Question 1

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

Accepted Answer

A)  higher cash flow from operations 
B)  lower cash flow from operations 
C)  identical cash flow from operations 
D)  lower or higher cash flow from operations depending upon market interest rates 
A)  higher cash flow from operations 
B)  lower cash flow from operations 
C)  identical cash flow from operations 
D)  lower or higher cash flow from operations depending upon market interest rates B

Question 2

Schwerin Corporation reports the following on its 2005 financial statements.
 $$\begin{array} { | l | c | c | } 
\hline & \underline { \mathbf { 2 0 0 4 } } & \underline { \mathbf { 2 0 0 5 } } \
\hline \text { Gross P, P \& E } & \mathbf { \$ 5 0 0 \mathrm { M } } & \$ 550 \mathrm { M } \
\hline \text { Accumulated depreciation } & \$ 400 \mathrm { M } & \$ 380 \mathrm { M } \
\hline \text { Net P, P \& E } & \$ 300 \mathrm { M } & \$ 270 \mathrm { M } \
\hline \text { From statement of cash flows: } & & \
\hline \text { Cash proceeds from sale of equipment } & & \$ 100 \mathrm { M } \
\hline \text { Cash outflow for purchase of equipment } & & \$ 170 \mathrm { M } \
\hline \text { Depreciation } & & \$ 50 \mathrm { M } \
\hline \text { Gain from sale of equipment } && \$ 40 \mathrm { M } \
\hline
\end{array}$$
-The gross book value of equipment sold was:

Accepted Answer

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

Question 3

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:
 $$\begin{array} { l l l } 
\text { Accounts Receivable } & \frac { \mathbf { 2 0 0 4 } } { \mathbf { S 5 0 0 } } & \frac { \mathbf { 2 0 0 5 } } { \mathbf { S 5 5 0 } } \
\text { Inventory } & \$ 400 & \$ 380 \
\text { Accounts Payable } & \$ 250 & \$ 290
\end{array}$$
-Cash collected from customers for the year ended December 31, 2005 is:

Accepted Answer

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

Question 4

Identify whether each of the following is an operating, investing or financing cash outflow or inflow or if it is a non cash flow, under SFAS No. 95.
Purchase marketable equity securities
Dividends on marketable equity securities
Wages to employees
Depreciation
Issuance of new stock
Interest paid
Goodwill amortization
Acquisition of company using purchase accounting
Sale of land
Tax paid on sale of land
Cash paid by customers

Accepted Answer

The answer of Identify whether each of the following is...

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A)  Indicates that a company's net income is too low relative to its sales level 
B)  Indicates that a company should decrease its dividend payout ratio 
C)  Indicates that a company needs to pay down its debt to decrease interest costs 
D)  Indicates that a company's internally generated cash flows have not been sufficient to cover dividend payments and support past growth levels 
A)  Indicates that a company's net income is too low relative to its sales level 
B)  Indicates that a company should decrease its dividend payout ratio 
C)  Indicates that a company needs to pay down its debt to decrease interest costs 
D)  Indicates that a company's internally generated cash flows have not been sufficient to cover dividend payments and support past growth levels

Question 7

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 \
\hline

\text{Cash from investing activities}&\
\text{Purchase of marketable securities}&\$(48,000) \
\text{Dividends paid}&\$(1,500) \
& \$(46,500)\
\hline

\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:

Accepted Answer

A)  ($41,000) 
B)  ($45,500) 
C)  ($48,000) 
D)  none of the above 
A)  ($41,000) 
B)  ($45,500) 
C)  ($48,000) 
D)  none of the above

Question 8

What is change in cash?

Accepted Answer

A)  $81,000 
B)  $72,000 
C)  $71,000 
D)  $62,000 
A)  $81,000 
B)  $72,000 
C)  $71,000 
D)  $62,000

Question 9

Three formats are acceptable under SFAS 95 for presenting cash flow from operations: the direct method, the summary method and the indirect method.

Accepted Answer

A) True 
 B)False

Question 10

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?

Accepted Answer

A)  $44,500 
B)  $16,500 
C)  $14,000 
D)  $30,500 
A)  $44,500 
B)  $16,500 
C)  $14,000 
D)  $30,500

Question 11

Tracy used the indirect method of determining cash flow from operations (CFO), had they used the direct method:

Accepted Answer

A)  CFO would have been higher as gains are not deducted in arriving at CFO 
B)  CFO would have been lower as losses and depreciation are not added back in arriving at CFO 
C)  CFO would have been the same 
D)  it is not possible to determine what CFO would have been without more information 
A)  CFO would have been higher as gains are not deducted in arriving at CFO 
B)  CFO would have been lower as losses and depreciation are not added back in arriving at CFO 
C)  CFO would have been the same 
D)  it is not possible to determine what CFO would have been without more information

Question 12

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 costumers for cash
IV. Utility bill received and paid in cash

Accepted Answer

A)  I 
B)  I and II 
C)  I and III 
D)  IV 
A)  I 
B)  I and II 
C)  I and III 
D)  IV

