The following information should be used to according to the provisions of GAAP (Statement of Cash flows) and using the following data. \[\begin{array} { l r } \text { Net income } & \$ 50,000 \\ \text { Provision for bad debts } & 2,000 \\ \text { Increase in inventory } & 1,000 \\ \text { Increase in accounts payable } & 2,000 \\ \text { Purchase of new equipment } & 15,000 \\ \text { Sale of equipment for } \$ 10,000 \text { gain } & 20,000 \\ \text { Depreciation expense } & 5,000 \\ \text { Repurchase of common stock } & 10,000 \\ \text { Payment of dividend } & 4,000 \\ \text { Interest payment } & 3,000 \end{array}\] -What is net cash flow from financing?

A) $6,000 B) $3,000 C) ($14,000) D) ($17,000) A) $6,000 B) $3,000 C) ($14,000) D) ($17,000)

Hupta Corporation reports for the year ended December 31, 2005, sales of $9,430 and cost of goods sold of $6,500. Other information as of December 31 is as follows: $\begin{array}{lll}&2004&2005\\ \text { Accounts receivable } & \$ 500 & \$ 550 \\ \text { Inventory } & \$ 400 & \$ 380 \\ \text { Accounts payable } & \$ 250 & \$ 290 \end{array}$ -Cash collected from customers for the year ended December 31, 2005, is:

A) $9,480. B) $9,430. C) $8,930. D) $8,980. A) $9,480. B) $9,430. C) $8,930. D) $8,980.

The following information should be used according to the provisions of GAAP (Statement of Cash flows) and using the following data. $\begin{array}{lr} \text { Net income } & \$ 80,000 \\ \text { Amortization of goodwill } & 2,000 \\ \text { Decrease in accounts receivable } & 2,000 \\ \text { Increase in inventory } & 3,000 \\ \text { Purchase of marketable securities } & 13,000 \\ \text { Sale of land for } \$ 10,000 \text { gain } & 11,000 \\ \text { Depreciation expense } & 4,000 \\ \text { Repayment of debt } & 8,000 \\ \text { Payment of dividend } & 3,000 \\ \text { Interest payment } & 2,000 \end{array}$ -What is net cash flow from operations?

A) $74,000 B) $75,000 C) $83,000 D) $85,000 A) $74,000 B) $75,000 C) $83,000 D) $85,000

The following information should be used according to the provisions of GAAP (Statement of Cash flows) and using the following data. $\begin{array}{lr} \text { Net income } & \$ 80,000 \\ \text { Amortization of goodwill } & 2,000 \\ \text { Decrease in accounts receivable } & 2,000 \\ \text { Increase in inventory } & 3,000 \\ \text { Purchase of marketable securities } & 13,000 \\ \text { Sale of land for } \$ 10,000 \text { gain } & 11,000 \\ \text { Depreciation expense } & 4,000 \\ \text { Repayment of debt } & 8,000 \\ \text { Payment of dividend } & 3,000 \\ \text { Interest payment } & 2,000 \end{array}$ -What is net cash flow from investing?

A) $11,000 B) $7,000 C) ($2,000) D) ($12,000) A) $11,000 B) $7,000 C) ($2,000) D) ($12,000)

The following information should be used to according to the provisions of GAAP (Statement of Cash flows) and using the following data. \[\begin{array} { l r } \text { Net income } & \$ 50,000 \\ \text { Provision for bad debts } & 2,000 \\ \text { Increase in inventory } & 1,000 \\ \text { Increase in accounts payable } & 2,000 \\ \text { Purchase of new equipment } & 15,000 \\ \text { Sale of equipment for } \$ 10,000 \text { gain } & 20,000 \\ \text { Depreciation expense } & 5,000 \\ \text { Repurchase of common stock } & 10,000 \\ \text { Payment of dividend } & 4,000 \\ \text { Interest payment } & 3,000 \end{array}\] -What is change in cash?

A) $49,000 B) $46,000 C) $45,000 D) $39,000 A) $49,000 B) $46,000 C) $45,000 D) $39,000

The following information is given for Building Inc.: \[\begin{array} { l r r } \text { As of 12/31 } & { 2005 } & 2004 \\ \text { PPE } & \$ 570,000 & \$ 530,000 \\ \text { Accumulated depreciation } & 102,000 & 92,000 \\ \text { Depreciation expense } & 30,000 & 32,000 \end{array}\] During 2005 new assets were purchased for of $78,000, and plant assets were sold at a $10,000 loss. -What was the book value of the sold assets?

