Question 1

Krenshaw Company reported total sales revenue of $80,000,total expenses of $72,000,and net income of $8,000 for the year ended December 31,2009.During 2009,accounts receivable increased by $3,000,merchandise inventory decreased by $2,000,accounts payable increased by $1,000,and $5,000 in depreciation expense was recorded.Assuming no other adjustments to net income are needed,the net cash inflow from operating activities using the indirect method was

Accepted Answer

A)   $19,000
B)   $13,000
C)   $10,000
D)   $11,000 B

Question 2

Which of the following is an approximation of a cash-based measure of pretax operating earnings?

Accepted Answer

A)   Net sales less income taxes
B)   EBITDA
C)   Net income
D)   Gross profit B

Question 3

The expense incurred by issuing stock options should be

Accepted Answer

A)   classified as a financing activity.
B)   added back to net income in the operating activities section.
C)   subtracted from net income in the operating activities section.
D)   does not appear in the statement of cash flows. B

Question 4

Under the ______________________________ of preparing the statement of cash flow's operating activities section firms list the cash flows from selling goods and services and then subtract the cash outflows to providers of goods and services.

Accepted Answer

The answer of Under the ______________________________ of preparing the statement...

Question 5

When preparing the statement of cash flows using the indirect method,the payment of dividends would appear as

Accepted Answer

A)   a decrease in the operating activities section
B)   an increase in the operating activities section
C)   a use of cash in the financing activities section
D)   a source of cash in the financing activities section

Question 6

The receipt of dividends from an investee would be classified as ____________________ activities in the statement of cash flows.

Accepted Answer

The answer of The receipt of dividends from an investee...

Question 7

A company in the growth phase of its product life cycle will normally have the following pattern of cash flows

Accepted Answer

A)   Negative cash flows from operations, negative cash flows from investing and positive cash flows from financing.
B)   Negative or positive cash flows from operations, negative cash flows from investing and positive cash flows from financing.
C)   Positive cash flows from operations, positive cash flows from investing and positive cash flows from financing.
D)   Negative or positive cash flows from operations, negative cash flows from investing and negative cash flows from financing.

Question 8

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

Accepted Answer

A)   depreciation expense
B)   deferred tax expense
C)   asset write-downs
D)   share-based compensation

Question 9

J.Jill is a women's clothing retailer.The company started as a mail order company and has expanded into mall department stores.The company now receives approximately half of its revenues from mail order and half from retail outlets.Over the time period 2010 to 2012,sales increased approximately 25%.
Discuss the relationship between net income,working capital from operations,and cash flow from operations,and between cash flows from operating,investing,and financing activities over the three-year period.

Accepted Answer

The answer of J.Jill is a women's clothing retailer.The company...

Question 10

Many analysts use ____________________ as a crude measure of a firm's ability to pay down debt.

Accepted Answer

The answer of Many analysts use ____________________ as a crude...

Question 11

Cash collected from customers would appear in the operating activities section of a statement of cash flows prepared using the ____________________ method
direct

Accepted Answer

The answer of Cash collected from customers would appear in...

Question 12

Olive Corporation manufactures food processing equipment.Use Olive Corporation's two most recent balance sheets and most recent income statement to prepare a statement of cash flows for 2010.The company paid dividends of $6,250 during 2010.

Accepted Answer

The answer of Olive Corporation manufactures food processing equipment.Use Olive...

Question 13

Use the following information to prepare a statement of cash flows (indirect method)for Sink Industries for the year ended December 31,2010:
Net income for the year 2010 was $5,000.Accounts receivable decreased $2,000,while inventories increased $4,000,and accounts payable decreased $7,000.Depreciation expense included in net income was $8,000.
During the year,a piece of land held for future expansion was sold for its book value of $8,000 and a new service truck was purchased for $14,000.
The company borrowed $18,000 on a two-year note from the bank.Dividends of $6,000 were paid in cash.Preferred stock was issued to retire $7,000 of long-term notes payable.
The beginning cash balance was $10,000 and the ending balance was $20,000.

Accepted Answer

The answer of Use the following information to prepare a...

Question 14

Under the _________________________,firms begin with net income to calculate cash flow from operations for the period.

Accepted Answer

The answer of Under the _________________________,firms begin with net income...

Question 15

The calculation of cash flow from operations under the indirect method involves two types of adjustments.Discuss each type of adjustment and provide an example of each type of adjustment.

Accepted Answer

The answer of The calculation of cash flow from operations...

Question 16

The period in which a firm commences the manufacture of its product to the time it receives cash is called the ______________________________.

Accepted Answer

The answer of The period in which a firm commences...

Question 17

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 depreciation expense
B)   add depreciation expense
C)   add an increase in accounts receivable
D)   add a decrease in accounts payable

Question 18

For the following types of companies,discuss whether you think their cash flows from operations,investing,and financing will be positive (the activity provides cash)or negative (the activity uses cash).Provide support for your answer.
1.Tech Corporation is a developer of computer software for the gaming industry.The company recently launched its first software title.The company is expanding its operations by hiring additional developers and administrative staff.The company is not yet profitable,but expects to break even within two years.Investors view it as having a first mover advantage and have been happy to invest in the company.
2.Midwest Corporation is a supplier to the agricultural industry.The company is experiencing its 25th year of profitability,but is concerned that sales have contracted for the fifth year in a row.Midwest prides itself in paying dividends and having no debt on its balance sheet.
3.Semi Inc.manufactures semiconductors.The company has just introduced its ninth new product and is the leader in market share for the industry.The company continues to invest in research and development and expand by purchasing competitors.The company has yet to pay dividends,but is considering it in the future.The company's largest current asset is cash,due to its high profit margin.

Accepted Answer

The answer of For the following types of companies,discuss whether...

Question 19

Which of the following would not be a cash flow from investing activities?

Accepted Answer

A)   Sale of a patent.
B)   Collection of interest revenue on a long-term note receivable.
C)   Collection of principal of a note receivable.
D)   Purchase of long-term investments.

Question 20

Toro Company recognized $655,000 of cost of goods sold in 2010,in addition its implementation of a just-in-time inventory system allowed it to reduce its inventory from $325,000 at the beginning of the year to $230,000 at the end of 2010.How much cash did Toro spend for inventory in 2010?

Accepted Answer

A)   $655,000
B)   $980,000
C)   $560,000
D)   $620,000

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