Reading 34: Understanding the Cash Flow Statement - LOS f, white, black, border, statements, class

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Q1. 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
	12-31-04	12-31-05
Cash	32	52
Accounts Receivable	18	22
Inventory	46	44
Property, Plant & Equip. (net)	182	160
Total Assets	278	278
Accounts Payable	28	33
Long-term Debt	145	135
Common Stock	70	70
Retained Earnings	35	40
Total Liabilities & Equity	278	278

Cash flow from operations (CFO) for Eagle Company for the year ended December 31, 2005 was (in $ millions).

A)   $41.

B)   $37.

C)   $29.

Q2. 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)   When recognizing a gain on the sale of fixed assets, the amount is a deduction to operating cash flows.

C)   In using the indirect method, each item on the income statement is converted to its cash equivalent.

Q3. 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)   $90.

B)   $100.

C)   -$10.

Q4. Which of the following statements about accounting procedures and their impact on the statement of cash flows is least valid? All else equal:

A)   the cash flow from operations (CFO) for a company that issues a bond at a premium will be understated compared to a firm that issues a bond at par.

B)   a company that finances through common stock issues may have the same cash flow from financing (CFF) as a firm that issues debt.

C)   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.

[此贴子已经被作者于2009-1-17 11:21:28编辑过]

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