Question 1

Adophus,Inc.'s 2010 income statement reported total revenues of $850,000 and total expenses (including $40,000 depreciation)of $720,000.The 2010 balance sheet reported the following: accounts receivable beginning balance of $50,000 and ending balance of $40,000;accounts payable beginning balance of $22,000 and ending balance of $28,000.Therefore,based only on this information and using the indirect method,the 2010 net cash inflow from operating activities was

Accepted Answer

The answer of Adophus,Inc.'s 2010 income statement reported total revenues...

Question 2

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

Accepted Answer

Collection of interest revenue on a long-term note receivable is a cash flow from operating activities, not investing activities.

Question 3

A firm's cash flows will differ from net income each period for all of the following reasons except:

Accepted Answer

The statement mentions all of the reasons that can cause a difference between cash flows and net income, except for sustaining losses each period. Sustaining losses will directly affect the net income of the firm and consequently, the cash flows.

Question 4

Tinker Company reported sales revenue of $500,000 and total expenses of $450,000 (including depreciation)for the year ended December 31,2010.During 2010,accounts receivable decreased by $5,000,merchandise inventory increased by $4,000,accounts payable increased by $6,000,and depreciation expense of $10,000 was recorded.Assuming no other data is needed and using the indirect method,the net cash inflow from operating activities for 2010 was

Accepted Answer

The answer of Tinker Company reported sales revenue of $500,000...

Question 5

The expense incurred by issuing stock options should be

Accepted Answer

The answer of The expense incurred by issuing stock options...

Question 6

Which of the following transactions would not create a cash flow?

Accepted Answer

Amortization of patent for the period does not involve any movement of cash. A cash flow is the movement of cash in or out of a company, so any transaction that does not involve the movement of cash will not create a cash flow. Payment of a cash dividend (A), purchase of own stock (B), and sale of equipment at book value (D) all involve the movement of cash, and thus would create a cash flow.

Question 7

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 during...

Question 8

Academic research has found that market rates of return on common stock are the most highly correlated with

Accepted Answer

Academic research has found that market rates of return on common stock are the most highly correlated with net income, as it is a key component in determining a company's profitability and potential future growth. Cash flow from operations, EBITDA, and cash flow from investing activities can also provide insight into a company's financial health, but are not as closely linked to stock market returns.

Question 9

Kraco Corporation reported 2010 net income of $450,000,including the effects of depreciation expense of $60,000,and amortization expense on a patent of $10,000.Also,cash of $50,000 was borrowed on a 5-year note payable.Based on this data,total cash inflow from operating activities using the indirect method for 2010 was

Accepted Answer

The answer of Kraco Corporation reported 2010 net income of...

Question 10

Lagos Corp.recorded sales of $345,000 in 2010,in addition its accounts receivable and accounts payable balances at the beginning and end of 2010 were as follows: $$\begin{array} { l c c } 
& \text { Jan. 1,2010 } & \text { Dec. 31, 2010 } \
\text { Accounts Receivable } & \$ 65,000 & \$ 90,000 \
\text { Accausts Payable } & \$ 32,000 & \$ 28,000
\end{array}$$
How much cash did Lagos collect from customers in 2010?

Accepted Answer

$345,000 +$65,000 - $90,000 = $320,000

Question 11

When net income is high relative to operating cash flows,we describe the firm as having recorded

Accepted Answer

When net income is high relative to operating cash flows, it suggests that the firm has recorded income-increasing accruals, meaning that they have recognized revenues before receiving cash or delayed recognition of expenses. This can artificially boost net income, making it higher than operating cash flows.

Question 12

As a complement to the balance sheet and the income statement,the statement of cash flows is an informative statement for analysts for all the following reasons except:

Accepted Answer

The statement of cash flows does not eliminate negative cash flows from operations, but rather provides information on where the cash is coming from and going to, including operating cash flows, investing cash flows, and financing cash flows.

Question 13

As products move through the maturity phase,companies invest to ___________ productive capacity.

Accepted Answer

The answer of As products move through the maturity phase,companies...

Question 14

Which of the following is a cash flow from operating activities?

Accepted Answer

Purchase of merchandise for resale is a cash flow from operating activities, as it represents a cost associated with the company's primary revenue-generating operations. The other options all represent cash flows from investing or financing activities.

Question 15

A cash inflow from financing activities includes:

Accepted Answer

The answer of A cash inflow from financing activities includes: 
...

Question 16

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

Accepted Answer

EBITDA is an approximation of a cash-based measure of pretax operating earnings because it adds back depreciation and amortization, which are non-cash expenses, to net income.

Question 17

All of the following are firms that may experience a long lag between the expenditures of cash and the receipt of cash from customers,except:

Accepted Answer

The answer of All of the following are firms that...

Question 18

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

Accepted Answer

The answer of Under the indirect method of preparing the...

Question 19

Which of the following companies would you expect to report significant amounts of cash provided by financing activities?

Accepted Answer

The answer of Which of the following companies would you...

Question 20

When net income is low relative to operating cash flows,we describe the firm as having recorded

Accepted Answer

If net income is low relative to operating cash flows, it suggests that the firm has recorded income-decreasing accruals. This means that the firm has used accounting methods that reduce its reported net income, while operating cash flows remain strong. This can happen, for example, if the firm chooses to expense some costs immediately instead of capitalizing them as assets, or if it reduces the estimate of future revenues from outstanding contracts or sales.

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