A) $38,000 B) $18,000 C) $10,000 D) $8,000 A) $38,000 B) $18,000 C) $10,000 D) $8,000

Tracy Company reports the following in its statement of cash flows: $\begin{array}{lr} \text { Net income } & \$ 1,000 \\ \text { Depreciation and amortization } & 350 \\ \text { Decrease (Increase) in accounts receivable } & (10) \\ \text { Decrease (Increase) in inventory } & 200 \\ \text { Decrease (Increase) in prepaid expenses } & 80 \\ \text { Increase (Decrease) in trade payables } & (300) \\ \text { Increase (Decrease) in taxes payable } & 75 \\ \text { Cash flow from operations } & \$ 1.395 \end{array}$ -If Tracy shows depreciation expense of $275 in its income statement, cash paid for amortization is:

A) $0 B) $75 C) $525 D) not determinable A) $0 B) $75 C) $525 D) not determinable

Schwerin Corporation reports the following on its 2005 financial statements. $\begin{array}{lr}&2004&2005\\ \text { From statement of cash flows: }\\ \text { Cash proceeds from sale of equipment } && \$ 100 \text { million } \\ \text { Cash outflow for purchase of equipment } && 170 \text { million } \\ \text { Depreciation } && 50 \text { million } \\ \text { Gain from sale of equipment } && 40 \text { million } \end{array}$ -If the beginning and ending property, plant, and equipment are $500 million and $550 million respectively, the gross book value of equipment sold was:

A) $120 million B) $100 million C) $80 million D) $60 million A) $120 million B) $100 million C) $80 million D) $60 million

Exam 7: Cash Flow Analysis

Which of the following statements are correct? I. A company's choice of accounting principles for financial reporting purposes affects net cash flow for the accounting period. II. A company's choice of accounting principles for financial reporting purposes does not affect operating cash flow. III. If a company sells its receivables, this will increase operating cash flow. IV. If a company sells its receivables, this will increase financing cash flow.

(Multiple Choice)

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Question 61

Which of the following items is deducted from net income to arrive at cash flow from operations when using the indirect method?

(Multiple Choice)

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Question 62

The following information should be used to according to the provisions of GAAP (Statement of Cash flows) and using the following data. Net income \ 50,000 Provision for bad debts 2,000 Increase in inventory 1,000 Increase in accounts payable 2,000 Purchase of new equipment 15,000 Sale of equipment for \ 10,000 gain 20,000 Depreciation expense 5,000 Repurchase of common stock 10,000 Payment of dividend 4,000 Interest payment 3,000 -What is net cash flow from financing?

(Multiple Choice)

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Question 63

Below is an example of an incorrectly prepared statement of cash flows. The descriptions of activities are correct. $\begin{array}{l}\text { Cash from operating activities }\\\begin{array}{lr}\text { Net income } & \$ 60,000 \\\text { Depreciation } & (4,000) \\\text { Increase in accounts receivable } & (2,000) \\\text { Increase in deferred tax liability } & (1,000)\\&\$53,000\\\\ \text { Cash from investing activities } &\\ \text { Purchase of marketable securities} &(\$48,000)\\ \text {Dividends paid } &(\$46,5000)\\\\\text { Cash from financing activities } & \\\text { Increase in short-term debt } & \$(500) \\\text { Increase in long-term debt } & (2,500) \\& \$(3,000) \\\text { Increase in cash } & \$ 3,500\end{array}\end{array}$ -The correct cash flows from investing activities is:

(Multiple Choice)

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Question 64

Hupta Corporation reports for the year ended December 31, 2005, sales of $9,430 and cost of goods sold of $6,500. Other information as of December 31 is as follows: 2004 2005 Accounts receivable \ 500 \ 550 Inventory \ 400 \ 380 Accounts payable \ 250 \ 290 -Cash collected from customers for the year ended December 31, 2005, is:

(Multiple Choice)

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Question 65

The following information should be used according to the provisions of GAAP (Statement of Cash flows) and using the following data. Net income \ 80,000 Amortization of goodwill 2,000 Decrease in accounts receivable 2,000 Increase in inventory 3,000 Purchase of marketable securities 13,000 Sale of land for \ 10,000 gain 11,000 Depreciation expense 4,000 Repayment of debt 8,000 Payment of dividend 3,000 Interest payment 2,000 -What is net cash flow from operations?

(Multiple Choice)

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Question 66

The following information should be used according to the provisions of GAAP (Statement of Cash flows) and using the following data. Net income \ 80,000 Amortization of goodwill 2,000 Decrease in accounts receivable 2,000 Increase in inventory 3,000 Purchase of marketable securities 13,000 Sale of land for \ 10,000 gain 11,000 Depreciation expense 4,000 Repayment of debt 8,000 Payment of dividend 3,000 Interest payment 2,000 -What is net cash flow from investing?

