Question 1

Normally, cash flows from financing will start using cash during which phase of the product life cycle?

Accepted Answer

A)  Introduction 
B)  Growth 
C)  Maturity 
D)  Decline 
A)  Introduction 
B)  Growth 
C)  Maturity 
D)  Decline

Question 2

Which of the following companies would you expect to report significant amounts of cash provided by financing activities?

Accepted Answer

A)  A yet-to-be-profitable biotechnology company. 
B)  A mature company operating in the oil refinery industry. 
C)  A profitable established company in the retail industry. 
D)  A large multinational pharmaceutical company. 
A)  A yet-to-be-profitable biotechnology company. 
B)  A mature company operating in the oil refinery industry. 
C)  A profitable established company in the retail industry. 
D)  A large multinational pharmaceutical company.

Question 3

Under the indirect method of preparing the statement of cash flows, add backs to net income include all of the following except :

Accepted Answer

A)  depreciation expense 
B)  deferred tax expense 
C)  gains on sale of equipment 
D)  share-based compensation 
A)  depreciation expense 
B)  deferred tax expense 
C)  gains on sale of equipment 
D)  share-based compensation

Question 4

Fizzzle Inc. sold a piece of equipment during the period for $230,000 and recorded a gain of $45,000 on the sale. How should this gain be treated when preparing the operating activities section of the statement of cash flows using the indirect method?

Accepted Answer

A)  A sale of equipment is an investing activity; the transaction will not affect the operating activities section. 
B)  The gain is added back to net income in the operating activities section. 
C)  The gain is subtracted from net income in the operating activities section. 
D)  The entire sales price is subtracted from net income in the operating activities section. 
A)  A sale of equipment is an investing activity; the transaction will not affect the operating activities section. 
B)  The gain is added back to net income in the operating activities section. 
C)  The gain is subtracted from net income in the operating activities section. 
D)  The entire sales price is subtracted from net income in the operating activities section.

Question 5

The acquisition of new investments would be classified as ____________________ activities in the statement of cash flows.

Accepted Answer

The answer of The acquisition of new investments would be...

Question 6

An example of an item that is deducted from net income when preparing the operating activities section of the statement of cash using the indirect method is:

Accepted Answer

A)  depreciation expense. 
B)  compensation expense related to stock option plans. 
C)  income from an investment accounted for using the equity method. 
D)  unrealized losses on trading investments 
A)  depreciation expense. 
B)  compensation expense related to stock option plans. 
C)  income from an investment accounted for using the equity method. 
D)  unrealized losses on trading investments

Question 7

Free cash flows to all debt and common equity shareholders represents the excess of cash flow from operations over cash flows from ___________________________________.

Accepted Answer

investing

Question 8

A firm's cash flows will differ from net income each period for all of the following reasons except :

Accepted Answer

A)  cash receipts from customers do not necessarily occur in the same period in which a firm recognizes revenues. 
B)  cash expenditures to employees, suppliers, and governments do not necessarily occur in the same period in which a firm recognizes expenses. 
C)  the company is sustaining losses each period. 
D)  cash inflows and outflows that pertain to investing and financing activities do not immediately flow through the income statement. 
A)  cash receipts from customers do not necessarily occur in the same period in which a firm recognizes revenues. 
B)  cash expenditures to employees, suppliers, and governments do not necessarily occur in the same period in which a firm recognizes expenses. 
C)  the company is sustaining losses each period. 
D)  cash inflows and outflows that pertain to investing and financing activities do not immediately flow through the income statement.

Question 9

What is working capital from operations? Discuss what types of firms will have similar net income and working capital from operations? For which types of firms will net income and working capital from operations be significantly different?

Accepted Answer

Working capital from operations is defin

Question 10

As a complement to the balance sheet and the income statement, the statement of cash flows is an informative statement for analysts for all the following reasons except :

Accepted Answer

A)  The statement of cash flows provides information to assess the financial health of a firm. Analysts increasingly recognize that cash flows do not necessarily track income flows. A firm with a healthy income statement is not necessarily financially healthy, and vice versa. Cash requirements to service debt, for example, may outstrip the ability of operations to generate cash. 
B)  The existence of negative cash flows from operations can be eliminated by using this financial statement. 
C)  The statement of cash flows highlights accounting accruals, which can provide insight into the overall sustainability and quality of a firm's reported earnings. 
D)  Analysts who understand the types of information this statement presents and the kinds of interpretations that are appropriate find that the statement of cash flows reveals information about the economic characteristics of a firm's industry, its strategy, and the stage in its life cycle. 
A)  The statement of cash flows provides information to assess the financial health of a firm. Analysts increasingly recognize that cash flows do not necessarily track income flows. A firm with a healthy income statement is not necessarily financially healthy, and vice versa. Cash requirements to service debt, for example, may outstrip the ability of operations to generate cash. 
B)  The existence of negative cash flows from operations can be eliminated by using this financial statement. 
C)  The statement of cash flows highlights accounting accruals, which can provide insight into the overall sustainability and quality of a firm's reported earnings. 
D)  Analysts who understand the types of information this statement presents and the kinds of interpretations that are appropriate find that the statement of cash flows reveals information about the economic characteristics of a firm's industry, its strategy, and the stage in its life cycle.

