from operations under U.S. GAAP?
A)
Interest income.
B)
Dividends paid.
C)
Dividends received.


According to SFAS 95, dividends paid are treated as cash flow from financing.
作者: ikoreaii    时间: 2012-3-26 15:13

Which of the following does NOT represent a cash flow relating to operating activity?
A)
Cash received from customers.
B)
Dividends paid to stockholders.
C)
Interest paid to bondholders.



Dividends paid to stockholders are considered cash flow relating to financing activity. However, U.S. GAAP requires interest paid to bondholders to be considered an operating activity.
作者: ikoreaii    时间: 2012-3-26 15:14

Interest payments, either as part of a coupon payment or to creditors, are considered which type of cash flow under U.S. GAAP?
A)
Financing.
B)
Investing.
C)
Operating.


Under U.S. GAAP, interest paid is an operating cash flow.
作者: ikoreaii    时间: 2012-3-26 15:14

Which of the following is NOT a cash flow from operation?
A)
dividends paid to shareholders.
B)
interest payments.
C)
dividends received.


Dividends paid are a financing cash flow. Dividends received and interest paid are both operating cash flows.
作者: ikoreaii    时间: 2012-3-26 15:15

Holden Company’s fixed asset footnote included the following:
Calculate Holden’s cash flow from investing activities for the year ended 20X7.
A)
$360,000 inflow.
B)
$40,000 outflow.
C)
$300,000 outflow.


Given the gain of $100,000 and book value of the machinery sold of $260,000 ($500,000 original cost – $240,000 accumulated depreciation), the proceeds from the sale of the machinery were $360,000 ($100,000 gain + $260,000 book value). For 20X7, CFI was an outflow of $40,000 ($360,000 sale proceeds – $400,000 machinery purchase). The $600,000 financed by the seller is a non-cash transaction and is reported in the notes to the cash flow statement.
作者: ikoreaii    时间: 2012-3-26 15:15

Which of the following would NOT be a component of cash flow from investing?
A)
Dividends paid.
B)
Purchase of equipment.
C)
Sale of land.


Dividends paid is not a component of cash flow from investing, it is a component of cash flow from financing. The other items are all components of cash flow from investing.
作者: ikoreaii    时间: 2012-3-26 15:16

What are the main components of cash flow from operations?
A)
Changes in accounts receivable, inventory, accounts payable, and items that flow through the income statement.
B)
Capitalization activities, sale of assets, and purchasing securities.
C)
Repayment of bonds, issuance of common stock, and stock splits.


The main components of cash flow from operations are changes in working capital items (accounts receivable, inventory, accounts payable), and items that flow through the income statement. Capitalization activities, sale of assets and purchases of securities would all be part of cash flows from investing. Repayment of bonds and issuance of common stock would also be part of cash flows from financing. The stock split would be a non-cash activity.
作者: ikoreaii    时间: 2012-3-26 15:16

Which of the following should be classified as cash flows from investing (CFI) by Elegant, Inc., which reports under U.S. GAAP?
A)
Elegant's payment to purchase equipment to be used in its business.
B)
Interest received by Elegant, Inc. on a bond Elegant, Inc. purchased from an outside investor.
C)
Dividends received by Elegant, Inc. from an investment in another firm.


Purchases of equipment are considered to be cash flows from investing. Interest paid or received and dividends received are considered to be cash flows from operations under U.S. GAAP.
作者: ikoreaii    时间: 2012-3-26 15:17

Which of the following items is NOT found in the financing cash flow part of the statement of cash flows?
A)
Change in long-term debt.
B)
Change in retained earnings.
C)
Dividends paid.


Changes in retained earnings are not included in the calculation of financing cash flows.
作者: ikoreaii    时间: 2012-3-26 15:17

Jodi Lein, small business consultant, is currently working with RJ Landscaping, a sole proprietorship. She is trying to educate the owner on the importance of monitoring cash flows. Operating information as of the end of the most recent month appears below:
Using this information, what is the cash flow from operations for the month?
A)
$11,200.
B)
-$1,300.
C)
-$300.


The format of the question information suggests the use of the direct cash flow method. In this method, depreciation is not a component of cash flow from operations. Cash flow from operations = (all numbers in thousands of dollars) 45 – 17 – 22 – 6.3 – 1.0 = -1.3, or -$1,300.
作者: ikoreaii    时间: 2012-3-26 15:17

An examination of the cash receipts and payments of Xavier Corporation reveals the following:

Cash paid to suppliers for purchase of merchandise
$5,000

Cash received from customers
14,000

Cash paid for purchase of equipment
22,000

Dividends paid
2,000

Cash received from issuance of preferred stock
10,000

Interest received on short-term investments
1,000

Wages paid
4,000

Repayment of loan to the bank
5,000

Cash from sale of land
12,000
Under U.S. GAAP, Xavier’s reported cash flow from operations will be:
A)
-$5,000.
B)
$5,000.
C)
$6,000.


Cash flow relating to operating activities includes cash paid to suppliers, cash received from customers, interest received, and wages paid. –5,000 + 14,000 + 1,000 + –4,000 = 6,000.
作者: ikoreaii    时间: 2012-3-26 15:18

An examination of the cash receipts and payments of Xavier Corporation reveals the following:

Cash paid to suppliers for purchase of merchandise
$5,000

Cash received from customers
14,000

Cash paid for purchase of equipment
22,000

Dividends paid
2,000

Cash received from issuance of preferred stock
10,000

Interest received on short-term investments
1,000

Wages paid
4,000

Repayment of loan to the bank
5,000

Cash from sale of land
12,000
Under U.S. GAAP, Xavier's cash flow from financing (CFF) and cash flow from investing (CFI) will be:
CFFCFI
A)
$3,000-$10,000
B)
$10,000$12,000
C)
$3,000$12,000


Cash flow relating to financing activities includes dividends paid, cash received from preferred stock, and repayment of loan. -2,000 + 10,000 + -5,000 = 3,000.
Cash flow relating to investing activities includes cash paid for equipment and cash from sale of land. -22,000 + 12,000 = -10,000.
作者: ikoreaii    时间: 2012-3-26 15:41

An examination of the cash receipts and payments of Xavier Corporation reveals the following:

Cash paid to suppliers for purchase of merchandise
$5,000

Cash received from customers
14,000

Cash paid for purchase of equipment
22,000

Dividends paid
2,000

Cash received from issuance of preferred stock
10,000

Interest received on short-term investments
1,000

Wages paid
4,000

Repayment of loan to the bank
5,000

Cash from sale of land
12,000
Under U.S. GAAP, Xavier's cash flow from financing (CFF) and cash flow from investing (CFI) will be:
CFFCFI
A)
$3,000-$10,000
B)
$10,000$12,000
C)
$3,000$12,000


Cash flow relating to financing activities includes dividends paid, cash received from preferred stock, and repayment of loan. -2,000 + 10,000 + -5,000 = 3,000.
Cash flow relating to investing activities includes cash paid for equipment and cash from sale of land. -22,000 + 12,000 = -10,000.
作者: ikoreaii    时间: 2012-3-26 15:42

The actual coupon payment on a bond is reported on the statement of cash flow as:
A)
a financing cash outflow.
B)
an investing cash outflow.
C)
an operating cash outflow.