(Multiple Choice)

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Question 67

A gain on sale of an asset would require adjusting net income, if preparing the statement of cash flows using the indirect method.

(True/False)

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Question 68

A cash flow adequacy ratio, when measured over the last several years, of less than one:

(Multiple Choice)

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Question 69

Which of the following would require an adjustment in the computation of cash flow from operations using the indirect method? I. Depreciation expense II. Loss on sale of asset III. Sale of services to customers for cash IV. Utility bill received and paid in cash

(Multiple Choice)

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Question 70

The following information should be used to according to the provisions of GAAP (Statement of Cash flows) and using the following data. Net income \ 50,000 Provision for bad debts 2,000 Increase in inventory 1,000 Increase in accounts payable 2,000 Purchase of new equipment 15,000 Sale of equipment for \ 10,000 gain 20,000 Depreciation expense 5,000 Repurchase of common stock 10,000 Payment of dividend 4,000 Interest payment 3,000 -What is change in cash?

(Multiple Choice)

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Question 71

Cash flow from financing is normally negative during the start-up phase for a company.

(True/False)

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Question 72

The following information is given for Building Inc.: As of 12/31 2005 2004 PPE \ 570,000 \ 530,000 Accumulated depreciation 102,000 92,000 Depreciation expense 30,000 32,000 During 2005 new assets were purchased for of $78,000, and plant assets were sold at a $10,000 loss. -What was the book value of the sold assets?

(Multiple Choice)

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Question 73

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 depreciation expense of $275 in its income statement, cash paid for amortization is:

(Multiple Choice)

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Question 74

Below is an example of an incorrectly prepared statement of cash flows. The descriptions of activities are correct. $\begin{array}{l}\text { Cash from operating activities }\\\begin{array}{lr}\text { Net income } & \$ 60,000 \\\text { Depreciation } & (4,000) \\\text { Increase in accounts receivable } & (2,000) \\\text { Increase in deferred tax liability } & (1,000)\\&\$53,000\\\\ \text { Cash from investing activities } &\\ \text { Purchase of marketable securities} &(\$48,000)\\ \text {Dividends paid } &(\$46,5000)\\\\\text { Cash from financing activities } & \\\text { Increase in short-term debt } & \$(500) \\\text { Increase in long-term debt } & (2,500) \\& \$(3,000) \\\text { Increase in cash } & \$ 3,500\end{array}\end{array}$ -The correct cash flows from operating activities is:

(Multiple Choice)

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Question 75

Many financial analysts subtract interest paid from cash from operations and reclassify it as part of cash from financing activities.

(True/False)

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Question 76

Schwerin Corporation reports the following on its 2005 financial statements. 2004 2005 From statement of cash flows: Cash proceeds from sale of equipment \ 100 million Cash outflow for purchase of equipment 170 million Depreciation 50 million Gain from sale of equipment 40 million -If the beginning and ending property, plant, and equipment are $500 million and $550 million respectively, the gross book value of equipment sold was:

(Multiple Choice)

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Question 77

GAAP requires that the Statement of Cash flows (SCFs) is prepared in a specific manner. For the following items, discuss in which section (operating, investing, or financing) of the SCFs they are found, where they might more appropriately be placed and why? a. Dividends received b. Interest paid c. Income taxes

(Essay)

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Question 78

Cash flow from investing when averaged over an extended period of time would normally be expected to be negative (i.e. net outflow).

(True/False)

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Question 79

Cash flow from operations will often be negative for companies experiencing tremendous growth.

(True/False)

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Question 80

Which of the following items is deducted from net income to arrive at cash flow from operations when using the indirect method?

A gain on sale of an asset would require adjusting net income, if preparing the statement of cash flows using the indirect method.

A cash flow adequacy ratio, when measured over the last several years, of less than one:

Which of the following would require an adjustment in the computation of cash flow from operations using the indirect method? I. Depreciation expense II. Loss on sale of asset III. Sale of services to customers for cash IV. Utility bill received and paid in cash

Cash flow from financing is normally negative during the start-up phase for a company.

Many financial analysts subtract interest paid from cash from operations and reclassify it as part of cash from financing activities.

Cash flow from investing when averaged over an extended period of time would normally be expected to be negative (i.e. net outflow).

Cash flow from operations will often be negative for companies experiencing tremendous growth.

Overview of Financial Statement Analysis

Financial Reporting and Analysis

Analyzing Financing Activities

Analyzing Investing Activities

Analyzing Investing Activities: Intercorporate Investments

Analyzing Operating Activities

Return on Invested Capital and Profitability Analysis

Prospective Analysis

Credit Analysis

Equity Analysis and Valuation

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