The following information should be used to according to the provisions of SFAS 95 (Statement of Cash flows) and using the following data. \[\begin{array} { l l } \text { Net Income } & \$ 50,000 \\ \text { Provision for bad debts } & \$ 2,000 \\ \text { Increase in Inventory } & \$ 1,000 \\ \text { Increase in accounts payable } & \$ 2,000 \\ \text { Purchase of new equipment } & \$ 15,000 \\ \text { Sale of equipment for } \$ 10,000 \text { gain } & \$ 20,000 \\ \text { Depreciation expense } & \$ 5,000 \\ \text { Repurchase of common stock } & \$ 10,000 \\ \text { Payment of dividend } & \$ 4,000 \\ \text { Interest payment } & \$ 3,000 \end{array}\] -What is net cash flow from operations?

A) $58,000 B) $55,000 C) $54,000 D) $48,000 A) $58,000 B) $55,000 C) $54,000 D) $48,000

The following information is given for Building Inc.: \[\begin{array} { | l | c | c | } \hline \text { As of } 12 / 31 & 2005 &{ 2004 } \\ \hline \text { PP\&E } & \$ 570,000 & \$ 530,000 \\ \hline \text { Accumulated Depreciation } & \$ 102,000 & \$ 92,000 \\ \hline \text { Depreciation Expense } & \$ 30,000 & \$ 32,000 \\ \hline \end{array}\] 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: \[\begin{array} { l c } \text { Net Income } & \$ 1,000 \\ \text { Depreciation and Amortization } & 350 \\ \text { Decrease (Increase) in accounts receivable } & ( 10 ) \\ \text { Decrease (Increase) in inventory } & 200 \\ \text { Decrease (Increase) in prepaid expenses } & 80 \\ \text { Increase (Decrease) in trade payables } & ( 300 ) \\ \text { Increase (Decrease) in taxes payable } & 75 \\ \hline \text { Cash Flow from operations } & \$ 1,395 \\ \hline \hline \end{array}\] -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

Tracy Company reports the following in its statement of cash flows: \[\begin{array} { l c } \text { Net Income } & \$ 1,000 \\ \text { Depreciation and Amortization } & 350 \\ \text { Decrease (Increase) in accounts receivable } & ( 10 ) \\ \text { Decrease (Increase) in inventory } & 200 \\ \text { Decrease (Increase) in prepaid expenses } & 80 \\ \text { Increase (Decrease) in trade payables } & ( 300 ) \\ \text { Increase (Decrease) in taxes payable } & 75 \\ \hline \text { Cash Flow from operations } & \$ 1,395 \\ \hline \hline \end{array}\] -If Tracy shows cost of goods sold of $2,050 on its income statement, cash paid to suppliers is:

A) $1,550 B) $1,950 C) $2,150 D) $2,650 A) $1,550 B) $1,950 C) $2,150 D) $2,650

Exam 7: Cash Flow Analysis

Under the accrual basis of accounting, which of the following statements is true? I. Reported net income provides a measure of operating performance II. Revenue is recognized when cash is received, and expenses are recognized when payment is made III. Cash inflows are recognized when they are received, and cash outflows are recognized when they are made

(Multiple Choice)

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Question 61

On a statement of cash flows that uses the indirect approach, calculation of cash flow from operations treats depreciation as an adjustment to reported net income because:

(Multiple Choice)

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Question 62

Cash flow from operations is usually less volatile than net income.

(True/False)

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Question 63

The cash reinvestment ratio measures the percentage of money reinvested in the company's operating asset's that is funded by retained earnings.

(True/False)

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Question 64

Which of the following would affect cash flow from operations?

(Multiple Choice)

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Question 65

Depreciation expense decreases net income but is not a use of cash.

(True/False)

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Question 66

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

(Multiple Choice)

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Question 67

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

(True/False)

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Question 68

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

(True/False)

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Question 69

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

(Multiple Choice)

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Question 70

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

(True/False)

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Question 71

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

(True/False)

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Question 72

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 was the book value of the sold assets?

(Multiple Choice)

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Question 73

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 management of a company wishes to window-dress its cash flow from operations. Which of the following will improve cash flow from operations? I. factoring accounts receivable II. paying suppliers more quickly III. selling of some excess marketable securities IV. deferring payment of taxes

(Multiple Choice)

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Question 74

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 75

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 76

A decrease in liabilities would usually show as an outflow in the statement of cash flows.

(True/False)

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Question 77

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:

(Multiple Choice)

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Question 78

The financing section of the statement of cash flows (prepared in accordance with SFAS 95) contains all cash inflows and cash outflows relating to the financing of a company.

(True/False)

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Question 79

Below is the income statement and balance sheet of Closely Held Corporation. From this information prepare a statement of cash flows for the year ended September 30, 2005. Income Statement for year ended September 30 , (in thousands) 2004 2005 Revenues \ 500,000 \ 512,000 Cost of Sales (395,000) (404,480) Gross Margin 105,000 107,520 Selling and Administrative (60,000) (61,440) Income before interest and taxes 45,000 46,080 Interest expense (9,900) (12,320) Income before income taxes 35,100 33,760 Income tax (12,812) (12,322) Net income \ 22,289 \ 21,438 $Below is the income statement and balance sheet of Closely Held Corporation. From this information prepare a statement of cash flows for the year ended September 30, 2005. Income Statement for year ended September 30 , (in thousands) \begin{array}{|l|c|c|} \hline & 2004 & 2005 \\ \hline \text { Revenues } & \$ 500,000 & \$ 512,000 \\ \hline \text { Cost of Sales } & (395,000) & (404,480) \\ \hline \text { Gross Margin } & 105,000 & 107,520 \\ \hline \text { Selling and Administrative } & (60,000) & (61,440) \\ \hline \text { Income before interest and taxes } & 45,000 & 46,080 \\ \hline \text { Interest expense } & (9,900) & (12,320) \\ \hline \text { Income before income taxes } & 35,100 & 33,760 \\ \hline \text { Income tax } & (12,812) & (12,322) \\ \hline \text { Net income } & \$ 22,289 & \$ 21,438 \\ \hline \end{array}$

(Essay)

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Question 80

On a statement of cash flows that uses the indirect approach, calculation of cash flow from operations treats depreciation as an adjustment to reported net income because:

Cash flow from operations is usually less volatile than net income.

The cash reinvestment ratio measures the percentage of money reinvested in the company's operating asset's that is funded by retained earnings.

Which of the following would affect cash flow from operations?

Depreciation expense decreases net income but is not a use of cash.

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

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

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

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

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

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

A decrease in liabilities would usually show as an outflow in the statement of cash flows.

The financing section of the statement of cash flows (prepared in accordance with SFAS 95) contains all cash inflows and cash outflows relating to the financing of a company.

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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