The coupon payment is recorded on the statement of cash flows as an operating cash outflow because cash flow from operations includes a deduction for interest expense.
作者: ikoreaii    时间: 2012-3-26 15:43

For the year ended December 31, 2007, Gremlin Corporation reported the following transactions:
Calculate Gremlin’s cash flow from investing activities and cash flow from financing activities for the year ended December 31, 2007.
Cash flow from investing activities Cash flow from financing activities
A)
$1.7 million inflow $1.3 million outflow
B)
$2.7 million outflow $6.0 million inflow
C)
$6.0 million outflow $2.7 million inflow


Only the acquisition of common stock of the affiliate for $2.7 million and the purchase of the patent for $3.3 million are included in cash flow from investing activities. Since the acquisition of the stock purchase was financed with a bank loan, $2.7 million will be reported as a financing inflow. Both remaining transactions are non-cash transactions and are disclosed in the notes to or in a supplementarty schedule to the cash flow statement.
作者: ikoreaii    时间: 2012-3-26 15:43

Dart Corporation engaged in the following transactions earlier this year:

Transaction #1:
Retired long-term debenture bonds with a face amount of $10 million by issuing 500,000 shares of common stock to the bondholders.

Transaction #2:
Borrowed $5 million from a bank and used the proceeds to purchase equipment used in the manufacturing process.

With respect to these transactions, should Dart report transaction #1 as a financing cash flow and/or transaction #2 as an investing cash flow?
A)
Neither should be reported as such.
B)
Only one should be reported as such.
C)
Both should be reported as such.


Retiring bonds by issuing common stock to the bondholders is a non-cash transaction and is disclosed separately in a note or supplementary schedule to the cash flow statement, rather than as a financing cash flow. The cash borrowed for the equipment purchase is a financing inflow and the cash cost of the equipment is reported as an investing cash flow in the cash flow statement. Had a bond been issued to the seller of the equipment, it would be treated as a non-cash transaction and reported only in the notes to the cash flow statement.
作者: ikoreaii    时间: 2012-3-26 15:43

Which of the following transactions would least likely be reported in the cash flow statement as investing cash flows?
A)
Purchase of plant and equipment used in the manufacturing process with financing provided by the seller.
B)
Principal payments received from loans made to others.
C)
Sale of held-to-maturity securities for cash.


The purchase of plant and equipment with financing provided by the seller is a non-cash transaction. Non-cash transactions are disclosed separately in a note or supplementary schedule to the cash flow statement.
作者: Bad5shah    时间: 2012-3-26 15:45

What is the difference between the direct and the indirect method of calculating cash flow from operations?
A)
The indirect method starts with gross income and adjusts to cash flow from operations, while the direct method starts with gross profit and flows through the income statement to calculate cash flows from operations.
B)
Balance sheet items are not included in the cash flow from operations for the direct method, while they are included for the indirect method.
C)
The direct method starts with sales and follows cash as it flows through the income statement, while the indirect method starts with net income and adjusts for non-cash charges and other items.


The main difference between the direct and indirect methods of calculating cash flows is the way that cash flow from operations is calculated. The direct method starts with sales and follows cash as it flows through the income statement, while the indirect method starts with income after taxes and adjusts backwards for non-cash and other items. Both methods will have the same result for operating cash flows. The direct and indirect method calculates the financing and investing cash flows the same way and both methods will result in the same cash flow figure.
作者: Bad5shah    时间: 2012-3-26 15:46

The correct set of cash flow treatments as they relate to interest paid according to U.S. generally accepted accounting principles (GAAP) and International Accounting Standards (IAS) GAAP is:
U.S. GAAPIAS GAAP
A)
CFFCFF
B)
CFO or CFFCFO
C)
CFOCFO or CFF


U.S. GAAP treats interest paid as CFO whereas IAS GAAP treats interest paid as either CFO or CFF.
作者: Bad5shah    时间: 2012-3-26 15:46

According to U.S. Generally Accepted Accounting Principles (GAAP) and International Accounting Standards (IAS) GAAP, should dividends paid be treated as a cash flow from financing (CFF) or as a cash flow from operations (CFO)?
U.S. GAAPIAS GAAP
A)
CFFCFF or CFO
B)
CFF or CFOCFO
C)
CFOCFF


U.S. GAAP treats dividends paid as CFF whereas IAS GAAP treats dividends paid as either CFO or CFF.
作者: Bad5shah    时间: 2012-3-26 15:47

The CORRECT set of cash flow treatments as they relate to interest and dividends received according to U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS) is:
U.S. GAAPIFRS
A)
CFOCFI or CFO
B)
CFI or CFOCFI
C)
CFICFO


U.S. GAAP treats interest and dividends received as CFO whereas under IFRS interest and dividends received may be treated as either CFO or CFI.
作者: Bad5shah    时间: 2012-3-26 15:47

Independence, Inc. reports interest received and dividends paid as part of its cash flow from operations. This treatment is acceptable under:
A)
IFRS but not under U.S. GAAP.
B)
U.S. GAAP but not under IFRS.
C)
either IFRS or U.S. GAAP.


