Exam 7: Cash Flow Analysis

The following information is given for Building Inc.: As of 12/31 2005 2004 PP\&E \ 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 were the cash proceeds from the sale?

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: Accounts Receivable Inventory \ 400 \ 380 Accounts Payable \ 250 \ 290 -Cash paid to suppliers for year ended December 31, 2005 is:

Which of the following would require an adjustment in the computation of cash flow from operations using the indirect method? I. Sale of machinery for $50,000 with a net book value of $35,000 II. Purchase of supplies for cash III. Remittance by customer in payment of goods purchased this accounting period IV. Acquisition of land with simultaneous issuance of long-term note

Which of the following would be considered a use of cash?

A firm has net sales of $6,000, cash expenses (including taxes) of $2,800, and depreciation of $1,000. If accounts receivable increased in the period by $800, cash flows from operations equal

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

Interest income is recorded as an investing inflow of cash.

Beginning and ending accounts receivable are $76,000 and $42,000, respectively. Sales for the period total $384,000, of which $40,000 was directly for cash. How much cash was collected from making sales and collecting accounts receivable?

The following information should be used according to the provisions of SFAS 95 (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?

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 financing activities is:

In firms that are experiencing tremendous growth, it is rare that net income will exceed cash generated by all activities.

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

Which of the following is true? Depreciation:

Use the following selected data about Tiles Ltd. and prepare the operating activities section of a statement of cash flows for the company for 2005 using the indirect method. Balance Sheet Data Accounts receivable Inventories Accounts payable Salaries payable Equipment Accumulated depreciation Bonds payable Common stock Retained eamings 2005 2004 \ 36,000 \ 42,000 28,000 25,000 31,000 35,000 2,000 1,000 60,000 40,000 12,000 16,000 50,000 100,000 150,000 100,000 38,000 20,000 Income Statement Data 2005 Net sales \ 420,000 Cost of goods sold 300,000 Operating expenses (excluding depreciation expense) 84,000 Net income 30,000 Gain on sale of equipment (included in net income above) 2,000

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

Net cash flow is not affected by a company's choice of accounting principles for financial reporting purposes.

The following information is given for Building Inc.: As of 12/31 2005 2004 PP\&E \ 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. -Beginning and ending prepaid insurance is, respectively, $36,000 and $26,500. During the period, $30,500 of insurance expense was recorded. How much new insurance was purchased?

Increases in working capital are a source of funds.

Over an extended period of time average cash flow from operations would be expected to be higher than average net income.

Which of the following statements are correct? I. A company's choice of accounting principles for financial reporting purposes does not affect 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