Question 1

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

Accepted Answer

Cash flows can differ from net income due to the timing of cash receipts and cash expenditures as well as investing and financing activities. Sustaining losses would affect net income, but it is not a factor that solely affects cash flows.

Question 2

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 employed income-increasing accruals, which allow it to recognize revenue before cash is received or to postpone expenses until after cash has been disbursed, thereby boosting reported net income.

Question 3

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:  How much cash did Lagos collect from customers in 2010?

Accepted Answer

The answer of Lagos Corp.recorded sales of $345,000 in 2010,in...

Question 4

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 means that the company is recognizing more expenses (decreasing accruals) than revenues in its income statement. This could lead to a lower net income but a high operating cash flow. Therefore, the best choice is A - income-decreasing accruals.

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 is a cash flow from operating activities?

Accepted Answer

Purchase of merchandise for resale is a cash flow from operating activities as it is directly related to the company's primary business operations. The other options are cash flows from investing or financing activities. Sale of long-term investments in common stock and sale of a piece of land no longer used in operations are investing activities, while payment of a note payable is a financing activity.

Question 7

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 8

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

Accepted Answer

Amortization of patent for the period does not involve any cash inflow or outflow, so it would not create a cash flow. The other transactions listed would create cash flows: A) Payment of a cash dividend involves an outflow of cash, B) Purchasing its own stock involves an outflow of cash, and D) Selling equipment at book value would involve an inflow or outflow of cash, depending on whether the sale price was higher or lower than the equipment's book value.

Question 9

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

Accepted Answer

Asset write-downs are not added back to net income under the indirect method of preparing the statement of cash flows.

Question 10

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

To calculate the net cash inflow from operating activities using the indirect method, start with the net income (which is not provided in the question) and adjust for all the non-cash items and changes in working capital. 
Starting with the given information: 
Sales revenue: $500,000 
Total expenses: $450,000 
Depreciation expense: $10,000

We can calculate the net income as: 
Net Income = Sales revenue - Total expenses - Depreciation expense 
Net Income = $500,000 - $450,000 - $10,000 
Net Income = $40,000

Next, we need to adjust for the changes in working capital: 
Accounts receivable decreased by $5,000, which means that cash was received. This is a positive adjustment, so we add it back to net income: 
Adjustment for accounts receivable = -$5,000

Merchandise inventory increased by $4,000, which means that cash was used to purchase inventory. This is a negative adjustment, so we subtract it from net income: 
Adjustment for merchandise inventory = $4,000

Accounts payable increased by $6,000, which means that cash was not paid out. This is a positive adjustment, so we add it back to net income: 
Adjustment for accounts payable = $6,000

Putting it all together: 
Net cash inflow from operating activities = Net income + Adjustments for non-cash items + Adjustments for changes in working capital 
Net cash inflow from operating activities = $40,000 - $10,000 - $5,000 + $4,000 + $6,000 
Net cash inflow from operating activities = $35,000 + $4,000 + $6,000 
Net cash inflow from operating activities = $45,000

Therefore, the best choice is B) $67,000.

Question 11

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 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 cannot eliminate the existence of negative cash flows from operations. It can, however, provide information about the sources and uses of cash for a period of time.

Question 13

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

Accepted Answer

The answer of Academic research has found that market rates...

Question 14

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 15

A cash inflow from financing activities includes:

Accepted Answer

Cash inflow from financing activities includes proceeds from issuance of bonds payable. This represents a source of external financing for the company. Options A, B, and D represent cash inflows from operating, investing, and financing activities respectively.

Question 16

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 17

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. A is a cash inflow, C is a cash inflow, and D is a cash outflow from investing activities.

Question 18

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 gain from the sale of equipment is subtracted from net income in the operating activities section because it is a non-cash item that was included in net income.

Question 19

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 20

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

Accepted Answer

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

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