IFRS permits interest received to be reported as either cash flow from operations or cash flow from investing, and permits dividends paid to be reported as either cash flow from operations or cash flow from financing. U.S. GAAP requires interest received to be reported as cash flow from operations, but requires dividends paid to be reported as cash flow from financing.
作者: Bad5shah    时间: 2012-3-26 15:48

For the year ended December 31, 2007, Challenger Company reported the following financial information:

Revenue

$100,000


Cost of goods sold

(40,000)


Cash operating expenses

(20,000)


Depreciation expense

(5,000)


Tax expense

(3,000)


Net income

$32,000




Increase in accounts receivable

$7,500


Decrease in inventory

$2,500


Increase in short-term notes payable

$3,000


Decrease in accounts payable

$1,000


Calculate cash flow from operating activities using the direct method and the indirect method.
Direct method Indirect method
A)
$31,000 $34,000
B)
$31,000 $31,000
C)
$34,000 $34,000


CFO is the same under both methods, the only difference is presentation. Direct method: $92,500 cash collections ($100,000 revenue – $7,500 increase in receivables) – $38,500 cash paid to suppliers (– $40,000 COGS + $2,500 decrease in inventory – $1,000 decrease in payables) – $20,000 cash operating expenses – $3,000 tax expense = $31,000. Indirect method: $32,000 net income + $5,000 depreciation expense – $7,500 increase in receivables + $2,500 decrease in inventory – $1,000 decrease in payables = $31,000. The increase in short-term notes payable is a financing activity.
作者: Bad5shah    时间: 2012-3-26 15:48

Consider the following:

Argument #1:
The indirect method presents a firm’s operating cash receipts and payments and is thus more consistent with the objectives of the cash flow statement.

Argument #2:
The indirect method provides more information than the direct method and is more useful to analysts in estimating future operating cash flows.

Which of these arguments support the use of the indirect method for presenting cash flow from operating activities in the cash flow statement?
A)
Argument #2 only.
B)
Neither argument.
C)
Argument #1 only.


It is the direct method, not the indirect method, that presents operating cash receipts and payments and is thus more consistent with the objectives of the cash flow statement. The direct method provides more information than the indirect method and is preferred by analysts who are estimating future cash flows.
作者: Bad5shah    时间: 2012-3-26 15:48

The difference between cash flow from operations (CFO) under the direct method and CFO under the indirect method is:
A)
balanced by an opposite difference in cash flow from investing.
B)
disclosed as a reserve in the footnotes to the cash flow statement.
C)
always equal to zero.


The direct and indirect methods are two ways of presenting the same total for cash from operations.
作者: Bad5shah    时间: 2012-3-26 15:49

Use the following information to calculate cash flows from operations using the indirect method.
A)
Increase in cash of $7,500.
B)
Increase in cash of $10,500.
C)
Increase in cash of $9,500.


Cash flow from operations would be calculated as +Net Income $12,000 + Depreciation $1,000 + Loss on sale of machinery $500 − A/R $2,000 − A/P $1,500 + Income taxes payable $500 = $10,500.
Repayment of Bonds is a financing activity and would not be included with operating activities. Depreciation is not a cash flow activity and is therefore always added back to net income to calculate CFO. The loss on the sale of machinery is not a cash outflow so it is also added back to calculate CFO. Accounts receivable is subtracted when there is an increase as this increases net income but does not affect cash.
作者: Bad5shah    时间: 2012-3-26 15:49

Use the following financial data for Moose Printing Corporation to calculate the cash flow from operations (CFO) using the indirect method.
A)
Increase in cash of $248.
B)
Increase in cash of $173.
C)
Increase in cash of $183.


CFO for Moose Printing Corporation is calculated as follows:
+Net Income $225 − A/R $55 + Inventory $33 + Depreciation $65 − A/P $25 + Wages Payable $15 − Deferred taxes $10 = $248.
The purchase of new equipment would be an investing activity and, therefore, would not be included in the CFO. Dividends paid would be a financing activity and would not be included in the CFO.
作者: Bad5shah    时间: 2012-3-26 15:49

Darth Corporation’s most recent income statement shows net sales of $6,000, and Darth’s marginal tax rate is 40%. The total expenses reported were $3,200, all of which were paid in cash. In addition, depreciation expense was reported at $800. A further examination of the most recent balance sheets reveals that accounts receivable during that period increased by $1,000. The cash flow from operating activities reported by Darth should be:
A)
$1,200.
B)
$1,000.
C)
$2,200.


Net income is ($6,000 – 3,200 – 800)(1 – 0.4) = $1,200. Adjustments to reconcile net income to cash flow from operating activities will require that depreciation ($800) be added back, and increase in accounts receivable ($1,000) be subtracted: $1,200 + 800 – 1,000 = $1,000.
作者: Bad5shah    时间: 2012-3-26 15:50

Convenience Travel Corp.’s financial information for the year ended December 31, 2004 included the following:

Property Plant & Equipment

$15,000,000


Accumulated Depreciation

9,000,000


The only asset owned by Convenience Travel in 2005 was a corporate jet airplane. The airplane was being depreciated over a 15-year period on a straight-line basis at a rate of $1,000,000 per year. On December 31, 2005 Convenience Travel sold the airplane for $10,000,000 cash. Net income for the year ended December 31, 2005 was $12,000,000. Based on the above information, and ignoring taxes, what is cash flow from operations (CFO) for Convenience Travel for the year ended December 31, 2005?
A)
$12,000,000.
B)
$8,000,000.
C)
$13,000,000.


Using the indirect method, CFO is net income increased by 2005 depreciation ($1,000,000) and decreased by the gain recognized on the sale of the plane [$10,000,000 sale price − ($15,000,000 original cost − $10,000,000 accumulated depreciation including 2005) = $5,000,000]. $12,000,000 + $1,000,000 − $5,000,000 = $8,000,000.
作者: Bad5shah    时间: 2012-3-26 15:50

The following information is from the balance sheet of Silverstone Company:Net Income for 5/1/05 to 5/31/05: $8,000
Balance 5/01/05Account   Balance 5/31/05
$2,000   Inventory   $1,750
$1,200   Prepaid exp.   $1,700
$800   Accum. Depr.    $975
$425   Accounts payable   $625
$650   Bonds payable   $550

Using the indirect method, calculate the cash flow from operations for Silverstone Company as of 5/31/05:
A)
Increase in cash of $7,725.
B)
Increase in cash of $8,125.
C)
Increase in cash of $8,025.


Silverstone Company’s cash flow from operations would be calculated as +Net Income $8,000 + Inventory $250 - Prepaid exp. $500 + Depreciation $175 + A/P $200 = $8,125.
Bonds payable is a financing activity and would not be included in the cash flow from operations. The indirect method takes the change in the non-cash accounts and decreases or increases net income to get to the change in cash flow.
作者: Bad5shah    时间: 2012-3-26 15:51

An analyst compiled the following information for Universe, Inc. for the year ended December 31, 20X4:
Using the indirect method and assuming U.S. GAAP, what was Universe Inc.’s cash flow from operations (CFO) for the year ended December 31, 20X4?
A)
$1,050,000.
B)
$1,015,000.
C)
$1,000,000.