Question 11

Which of the following is an adjustment that would need to be made to net income when calculating cash flows from operations under the indirect method?

Accepted Answer

A)  Subtract amortization expense 
B)  subtract gain on sale of subsidiary 
C)  add an increase in accounts receivable 
D)  add a decrease in accounts payable 
A)  Subtract amortization expense 
B)  subtract gain on sale of subsidiary 
C)  add an increase in accounts receivable 
D)  add a decrease in accounts payable

Question 12

Free cash flows to all debt and common equity shareholders represents the excess of cash flows from:

Accepted Answer

A)  operating activities over cash flows for financing activities 
B)  investing over cash flows for operating activities 
C)  investing over cash flows for financing activities 
D)  operating activities over cash flows for investing activities 
A)  operating activities over cash flows for financing activities 
B)  investing over cash flows for operating activities 
C)  investing over cash flows for financing activities 
D)  operating activities over cash flows for investing activities

Question 13

When preparing the statement of cash flows using the indirect method, the sale of marketable securities would appear as:

Accepted Answer

A)  a use of cash in the investing activities section 
B)  a source of cash in the investing activities section 
C)  a use of cash in the financing activities section 
D)  a source of cash in the financing activities section 
A)  a use of cash in the investing activities section 
B)  a source of cash in the investing activities section 
C)  a use of cash in the financing activities section 
D)  a source of cash in the financing activities section

Question 14

The issuance of debt would be classified as a(n) ____________________ activity in the statement of cash flows.

Accepted Answer

The answer of The issuance of debt would be classified...

Normally, cash flows from financing will start using cash during which phase of the product life cycle?

Which of the following companies would you expect to report significant amounts of cash provided by financing activities?

Under the indirect method of preparing the statement of cash flows, add backs to net income include all of the following except :

Fizzzle Inc. sold a piece of equipment during the period for $230,000 and recorded a gain of $45,000 on the sale. How should this gain be treated when preparing the operating activities section of the statement of cash flows using the indirect method?

The acquisition of new investments would be classified as ____________________ activities in the statement of cash flows.

An example of an item that is deducted from net income when preparing the operating activities section of the statement of cash using the indirect method is:

Free cash flows to all debt and common equity shareholders represents the excess of cash flow from operations over cash flows from ___________________________________.

A firm's cash flows will differ from net income each period for all of the following reasons except :

What is working capital from operations? Discuss what types of firms will have similar net income and working capital from operations? For which types of firms will net income and working capital from operations be significantly different?

As a complement to the balance sheet and the income statement, the statement of cash flows is an informative statement for analysts for all the following reasons except :

Which of the following is an adjustment that would need to be made to net income when calculating cash flows from operations under the indirect method?

Free cash flows to all debt and common equity shareholders represents the excess of cash flows from:

When preparing the statement of cash flows using the indirect method, the sale of marketable securities would appear as:

The issuance of debt would be classified as a(n) ____________________ activity in the statement of cash flows.

Overview of Financial Reporting, Financial Statement Analysis, and Valuation

Asset and Liability Valuation and Income Recognition

Profitability Analysis

Risk Analysis

Financing Activities

Investing Activities

Operating Activities

Accounting Quality

Forecasting Financial Statements

Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach

Valuation: Cash-Flow Based Approaches

Valuation: Earnings-Based Approaches

Valuation: Market-Based Approaches

Filters

Exam 3: Income Flows Versus Cash Flows: Understanding the Statement of Cash Flows

Normally, cash flows from financing will start using cash during which phase of the product life cycle?

Which of the following companies would you expect to report significant amounts of cash provided by financing activities?

Under the indirect method of preparing the statement of cash flows, add backs to net income include all of the following except :

Fizzzle Inc. sold a piece of equipment during the period for $230,000 and recorded a gain of $45,000 on the sale. How should this gain be treated when preparing the operating activities section of the statement of cash flows using the indirect method?

The acquisition of new investments would be classified as ____________________ activities in the statement of cash flows.

An example of an item that is deducted from net income when preparing the operating activities section of the statement of cash using the indirect method is:

Free cash flows to all debt and common equity shareholders represents the excess of cash flow from operations over cash flows from ___________________________________.

A firm's cash flows will differ from net income each period for all of the following reasons except :

What is working capital from operations? Discuss what types of firms will have similar net income and working capital from operations? For which types of firms will net income and working capital from operations be significantly different?

As a complement to the balance sheet and the income statement, the statement of cash flows is an informative statement for analysts for all the following reasons except :

Which of the following is an adjustment that would need to be made to net income when calculating cash flows from operations under the indirect method?

Free cash flows to all debt and common equity shareholders represents the excess of cash flows from:

When preparing the statement of cash flows using the indirect method, the sale of marketable securities would appear as:

The issuance of debt would be classified as a(n) ____________________ activity in the statement of cash flows.

Overview of Financial Reporting, Financial Statement Analysis, and Valuation

Asset and Liability Valuation and Income Recognition

Profitability Analysis

Risk Analysis

Financing Activities

Investing Activities

Operating Activities

Accounting Quality

Forecasting Financial Statements

Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach

Valuation: Cash-Flow Based Approaches

Valuation: Earnings-Based Approaches

Valuation: Market-Based Approaches

Filters