Question 1

Firms with short operating cycles will experience less of a lag between the creation and delivery of their products and the collection of cash from customers because:

Accepted Answer

Firms with short operating cycles will typically have a faster turnover of cash and receivables, resulting in a smaller time lag between the creation and delivery of their products and the collection of cash from customers. This means that their cash flow from operations will not differ much from their working capital from operations, as both will be generated relatively quickly.

Question 2

Normally, cash flows from operations will peak during which phase of the product life cycle?

Accepted Answer

During the maturity phase of the product life cycle, the product has established itself within the market and sales growth has typically stabilized. Additionally, the company has had time to refine their operations and streamline their production processes. As a result, cash flows from operations will typically peak during this phase as the company is able to generate more revenue while keeping costs in check.

Question 3

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

Accepted Answer

Free cash flows to all debt and common equity shareholders represents the excess of cash flows from operating activities over cash flows for investing activities. This is because investing activities involve capital expenditures and other investments that have to be deducted from operating cash flows to arrive at the free cash flows available to shareholders. Choice D is the only option that matches this description.

Question 4

In a statement of cash flows, interest received from sources other than a company's investments would be classified as cash inflows from:

Accepted Answer

Interest received from sources other than investments would be classified in the operating section of the statement of cash flows because it is related to the company's main operations. Lending and investing activities would involve earning interest income from loans or investments, respectively, while financing activities would involve paying or receiving interest on debt or equity financing.

Question 5

Outback Corp. recorded sales of $1,300,000 in 2010, in addition the company's accounts receivable balance grew from $120,000 at the beginning of 2010 to $165,000 at the end of 2010. How much cash did Outback collect from customers in 2010?

Accepted Answer

The increase in accounts receivable means that Outback did not collect all of its sales in cash in 2010. To find out how much cash was collected, we need to subtract the increase in accounts receivable from the total sales.

Cash collected = Sales - Change in accounts receivable 
Cash collected = $1,300,000 - ($165,000 - $120,000)
Cash collected = $1,255,000

Therefore, the correct choice is C.

Question 6

Normally, cash flows from investing activities will start providing cash during which phase of the product life cycle?

Accepted Answer

The answer of Normally, cash flows from investing activities will...

Question 7

When preparing the statement of cash flows using the indirect method, an increase in inventories would appear as:

Accepted Answer

An increase in inventories means that more money was used to purchase inventory, which would decrease cash flow from operating activities.

Question 8

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

The answer of Fizzzle Inc. sold a piece of equipment...

Question 9

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

The answer of An example of an item that is...

Question 10

If a firm is growing and expanding its accounts receivable and inventories faster than its current operating liabilities its cash flow from operation will normally be:

Accepted Answer

If a firm is growing and expanding its accounts receivable and inventories faster than its current operating liabilities, it means that the firm is using cash to finance its growth. This leads to a situation where the cash flow from operations is less than net income, as the firm is showing profits on paper but not receiving the cash inflows at the same rate. This kind of situation is known as a cash flow problem, as the firm is not generating enough cash to finance its own growth.

Question 11

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

Accepted Answer

The payment of dividends is considered a financing activity, as it involves the distribution of cash to shareholders, who are the financiers of the company. Therefore, the payment of dividends would appear as a use of cash in the financing activities section of the statement of cash flows.

Question 12

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

$655,000 + $230,000 - $325,000 = $560,000

Question 13

When preparing the statement of cash flows using the indirect method, an increase in accounts payable would appear as:

Accepted Answer

The answer of When preparing the statement of cash flows...

Question 14

One rationale for the statement of cash flows is to:

Accepted Answer

The statement of cash flows helps to reconcile differences between net income and cash receipts and disbursements, providing a more accurate picture of a company's cash position.

Question 15

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

Accepted Answer

The sale of marketable securities is a transaction related to investing activities, as it involves selling an asset that is part of the company's investment portfolio. As such, it would appear as a source of cash in the investing activities section of the statement of cash flows using the indirect method.

Question 16

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

The answer of Which of the following is an adjustment...

Question 17

Which of the following is the correct formula for calculating cash collections from customers?

Accepted Answer

The answer of Which of the following is the correct...

Question 18

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

Accepted Answer

During growth phase, a company may have inconsistent or volatile cash flows from operations, negative cash flows from investing due to high investments in product development and expansion, and positive cash flows from financing due to the influx of external funding to support growth.

Question 19

Which of the following is not one of the reasons why net income differs from cash flows from operations under the indirect method of calculating cash flows?

Accepted Answer

The sale or repurchase of capital stock would be included in the financing section of the cash flow statement, and therefore would not affect the calculation of cash flows from operations using the indirect method. The other options listed (A, B, and C) are all factors that would cause net income to differ from cash flows from operations.

Question 20

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

Accepted Answer

The answer of Normally, cash flows from financing will start...

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