Cash flow from operations (CFO) using the indirect method is computed by taking net income plus non-cash expenses (i.e. depreciation) less gains from the equipment sale. Note that cash flow from operations must be adjusted downward for the amount of the gain on the sale of the equipment. Cash flow from operations is ($850,000 + $200,000 – ($100,000 − $50,000)) = $1,000,000. Note that interest and income taxes paid are expenses shown on the income statement and will already be factored into net income. The other information relates to financial and investing cash flows.
作者: Bad5shah    时间: 2012-3-26 15:51

When using the indirect method for computing cash flow from operating activities, a change in accounts payable will require which of the following?
A)
A negative (positive) adjustment to net income when accounts payable increases (decreases).
B)
A positive (negative) adjustment to net income when accounts payable increases (decreases).
C)
A negative adjustment to net income regardless of whether accounts payable increases or decreases.


A decrease in accounts payable represents an outflow. Hence, a negative adjustment will be required. Conversely, an increase represents an inflow and a positive adjustment.
作者: Bad5shah    时间: 2012-3-26 15:51

Given the following information, what is the adjustment to net income when calculating cash flow from operations using the indirect method?
A)
-$50.
B)
+$105.
C)
-$95.


Using the indirect method, the increase in accounts payable is a source of cash from operations (+25), depreciation expense is a non-cash expense added back in computing cash from operations (+100), and increase in inventory is a use of cash from operations (-20) = 25 + 100 - 20 = 105. The sale of stock and the dividends paid are financing cash flows that are not included in net income, so they do not require adjustment when calculating CFO.
作者: Bad5shah    时间: 2012-3-26 15:52

Impala Corporation reported the following financial information:

2006

2007


Balance sheet values as of December 31:


Prepaid insurance

$650,000

$475,000


Interest payable

250,000

300,000


Cash flows for the year ended December 31:


Insurance premiums paid

$845,000

$750,000


Interest paid

900,000

900,000


Calculate Impala’s insurance expense and interest expense for the year ended December 31, 2007.
Insurance expense Interest expense
A)
$1,020,000 $950,000
B)
$925,000 $950,000
C)
$925,000 $850,000


Cash paid for insurance = insurance expense + change in prepaid insurance, so insurance expense = cash paid for insurance – change in prepaid insurance. Insurance expense for 2007 is equal to $925,000 [($750,000 cash paid for insurance – (–$175,000)]. Interest expense for 2007 is equal to $950,000 ($900,000 cash interest paid + $50,000 increase in interest payable).
作者: Bad5shah    时间: 2012-3-26 15:52

What is the impact on accounts receivable if sales exceed cash collections and what is the impact on accounts payable if cash paid to suppliers exceeds purchases?
A)
Only accounts receivable will increase.
B)
Both accounts payable and accounts receivable will increase.
C)
Only accounts payable will increase.


If a firm sells more than it collects, accounts receivable will increase. If a firm pays suppliers more than it purchases, accounts payable will decrease.
作者: Bad5shah    时间: 2012-3-26 15:53

Pacific, Inc.’s financial information includes the following, with “change” referring to the difference from the prior year (in $ millions):

Net Income

27


Change in Accounts Receivable

+4


Change in Accounts Payable

+1


Change in Inventory

+5


Loss on sale of equipment

-8


Gain on sale of real estate

+4


Change in Retained Earnings

+21


Dividends declared and paid

+4


Pacific, Inc.’s cash flow from operations (CFO) in millions was:
A)
$23.
B)
$27.
C)
$15.


Using the indirect method, cash flow from operations is net income less increase in accounts receivable, plus increase in accounts payable, less increase in inventory, plus loss on sale of equipment, less gain on sale of real estate. 27 – 4 + 1 – 5 + 8 – 4 = $23 million.
作者: Bad5shah    时间: 2012-3-26 15:53

Eagle Company’s financial statements for the year ended December 31, 2005 were as follows (in $ millions):

Income Statement




Sales

150


Cost of Goods Sold

(48)


Wages Expense

(56)


Interest Expense

(12)


Depreciation

(22)


Gain on Sale of Equipment

6


Income Tax Expense

( 8)


Net Income

10


Balance Sheet
12-31-0412-31-05
Cash3252
Accounts Receivable1822
Inventory4644
Property, Plant & Equip. (net)182160
Total Assets278278
Accounts Payable2833
Long-term Debt145135
Common Stock7070
Retained Earnings3540
Total Liabilities & Equity278278

Cash flow from operations (CFO) for Eagle Company for the year ended December 31, 2005 was (in $ millions).
A)
$29.
B)
$41.
C)
$37.


Using the indirect method:

Add: Net Income

$10


Add: Depreciation Expense

22


Less: Gain from Sale of Equip.

(6)


Less: Increase in Accounts Receivable

(4)


Add: Decrease in Inventory

2


Add: Increase in Accounts Payable

5


Cash flow from operations (CFO)

29

作者: Bad5shah    时间: 2012-3-26 15:53

When calculating cash flow from operations (CFO) using the indirect method which of the following is most accurate?
A)
The indirect method requires an additional schedule to reconcile net income to cash flow.
B)
In using the indirect method, each item on the income statement is converted to its cash equivalent.
C)
When recognizing a gain on the sale of fixed assets, the amount is a deduction to operating cash flows.


When recognizing a gain on the sale of fixed assets, the amount is a deduction to operating cash flows. This is because the gain would be double counted in the investing section and in net income. Therefore, the gain must be removed from net income. The direct method of cash flow calculation converts the income statement items to their cash equivalents, not the indirect method. Also, depreciation is added to net income in order to calculate CFO using the indirect method.
作者: Bad5shah    时间: 2012-3-26 15:54

A company has the following changes in its balance sheet accounts:

Net Sales

$500


An increase in accounts receivable

20


A decrease in accounts payable

40


An increase in inventory

30


Sale of common stock

100


Repayment of debt

10


Depreciation

2


Net Income

100


Interest expense on debt

5


The company’s cash flow from financing is:
A)
$100.
B)
$90.
C)
-$10.


Sale of common stock $100
Repayment of debt (10)
Financing cash flows $ 90
作者: Bad5shah    时间: 2012-3-26 15:54

Which of the following statements about accounting procedures and their impact on the statement of cash flows is least valid? All else equal:
A)
A nonprofitable company that uses LIFO to account for inventory will have higher total cash flow than a nonprofitable company that uses FIFO during a period of rising prices.
B)
Cash flow from financing (CFF) is higher over the life of a bond if a firm issues the bond at a premium, compared to issuing the bond at par.
C)
A company that finances through common stock issues may have the same cash flow from financing (CFF) as a firm that issues debt.

