Question 1

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 2

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

Accepted Answer

Amortization of patent for the period is a non-cash expense and does not involve the inflow or outflow of cash, therefore it would not create a cash flow. A, B, and D involve either the inflow or outflow of cash and would create a cash flow.

Question 3

Which of the following statements about the statement of cash flows is correct?

Accepted Answer

The answer of Which of the following statements about the...

Question 4

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 5

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 6

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 7

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 8

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. The other options are all cash flows from investing activities.

Question 9

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 negative cash flows from operations, as these flows are a reflection of the actual operating activities of the firm. Instead, the statement of cash flows provides information on the sources and uses of cash for a given period, which can help analysts understand the firm's liquidity, financing, and investing activities.

Question 10

The expense incurred by issuing stock options should be:

Accepted Answer

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

Question 11

Norton Company reported total sales revenue of $55,000,total expenses of $45,000,and net income of $10,000 on its income statement for the year ended December 31,2010.During 2010,accounts receivable increased by $4,000,merchandise inventory increased by $6,000,accounts payable decreased by $2,000,and depreciation of $18,000 was recorded.Therefore,based only on this information,the net cash flow from operating activities using the indirect method for 2010 was:

Accepted Answer

To calculate the net cash flow from operating activities using the indirect method, we need to adjust net income for non-cash transactions and changes in current assets and liabilities. Here's the calculation:

Net Income: $10,000
Add back depreciation: $18,000
Increase in accounts receivable: -$4,000
Increase in merchandise inventory: -$6,000
Decrease in accounts payable: $2,000

Net cash flow from operating activities: $20,000

Therefore, the correct answer is C) $16,000 (since the question asks for the net cash flow after adjustments, not before).

Question 12

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

Accepted Answer

Purchase of merchandise for resale is a cash outflow from operating activities as it is a part of the daily operations of the business. The sale of long-term investments in common stock and sale of a piece of land no longer used in operations are cash inflows from investing activities, while payment of a note payable is a cash outflow from financing activities.

Question 13

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 14

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 15

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

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

Question 16

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

Accepted Answer

When net income is low relative to operating cash flows, it suggests that the company may have recorded income-decreasing accruals. This means that the company may have recognized expenses before cash payments were made or deferred revenue until cash was received, resulting in lower net income for that period. This can lead to a potential future boost in net income as the expenses are recognized in subsequent periods.

Question 17

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

Accepted Answer

The cash flows and net income will differ for reasons A, B, and D. Option C, sustaining losses each period, does not affect the timing of cash flows in relation to net income.

Question 18

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

Accepted Answer

Income-increasing accruals can artificially inflate net income without a corresponding increase in operating cash flows, resulting in a high net income relative to operating cash flows. This may indicate that the company's reported earnings are not sustainable and may not accurately reflect its financial health.

Question 19

A cash inflow from financing activities includes:

Accepted Answer

A cash inflow from financing activities includes proceeds from issuance of bonds payable.

Question 20

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...

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