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


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.


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.

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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

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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

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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.

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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.

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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.

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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.

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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.

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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

TOP

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