Because of the impact of income taxes, a profitable company that accounts for inventory using LIFO will have higher total cash flow than a profitable company that uses FIFO. The company that uses LIFO will have higher cost of goods sold, resulting in lower net income and thus lower taxes. The other statements are accurate:
作者: Bad5shah    时间: 2012-3-26 15:54

The net income for Miller Bat Company was $3 million for the year ended December 31, 2004. Additional information is as follows:The net cash provided by operating activities in the statement of cash flows for the year ended December 31, 2004 is:
A)
$4,800,000.
B)
$4,600,000.
C)
$4,200,000.


$3,000,000 + $1,500,000 − $200,000 + $300,000 = $4,600,000.
作者: Bad5shah    时间: 2012-3-26 15:55

Galaxy, Inc.’s U.S. GAAP balance sheet as of December 31, 2004 included the following information (in $):

12-31-03

12-31-04


Accounts Payable

300,000

500,000


Dividends Payable

200,000

300,000


Common Stock

1,000,000

1,000,000


Retained Earnings

700,000

1,000,000


Galaxy’s net income in 2004 was $800,000. What was Galaxy’s cash flow from financing (CFF) in 2004?
A)
-$300,000.
B)
-$500,000.
C)
-$400,000.


Dividends declared in 2004 are net income less the increase in retained earnings ($800,000 - $300,000 = $500,000). Dividends declared less the increase in dividends payable is dividends paid ($500,000 – ($300,000 - $200,000) = $400,000). This is a cash outflow so it is a negative number. Dividends paid are always cash flow from financing under U.S. GAAP. Note that accounts payable changes are included in cash flow from operations (CFO).
作者: Bad5shah    时间: 2012-3-26 15:55

Determine the cash flow from investing given the following table:
ItemAmount
Cash payment of dividends$30
Sale of equipment$25
Net income$25
Purchase of land$15
Increase in accounts payable$20
Sale of preferred stock$25
Increase in deferred taxes$5
A)
-$5.
B)
-$10.
C)
$10.

ItemAmount
Cash payment of dividendsCFF-$30
Sale of equipmentCFI+$25
Net incomeCFO+$25
Purchase of landCFI-$15
Increase in accounts payableCFO+$20
Sale of preferred stockCFF+$25
Increase in deferred taxesCFO+$5

CFI = Sale of Equipment (+25) + Purchase of Land (–15) = $10.
作者: Bad5shah    时间: 2012-3-26 15:55

Which of the following statements regarding depreciation expense in the cash flow statements is CORRECT? Depreciation is added back to net income when determining CFO using:
A)
either the direct or indirect methods.
B)
the indirect method.
C)
the direct method.


Depreciation is a non-cash expense. Only in the indirect method is depreciation added back to net income when determining CFO because net income is only used in the indirect method and not the direct method. The direct method instead starts with cash sales and works down the income statement.
作者: Bad5shah    时间: 2012-3-26 15:56

Juniper Corp. has the following transactions in 2005.
Using the indirect method, what is cash flow from financing (CFF) for Juniper for 2005?
A)
-$60,000.
B)
-$100,000.
C)
-$15,000.


The only item involving cash flow from financing (CFF) was the payment of a cash dividend by Juniper. The sale of equipment affects cash flow from investing (CFI), the purchase of land has no effect on cash, and the preferred dividends received are cash flow from operations.
作者: Bad5shah    时间: 2012-3-26 15:56

Selected information from Rockway, Inc.’s U.S. GAAP financial statements for the year ended December 31, included the following (in $):

2004

2005


Sales

17,000,000

21,000,000


Cost of Goods Sold

11,000,000

15,000,000


Interest Paid

800,000

1,000,000


Current Income Taxes Paid

700,000

1,000,000


Accounts Receivable

3,000,000

2,500,000


Inventory

2,400,000

3,000,000


Property, Plant & Equip.

2,000,000

16,000,000


Accounts Payable

1,000,000

1,400,000


Long-term Debt

8,000,000

9,000,000


Common Stock

4,000,000

5,000,000


Using the direct method, cash provided or used by operating activities(CFO) in the year 2005 was:
A)
$6,300,000.
B)
$4,300,000.
C)
$5,300,000.


Cash provided or used by operating activities under the direct method is computed by adding cash inflows and subtracting cash inputs and cash outflows. Operating Cash inflows for Rockway Inc. for 2005 came from sales ($21,000,000) and decrease in accounts receivable ($3,000,000 − $2,500,000 = $500,000) for net cash inflows of ($21,000,000 + $500,000 =) $21,500,000. Operating cash inputs were cost of goods sold ($15,000,000), plus the increase in inventory ($3,000,000 − $2,400,000 = $600,000) less the increase in accounts payable, (which is a source of funds) ($1,000,000 − $1,400,000 = -$400,000) for net cash inputs of ($15,000,000 + $600,000 - $400,000 =) $15,200,000. Other operating cash outflows were interest paid ($1,000,000) and current income taxes paid ($1,000,000) totaling ($2,000,000). Cash provided by operations was ($21,500,000 − $15,200,000 − $2,000,000 =) $4,300,000. Changes in property, plant and equipment, long-term debt and common stock do not affect cash from operations.
作者: Bad5shah    时间: 2012-3-26 15:57

John Stone, CFA, is an investment advisor specializing in the preparation of company and industry reports for high net worth customers at Learmon Brothers. Currently, Stone is preparing a report on Soft Corporation, a rapidly growing software company. The explosive growth of this company was financed primarily by an initial public offering in which 3,000,000 shares were issued at a price of $20 per share on June 27, 2004. Soft Corporation received additional capital when employee stock options for 1,000,000 shares at a price of $10 were exercised on January 1, 2005. Stone realizes the importance of cash flow on a company's financial health and would like to include a projected statement of cash flows for 2005. Soft Corporation financial statements are presented in Tables 1 and 2. Included are the actual statements for the year ending December 31, 2004.

