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

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)   $13,000,000.

B)   $11,000,000.

C)   $8,000,000.

D)   $12,000,000.

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

Galaxy’s net income in 2004 was $800,000. What was Galaxy’s cash flow from financing (CFF) in 2004?

A)   -$400,000.

B)   -$500,000.

C)   -$300,000.

D)   -$700,000.

8.Favor, Inc.’s capital and related transactions during 2005 were as follows:

§       On January 1, $1,000,000 of 5-year 10 percent annual interest bonds were issued to Cover Industries in exchange for old equipment owned by Cover.

§       On June 30, $50,000 of interest was paid to Cover

§       On July 1, the bonds were returned to Favor in exchange for $1,500,000 par value six percent preferred stock.

§       On December 31, preferred stock dividends of $45,000 were paid to Cover.

Favor, Inc.’s cash flow from financing (CFF) for 2005 (assume U.S. GAAP) is:

A)   -$95,000.

B)   -$1,045,000.

C)   -$45,000.

D)   -$1,095,000.

9.Capital Corp.’s activities in the year 2005 included the following:

§       At the beginning of the year, Capital purchased a cargo plane from Aviation Partners for $10 million in a transaction consisting of $2 million cash, $3 million in Capital Corp. bonds and $5 million in Capital Corp. preferred stock.

§       Interest of $150,000 was paid on the bonds, and dividends of $250,000 were paid on the preferred stock.

§       At the end of the year, the cargo plane was sold for $12,000,000 cash to Standard Company. Proceeds from the sale were used to pay off the $3 million in bonds held by Aviation Partners.

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)   $9,750,000.

B)   $10,000,000.

C)   $6,750,000.

D)   $6,600,000.

10.Financial information for Jefferson Corp. for the year ended December 31^st, was as follows:

Based upon this data and using the direct method, what was Jefferson Corp.’s cash flow from operations (CFO) for the year ended December 31^st?

A)   $900,000.

B)   $800,000.

C)   $1,200,000.

D)   $1,100,000.

答案和详解如下：

6.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)   $13,000,000.

B)   $11,000,000.

C)   $8,000,000.

D)   $12,000,000.

The correct answer was C)

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.

7.Galaxy, Inc.’s 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)   -$400,000.

B)   -$500,000.

C)   -$300,000.

D)   -$700,000.

The correct answer was A)  

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 are always cash flow from financing. Note that accounts payable changes are included in cash flow from operations (CFO).

8.Favor, Inc.’s capital and related transactions during 2005 were as follows:

§       On January 1, $1,000,000 of 5-year 10 percent annual interest bonds were issued to Cover Industries in exchange for old equipment owned by Cover.

§       On June 30, $50,000 of interest was paid to Cover

§       On July 1, the bonds were returned to Favor in exchange for $1,500,000 par value six percent preferred stock.

§       On December 31, preferred stock dividends of $45,000 were paid to Cover.

Favor, Inc.’s cash flow from financing (CFF) for 2005 (assume U.S. GAAP) is:

A)   -$95,000.

B)   -$1,045,000.

C)   -$45,000.

D)   -$1,095,000.

The correct answer was C)

Issuing bonds in exchange for equipment does not affect cash flow. Interest paid is an operating cash flow. Exchanging bonds for stock does not affect cash, but should still be disclosed in a footnote to the Statement of Cash Flows. Dividends paid are considered financing activities. In this case, only the preferred stock dividends paid would be considered CFF.

9.Capital Corp.’s activities in the year 2005 included the following:

§       At the beginning of the year, Capital purchased a cargo plane from Aviation Partners for $10 million in a transaction consisting of $2 million cash, $3 million in Capital Corp. bonds and $5 million in Capital Corp. preferred stock.

§       Interest of $150,000 was paid on the bonds, and dividends of $250,000 were paid on the preferred stock.

§       At the end of the year, the cargo plane was sold for $12,000,000 cash to Standard Company. Proceeds from the sale were used to pay off the $3 million in bonds held by Aviation Partners.

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)   $9,750,000.

B)   $10,000,000.

C)   $6,750,000.

D)   $6,600,000.

The correct answer was B)

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).

10.Financial information for Jefferson Corp. for the year ended December 31^st, was as follows:

Sales	$3,000,000
Purchases	1,800,000
Inventory at Beginning	500,000
Inventory at Ending	800,000
Accounts Receivable at Beginning	300,000
Accounts Receivable at Ending	200,000
Other Operating Expenses Paid	400,000

Based upon this data and using the direct method, what was Jefferson Corp.’s cash flow from operations (CFO) for the year ended December 31^st?

A)   $900,000.

B)   $800,000.

C)   $1,200,000.

D)   $1,100,000.

The correct answer was A)

Cost of goods sold was (beginning inventory plus purchases less ending inventory) ($500,000 + $1,800,000 - $800,000 =) $1,500,000.  Cash flow from operations under the direct method is calculated by:

§ Cash collections:  $3,100,000 (net sales plus decrease in accounts receivable) of ($3,000,000 + ($300,000 - $200,000))

§ Less direct cash inputs:  $1,800,000 (cost of goods sold plus increase in inventory) of ($1,500,000 + $300,000)

§ Less other cash outflows of $400,000

CFO = ($3,100,000 – 1,800,000 – 400,000) = $900,000