Exam 7: Cash Flow Analysis

Increases in working capital are a source of funds.

Beginning and ending prepaid insurance is $36,000 and $26,500 respectively. During the period, $30,500 of insurance expense was recorded. How much new insurance was purchased?

You are trying to determine how much money your company, XYZ Corporation, will need to borrow from the bank, if any. You are in the middle of preparing the pro forma financial statements for 2005. On the next pages is the completed income statement and partially completed balance sheet for your company for 2005. a. Using the information provided below complete the balance sheet for 2005. (Put your answers in the blank spaces on the balance sheet.) • Inventory turnover (using end-of-year inventory) is 4. • Your silent partners demand that 50% of net income is paid out in dividends. • You will borrow if you have a cash shortage, and will reduce long-term debt if there is an excess of cash b. When you have completed part a, prepare a statement of cash flows. XYZ Corporation Income Statement (in millions) Year ended December 31,2005 Sales \ 55,484 Cost of goods sold 44,176 Selling, general \& 8,321 administrative expenses Total Operating Expenses 52,497 Operating Income 2,987 Interest costs 307 Income before taxes Income tax expense: Current 973 Deferred 35 938 Net Income \1 ,742

The cash reinvestment ratio is a measure of the percentage of investment in assets representing operating cash retained and reinvested in the company for both replacing assets and growth in operations.

The only time a company experiences a negative cash flow from operations is when they are in trouble.

An increase in accounts payable would be considered:

Tracy Company reports the following in its statement of cash flows: Net income \ 1,000 Depreciation and amortization 350 Decrease (Increase) in accounts receivable (10) Decrease (Increase) in inventory 200 Decrease (Increase) in prepaid expenses 80 Increase (Decrease) in trade payables (300) Increase (Decrease) in taxes payable 75 Cash flow from operations \ 1.395 -If Tracy shows cost of goods sold of $2,050 on its income statement, cash paid to suppliers is:

An increase in a liability is a use of cash.

Tracy Company reports the following in its statement of cash flows: Net income \ 1,000 Depreciation and amortization 350 Decrease (Increase) in accounts receivable (10) Decrease (Increase) in inventory 200 Decrease (Increase) in prepaid expenses 80 Increase (Decrease) in trade payables (300) Increase (Decrease) in taxes payable 75 Cash flow from operations \ 1.395 -Tracy used the indirect method of determining cash flow from operations (CFO). If it had used the direct method:

Below are the balance sheet and income statement for Anderson Corporation. Additional Information 1. In Year 1, Anderson sold machinery bought at $36, for $18, resulting in a $2 gain on income statement. 2. $810 in dividends were paid in Year 1. 3. SG&A expense includes $50 of interest expense, and amortization expense of $30. 4. Cost of good sold includes depreciation of $260. 5. Income tax expense includes deferred tax liability of $20. a. Prepare cash flows from operations using the direct method. b. Prepare statement of cash flows from operations using the Indirect method.

An increase in assets would usually show as an outflow in the statement of cash flows.

Payment of a 5% stock dividend will not appear in the statement of cash flows.

Compared with firms with capital leases, firms with operating leases generally report:

Cash flows from operations is better measure of profitability than net income as it is less susceptible to manipulation by management.

Which of the following would affect cash flow from operations?

Amortization of goodwill reduces net income and is a cash outflow.

Depreciation and amortization expense needs to be added back to net income if preparing the statement of cash flows using the indirect method.

The balance for supplies is $41,000 and $27,000 for 12/31/05 and 12/31/06, respectively. During the 2006, the company recorded $30,500 of supplies expense was recorded. How much new supplies were purchased?

Which of the following is true? The choice of LIFO versus FIFO will:

Which of the following is not a financing activity in the statement of cash flows?