Table 1

Soft Corporation Balance Sheets

as of December 31

(in millions)

Actual 2004

Projected 2005


Cash

$24.0

$26.0


Accounts Receivable

17.0

24.0


Inventory

100.0

150.0


PP&E

100.0

125.0


Accumulated depreciation

(30.0)

(35.0)


Total Assets

$211.0

$290.0


Accounts payable

$91.0

$101.0


Long-term debt

20.0

40.0


Common stock

80.0

90.0


Retained earnings

20.0

59.0


Total liabilities and equity

$211.0

$290.0


Table 2

Soft Corporation Income Statement

for Years Ended December 31

(in millions except per share data)

Actual 2004

Projected 2005


Sales

$80.0

$198.0


COGS

(38.0)

(90.0)


Gross profit

$42.0

$108.0


SG&A

(13.0)

(30.0)


Depreciation

(3.0)

(5.0)


Operating expenses

$(16.0)

$(35.0)


Interest expense

$(4.0)

$(5.0)


Pretax Income

22.0

68.0


Income tax expense

(7.0)

(25.0)


Net income

$15.0

$43.0


EPS

$2.0

$4.3


Average shares outstanding (millions)

7.5

10.0


Dividends per share

$0.1

$0.4


Under the indirect method, what will Stone find Soft Corporation's projected net change in cash to be for the year ending December 31, 2005?
A)
$2,000,000.
B)
$9,000,000.
C)
$4,000,000.


Using the easiest method of all, the difference in the cash account at the end of 2004 and the cash balance projected for the end of 2005 is $26.0 million - $24.0 million = $2.0 million. If the cash balances were not available, the change in cash could be calculated using the indirect method. Starting with cash flow from operations (CFO) in $ millions projected for 2005:

Net Income

43


Add: Noncash Expenses or Losses

Depreciation

5


Add: Changes in Current Assets and Liabilities

Less: Increase in Accounts Receivable

-7


Less: Increase in Inventory

-50


Plus: Increase in Accounts Payable

10


Net Cash Flow from Operations (CFO)

1



Increase in Property Plant & Equipment

-25


Net Cash Flow from Investing (CFI)

-25



Increase in Long-Term Debt

20


Increase in Common Stock

10


Less: Dividends Paid (10 million × $0.40)

- 4


Net Cash Flow from Financing (CFF)

26



Net Cash Flow = CFO + CFI + CFF = 1 – 25 + 26 = $2 million.
作者: LiquidAssets10    时间: 2012-3-26 15:58

Which of the following is CORRECT about the consideration of depreciation in the operations section of a cash flow statement?
Direct MethodIndirect Method
A)
Does not considerDoes not consider
B)
Does not considerConsiders
C)
ConsidersConsiders


The indirect method must add back depreciation expense because the starting point is net income. Since the direct method does not begin with net income it does not need to consider non-cash expenses such as depreciation.
作者: LiquidAssets10    时间: 2012-3-26 15:59

An analyst has gathered the following information about a company:
Income Statement for the Year 2004
Sales$1,500
Expenses
COGS$1,300
Depreciation30
Int. Expenses40
Total expenses1,370
Income from cont. op.130
Gain on sale30
Income before tax160
Income tax64
Net Income$96
Additional Information:
Dividends paid $30
Common stock sold 20
Equipment purchased 50
Bonds issued 80
Fixed asset sold for (original cost of $100 with accumulated depreciation of $70) 60
Accounts receivable decreased by 30
Inventory decreased by 20
Accounts payable increased by 20
Wages payable decreased by 10

What is the cash flow from operations?
A)
$156.
B)
$170.
C)
$135.


Net Income+$96
Depreciation+30
Gain on sale of asset-30
Accts. Rec.+30
Inventory+20
Accts. Payable+20
Wage/Pay-10
CFO+$156
作者: LiquidAssets10    时间: 2012-3-26 15:59

An analyst contemplates using the indirect method to create the projected statement of cash flows. She decides to research the differences between the direct and indirect methods. Which of the following is least likely a component of the statement of cash flows under the direct method?
A)
Payment of dividends.
B)
Net income.
C)
Property, Plant, & Equipment.


Property, Plant, & Equipment and payment of dividends are components of the statement of cash flows under both the direct and indirect methods. Net income is the first figure under the indirect method, but it is not a part of the statement of cash flows under the direct method. The correct response is net income.
作者: LiquidAssets10    时间: 2012-3-26 16:00

An analyst contemplates using the indirect methods to create the projected statement of cash flows. She decides to research the differences between the direct and indirect methods. Which of the following statements is most accurate? Under the:
A)
direct method, depreciation must be added to cash collections because it is a non-cash expense.
B)
indirect method, changes in accounts receivable are already included in the net income figure.
C)
indirect method, depreciation must be added to net income, because it is a non-cash expense.


The indirect method begins with net income, which has already included all cash and non-cash expenses. Therefore, under the indirect method, depreciation must be added to net income, because it is a non-cash expense.
作者: LiquidAssets10    时间: 2012-3-26 16:00

Determine the cash flow from operations given the following table.
ItemAmount
Cash payment of dividends$30
Sale of equipment$25
Net income$25
Purchase of land$15
Increase in accounts payable$20
Sale of preferred stock$25
Increase in deferred taxes$5
Profit on sale of equipment$15
A)
$20.
B)
$45.
C)
$35.

Using the indirect method, CFO = Net income 25 + increase in accounts payable 20 + increase in deferred taxes 5 − profit on sale of equipment 15 = $35. Increases in accounts payable and deferred taxes are sources of operating cash that are not included in net income and must be added. Profit on sale of equipment is a CFI item that must be removed from net income.
No adjustment needs to be made for cash payment of dividends (CFF), sale of preferred stock (CFF), or purchase of land (CFI) because they are not included in net income. Only the profit on sale of equipment, not the full proceeds from sale, is included in net income.
作者: LiquidAssets10    时间: 2012-3-26 16:00

Determine the cash flow from financing given the following table.
ItemAmount
Cash payment of dividends$30[/td]
Sale of equipment$10
Net income$25
Purchase of land$15
Increase in accounts payable$20
Sale of preferred stock$25
Increase in deferred taxes$5
Profit on sale of equipment$15
A)
-$5.
B)
$15.
C)
$20.


CFF = 25(Sale of Stock) − 30(Div Paid) = -$5
作者: LiquidAssets10    时间: 2012-3-26 16:01

A firm has net sales of $3,500, earnings after taxes (EAT) of $1,000, depreciation expense of $500, cost of goods sold (COGS) of $1,500, and cash taxes of $500. Also, inventory decreased by $100, and accounts receivable increased by $300. What is the firm's cash flow from operations?
A)
$1,200.
B)
$1,800.
C)
$1,300.