Question 13

Schwerin Corporation reports the following on its 2005 financial statements.
 $$\begin{array} { | l | c | c | } 
\hline & \underline { \mathbf { 2 0 0 4 } } & \underline { \mathbf { 2 0 0 5 } } \
\hline \text { Gross P, P \& E } & \mathbf { \$ 5 0 0 \mathrm { M } } & \$ 550 \mathrm { M } \
\hline \text { Accumulated depreciation } & \$ 400 \mathrm { M } & \$ 380 \mathrm { M } \
\hline \text { Net P, P \& E } & \$ 300 \mathrm { M } & \$ 270 \mathrm { M } \
\hline \text { From statement of cash flows: } & & \
\hline \text { Cash proceeds from sale of equipment } & & \$ 100 \mathrm { M } \
\hline \text { Cash outflow for purchase of equipment } & & \$ 170 \mathrm { M } \
\hline \text { Depreciation } & & \$ 50 \mathrm { M } \
\hline \text { Gain from sale of equipment } && \$ 40 \mathrm { M } \
\hline
\end{array}$$
-Beginning and ending plant assets are, respectively, $325,000 and $370,000. Beginning and ending accumulated depreciation is, respectively, $82,800 and $95,000. Depreciation expense for the period was $30,000, and new assets of $76,000 were purchased. Plant assets were sold at a $10,500 loss. What were the cash proceeds from the sale?

Accepted Answer

A)  $17,800 
B)  $3,100 
C)  $2,700 
D)  $31,000 
A)  $17,800 
B)  $3,100 
C)  $2,700 
D)  $31,000

Question 14

Practice requires separate disclosure of cash flows in the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 15

Firms report payments for capital leases in the cash flow statement:

Accepted Answer

A)  only as financing cash flows 
B)  only as investing cash flows 
C)  partly as operating cash flows and partly as investing cash flows 
D)  partly as operating cash flows and partly as financing cash flows 
A)  only as financing cash flows 
B)  only as investing cash flows 
C)  partly as operating cash flows and partly as investing cash flows 
D)  partly as operating cash flows and partly as financing cash flows

Question 16

The cash flow adequacy ratio

Accepted Answer

A)  Measures a company's ability to generate sufficient cash flow from investing to cover debt repayments 
B)  Measures a company's ability to generate sufficient cash flows from operations to cover capital expenditures and debt repayment 
C)  Measures a company's ability to generate sufficient cash flows from operations to cover capital expenditures, inventory additions and dividends 
D)  Measures a company's ability to generate sufficient cash flows from operations to cover capital expenditures, debt repayment and dividends 
A)  Measures a company's ability to generate sufficient cash flow from investing to cover debt repayments 
B)  Measures a company's ability to generate sufficient cash flows from operations to cover capital expenditures and debt repayment 
C)  Measures a company's ability to generate sufficient cash flows from operations to cover capital expenditures, inventory additions and dividends 
D)  Measures a company's ability to generate sufficient cash flows from operations to cover capital expenditures, debt repayment and dividends

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

What is net cash flow from financing?

Accepted Answer

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

Question 19

Which of the following represents an investing activity in the statement of cash flows

Accepted Answer

A)  depreciation of plant assets 
B)  sale of plant assets at a loss 
C)  stock dividend 
D)  purchase of inventory 
A)  depreciation of plant assets 
B)  sale of plant assets at a loss 
C)  stock dividend 
D)  purchase of inventory

Question 20

Users sometimes compute net income plus depreciation and amortization (for example EBITDA) as a crude proxy for operating cash flows.

Accepted Answer

A) True 
 B)False

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

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

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

What is change in cash?

Three formats are acceptable under SFAS 95 for presenting cash flow from operations: the direct method, the summary method and 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?

Tracy used the indirect method of determining cash flow from operations (CFO), had they used the direct method:

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 costumers for cash IV. Utility bill received and paid in cash

Practice requires separate disclosure of cash flows in the statement of cash flows.

Firms report payments for capital leases in the cash flow statement:

The cash flow adequacy ratio

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

What is net cash flow from financing?

Which of the following represents an investing activity in the statement of cash flows

Users sometimes compute net income plus depreciation and amortization (for example EBITDA) as a crude proxy for operating cash flows.

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

Filters

Exam 7: Cash Flow Analysis

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

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

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

What is change in cash?

Three formats are acceptable under SFAS 95 for presenting cash flow from operations: the direct method, the summary method and 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?

Tracy used the indirect method of determining cash flow from operations (CFO), had they used the direct method:

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 costumers for cash IV. Utility bill received and paid in cash

Practice requires separate disclosure of cash flows in the statement of cash flows.

Firms report payments for capital leases in the cash flow statement:

The cash flow adequacy ratio

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

What is net cash flow from financing?

Which of the following represents an investing activity in the statement of cash flows

Users sometimes compute net income plus depreciation and amortization (for example EBITDA) as a crude proxy for operating cash flows.

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

Filters