Indirect Method
EAT+1,000
Depreciation+500
Change in Inv.+ 100 a source
Change in Accts. Rec.(300) a use
CFO1,300

Direct Method
Net Sales+3,500
Change in Accts. Rec.(300) a use
COGS(1,500)
Cash Taxes(500)
Change in Inv.+100 a source
CFO1,300
作者: LiquidAssets10    时间: 2012-3-26 16:01

The Red Company’s balance sheet as of December 31, 2004 was as follows:

Dec. 31, 2003

Dec. 31, 2004


Cash

$1,500,000

$1,900,000


Accounts Receivable

3,000,000

3,400,000


Inventory

2,300,000

2,500,000


Property, Plant & Equipment

16,700,000

19,700,000


Less Accumulated Depreciation

(5,300,000)

(8,200,000)


Total Assets

$18,200,000

$19,300,000





Accounts Payable

$2,100,000

$1,900,000


Interest Payable

800,000

1,200,000


Income Taxes Payable

1,000,000

800,000


Notes Payable

2,700,000

2,900,000


Deferred Income Taxes

2,600,000

2,900,000


Common Stock

1,000,000

1,000,000


Retained Earnings

8,000,000

8,600,000


$18,200,000

$19,300,000


Red’s interest expense was $900,000 and income tax expense was $1,000,000 in 2004. Red prepares its Statements of Cash Flows using the direct method.The other cash outflows section of Cash Flow from Operations (CFO) for 2004 would total:
A)
$2,100,000.
B)
$1,700,000.
C)
$1,400,000.


Other cash outflows is the third step in calculating CFO using the direct method. It consists of Cash taxes paid + Cash interest paid.
Cash interest paid = interest expense less increase in interest payable: ($900,000 – (1,200,000 - $800,000) =) $500,000.

Cash taxes paid =

tax expense of $1,000,000


+
decrease in income taxes payable (1,000,000-800,000) = 200,000


-
increase in deferred income taxes (2,600,000-2,900,000) = 300,000



$900,000

Other cash outflows = $500,000 + 900,000 = $1,400,000
作者: LiquidAssets10    时间: 2012-3-26 16:01

Financial information for Jefferson Corp. for the year ended December 31st, was as follows:
Sales$3,000,000
Purchases1,800,000
Inventory at Beginning500,000
Inventory at Ending800,000
Accounts Receivable at Beginning300,000
Accounts Receivable at Ending200,000
Accounts Payable at Beginning100,000
Accounts Payable at Ending100,000
Other Operating Expenses Paid400,000
Based upon this data and using the direct method, what was Jefferson Corp.’s cash flow from operations (CFO) for the year ended December 31st?
A)
$900,000.
B)
$1,200,000.
C)
$800,000.

CFO = sales $3,000,000 – change in accounts receivable ($200,000 – $300,000) – purchases $1,800,000 – other cash operating expenses $400,000 = $900,000.
Note that no adjustment for inventories is necessary because purchases are given. From the inventory equation, P = COGS + EI - BI.
作者: LiquidAssets10    时间: 2012-3-26 16:02

Capital Corp.’s activities in the year 2005 included the following:
On Capital Corp.’s Statement of Cash Flow for the year ended December 31, 2005, cash flow from investments (CFI) related to the above activities is:
A)
$6,750,000.
B)
$9,750,000.
C)
$10,000,000.


Investing cash of $2 million was used to purchase the cargo plane. Proceeds from the sale of the plane were a source of $12 million of investing cash. Net CFI is $12 million − $2 million = $10 million. The interest payment is included in cash from operations (CFO) and the dividend payment in cash from financing (CFF). Redemption of the bonds is a use of cash from financing (CFF).
作者: LiquidAssets10    时间: 2012-3-26 16:02

Favor, Inc.’s capital and related transactions during 2005 were as follows:
Favor, Inc.’s cash flow from financing (CFF) for 2005 (assume U.S. GAAP) is:
A)
-$45,000.
B)
-$95,000.
C)
-$1,045,000.


Only the preferred stock dividends paid would be considered CFF. Issuing bonds in exchange for equipment and exchanging bonds for stock are both noncash transactions that should be disclosed in a footnote to the Statement of Cash Flows. Interest paid is an operating cash flow under U.S. GAAP.
作者: LiquidAssets10    时间: 2012-3-26 16:02

Mark Industries' income statement and related notes for the year ended December 31 are as follows (in $):

Sales

42,000,000


Cost of Goods Sold

(32,000,000)


Wages Expense

(1,500,000)


Depreciation Expense

(2,500,000)


Interest Expense

(1,000,000)


Income Tax Expense

(2,000,000)


Net Income

3,000,000

During the year:
Under U.S. GAAP, Mark Industries’ cash flow from operations (CFO) for the year ended December 31 was:
A)
$4,800,000.
B)
$5,900,000.
C)
$4,400,000.

Using the indirect method, net income is adjusted by adding back depreciation (a non-cash expense) and changes in working capital: the increase in wages payable and the increase in income taxes payable are sources of cash, and the decrease in interest payable is a use of cash. Dividends paid are financing cash flows under U.S. GAAP.
CFO = $3,000,000 + $2,500,000 + $100,000 + $500,000 - $200,000 = $5,900,000.
作者: LiquidAssets10    时间: 2012-3-26 16:03

Maverick Company reported the following financial information for 2007:

in millions


Beginning accounts receivable

$180


Ending accounts receivable

225


Sales

11,000


Beginning inventory

2,000


Ending inventory

2,300


Purchases

8,100


Beginning accounts payable

1,600


Ending accounts payable

1,200


Calculate Maverick’s cost of goods sold and cash paid to suppliers for 2007.
Cost of goods sold Cash paid to suppliers
A)
$7,800 million $7,100 million
B)
$7,800 million $8,500 million
C)
$3,800 million $8,500 million


Cost of goods sold is equal to $7,800 million ($2,000 million beginning inventory + $8,100 million purchases – $2,300 million ending inventory). Cash paid to suppliers is equal to $8,500 million (–$7,800 COGS – $300 million increase in inventory – $400 million decrease in accounts payable). Alternate solution: Cash paid to suppliers is equal to $8,500 million (–$8,100 million purchases – $400 decrease in accounts payable).
作者: LiquidAssets10    时间: 2012-3-26 16:03

In converting a statement of cash flows from the indirect to the direct method, which of the following adjustments should be made for a decrease in unearned revenue when calculating cash collected from customers, and for an inventory writedown (when market value is less than cost) when calculating cash payments to suppliers?
Cash collections from customers: Cash payments to suppliers:
A)
Subtract decrease in unearned revenue Add an inventory writedown
B)
Subtract decrease in unearned revenue Subtract an inventory writedown
C)
Add decrease in unearned revenue Subtract an inventory writedown

Beginning with net sales, calculating cash collected from customers requires the addition (subtraction) of any increase (decrease) in unearned revenue. Cash advances from customers represent unearned revenue and are not included in net sales, so any advances must be added to net sales in order to calculate cash collected.
An inventory writedown, as a result of applying the lower of cost or market rule, will reduce ending inventory and increase COGS for the period. However, no cash flow is associated with the writedown, so COGS is reduced by the amount of the writedown in calculating cash paid to suppliers.
作者: LiquidAssets10    时间: 2012-3-26 16:03

To convert an indirect statement of cash flows to a direct basis, the analyst would:
A)
subtract increases in inventory from cost of goods sold.
B)
add increases in accounts payable to cost of goods sold.
C)
add decreases in accounts receivables to net sales.


A decrease in accounts receivable represents an increase in cash so this should be added to sales. Increases in accounts payable represent an increase in cash so these should be subtracted from cost of goods sold. Increases in inventory represent a use of cash so these would be added to cost of goods sold.
作者: LiquidAssets10    时间: 2012-3-26 16:04

To convert an indirect statement of cash flows to a direct basis, the analyst would:
A)
reduce cost of goods sold by any decreases in accounts payable.
B)
increase cost of goods sold by any depreciation that was included.
C)
reduce cost of goods sold by any decreases in inventory.


Decreases in inventory represent a source of cash so these would be subtracted from cost of goods sold. Any depreciation and/or amortization included in the cost of goods sold does not represent an actual use of cash, so this amount should be subtracted from cost of goods sold. Decreases in accounts payable represent a use of cash so these should be added to cost of goods sold.
作者: LiquidAssets10    时间: 2012-3-26 16:04

The only section of the statement of cash flows that must be adjusted to convert a statement of cash flows from the indirect to the direct method is:
A)
cash flows from operations.
B)
cash flows from investing.
C)
cash flows from financing.


The cash flows from investing activities and cash flows from financing activities sections of the statement of cash flows are the same for both the indirect and direct methods. Only the cash flows from operations section must be adjusted to convert the statement of cash flows from the indirect to the direct method.
作者: LiquidAssets10    时间: 2012-3-26 16:04

How does decreasing accounts payable turnover affect a company’s cash flow from financing activities and is this source of cash sustainable?
Financing cash flow Sustainable source
A)
No impact No
B)
Increase No
C)
No impact Yes


Decreasing accounts payable turnover saves cash by delaying payments to suppliers. The result is an operating source of cash, not a financing source. Decreasing accounts payable turnover is not a sustainable source of cash flow because suppliers will refuse to extend credit, at some point, if payment is slower and slower.
作者: LiquidAssets10    时间: 2012-3-26 16:05

Consider the following:

Statement #1:
One approach to presenting a common-size cash flow statement is to express each inflow of cash as a percentage of total cash inflows and each outflow of cash as a percentage of total cash outflows.

Statement #2:
Expressing each line item of the cash flow statement as a percentage of revenue is useful in forecasting future cash flows.

Which of these statements regarding a common-size cash flow statement is (are) CORRECT?
A)
Only statement #1 is correct.
B)
Both statements are correct.
C)
Only statement #2 is correct.


A cash flow statement can be presented in common-size format by expressing each line item as a percentage of total revenue or by expressing each inflow of cash as a percentage of total cash inflows and each outflow as a percentage of total cash outflows. Expressing each line item of the cash flow statement as a percentage of revenue is useful in forecasting future cash flows since revenue usually drives the forecast.
作者: LiquidAssets10    时间: 2012-3-26 16:05

Which of the following best describes a ratio that measures a firm’s ability to acquire long-term assets with cash flows from operations, and a performance ratio, respectively?
Acquire assets with CFOPerformance ratio
A)
Investing and financing ratioCash-to-income ratio
B)
Reinvestment ratioCash-to-income ratio
C)
Reinvestment ratioDebt payment ratio


The reinvestment ratio measures a firm’s ability to acquire long-term assets with cash flows from operations. In contrast, the investing and financing ratio, which is more comprehensive, measures the firm’s ability to purchase assets, satisfy debts, and pay dividends.
The cash-to-income ratio measures the ability to generate cash from a firm’s operations and is a performance ratio for cash flow analysis purposes. The debt payment ratio measures the firm’s ability to satisfy long-term debt with cash flow from operations but it is more of a coverage ratio than a performance ratio.
作者: LiquidAssets10    时间: 2012-3-26 16:05

Selected information from the most recent cash flow statement of Thibault Company appears below:
Cash collections€8,900
Cash paid to suppliers(€3,700)
Cash operating expenses(€1,500)
Cash taxes paid(€2,400)
Cash from operating activities€1,300
Cash paid for plant and equipment(€2,600)
Cash interest received€700
Cash dividends received€600
Cash from investing activities(€1,300)
Cash received from debt issuance€2,000
Cash interest paid(€400)
Cash dividends paid(€600)
Cash from financing activities€1,000
Total change in cash€1,000

Thibault’s reinvestment ratio for this period is closest to:
A)
0.50.
B)
0.75.
C)
1.00.


The reinvestment ratio is CFO divided by cash paid for long-term assets: €1,300 / €2,600 = 0.5. (Note that on this cash flow statement, CFI includes interest and dividends received and CFF includes interest paid, which is acceptable under IFRS.)
作者: LiquidAssets10    时间: 2012-3-26 16:06

The RR Corporation had cash flow from operations of $20 million. RR purchased $5 million in equipment and sold $3 million of equipment during the period. What is RR's free cash flow to equity for the period?
A)
$15 million.
B)
$18 million.
C)
$22 million.


Free cash flow to equity (FCFE) is generally defined as cash flow from operations (CFO) less net fixed capital expenditures plus net borrowing. No information on borrowing is given here, so FCFE = 20 − (5 − 3) = $18 million.
作者: LiquidAssets10    时间: 2012-3-26 16:06

Which balance sheet accounts are most closely related to the operating activities on a firm’s cash flow statement?
A)
Non-current assets.
B)
Working capital.
C)
Equity and non-current liabilities.


Typically, operating activities on the cash flow statement are most closely related to the working capital accounts (current assets and current liabilities) on the balance sheet. Investing activities are typically related to non-current assets. Financing activities are typically related to non-current liabilities for transactions with creditors, or equity for transactions with shareholders.
作者: terpsichorefan    时间: 2013-4-5 00:48

thanks for sharing



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