Question 1

The product life-cycle concept from microeconomics and marketing provides useful insights into the relations between cash flows from operating, investing, and financing activities.During the introduction phase
A)cash inflow exceeds cash outflow for operations .
B)cash outflow exceeds cash inflow for operations.
C)cash inflow exceeds cash outflow for investing activities.
D)cash outflow exceeds cash inflow for financing activities.
E)cash inflow exceeds cash outflow for financing activities.

Accepted Answer

During the introduction phase of the product life-cycle, the company typically incurs higher cash outflows than inflows due to the costs associated with product development, marketing, and promotion. This is because the company is creating a new product and investing heavily in manufacturing, advertising, and distribution channels. As a result, the answer is B, cash outflow exceeds cash inflow for operations.

Question 2

The product life-cycle concept from microeconomics and marketing provides useful insights into the relations between cash flows from operating, investing, and financing activities.In the United States, which phase best describes: Biotechnology firms Consumer foods companies Steel manufacturers
A) growth mature decline
B) mature decline growth
C) growth growth decline
D) growth growth mature
E) decline mature growth

Accepted Answer

Biotechnology firms are typically in the growth stage as they are still developing and launching new products. Consumer foods companies are typically in the mature stage as they have established brands and a stable market. Steel manufacturers are typically in the decline stage as the industry has seen a decline in demand and profitability in recent years. Therefore, the best choice would be A) growth mature decline.

Question 3

The product life-cycle concept from microeconomics and marketing provides useful insights into the relations between cash flows from operating, investing, and financing activities.When a product matures,
A)operations generate positive cash flow, enough to finance expenditures on property, plant, and equipment.
B)firms use the excess cash flow to repay borrowing from the introduction and growth phases and to begin paying dividends to shareholders.
C)capital expenditures usually maintain, rather than increase, productive capacity.
D)all of the above
E)none of the above

Accepted Answer

When a product matures, operations typically generate positive cash flow, which is enough to finance expenditures on property, plant, and equipment. Firms use the excess cash flow to repay borrowing from the introduction and growth phases and to begin paying dividends to shareholders. Furthermore, capital expenditures usually maintain rather than increase productive capacity. All of these are true statements, making D the correct choice.

Question 4

Financial information for Price Company at December 31, 2014, and for the year then ended, are presented below:
  Additional information:

1.	On December 31, 2013, Newton acquired 25 percent of Trent Corporation’s common stock for $137,500. On that date, the carrying value of Trent’s net assets and liabilities (which approximated fair value) was $550,000. Trent reported income of $60,000 for the year ended December 31, 2014. No dividend was paid on Trent’s common stock during the year.
 	 
2.	During 2014, Newton loaned $150,000 to Dalton Company, an unrelated entity. Dalton made the first semi-annual principal payment of $15,000, plus interest at 10 percent, on October 1, 2014.
 	 
3.	On January 2, 2014, Newton sold equipment costing $30,000, with a carrying value of $17,500, for $20,000 cash.
 	 
4.	On January 2, 2014, Newton entered into a capital lease for an office building. The present value of the annual rental payments is $200,000, which equals the fair value of the building. Newton made the first lease payment of $30,000 when due on January 2, 2015.
 	 
5.	Newton’s net income for 2014 was $180,000.
 	 
6.	Newton declared and paid cash dividends for 2014 and 2013 as follows:

Required:
Prepare the statement of cash flows using the indirect method.

Accepted Answer

The answer of Financial information for Price Company at December...

Question 5

The extent to which a firm adjusts net income for changes in noncurrent assets and noncurrent liabilities in deriving cash flow from operations depends on the nature of its operations._____ will likely show a substantial addback to net income for depreciation expense, whereas _____will show a smaller amount.
A)Service firms; firms that decrease in size
B)Service firms; firms that increase in size
C)Firms that decrease in size; firms that increase in size
D)Service firms; capital-intensive firms
E)Capital-intensive firms; service firms

Accepted Answer

Capital-intensive firms, which invest heavily in physical assets like machinery and equipment, will likely show a substantial addback to net income for depreciation expense because these assets depreciate over time. Service firms, which rely less on physical assets and more on human capital, will show a smaller amount because they have fewer noncurrent assets that depreciate.

Question 6

The product life-cycle concept from microeconomics and marketing provides useful insights into the relations between cash flows from operating, investing, and financing activities.When a product matures
A)net income usually reaches a peak.
B)working capital declines.
C)operations generate negative cash flow.
D)all of the above.
E)none of the above.

Accepted Answer

When a product matures, net income usually reaches a peak. This is because the product has reached its maximum potential in terms of sales and revenue, and the company may not need to invest as much in research and development. This results in higher profits and a larger net income. However, working capital may decline as the company may not need to maintain as much inventory or accounts receivable. Operations may also generate negative cash flow if there are significant investments in new products or expansion plans. Therefore, option D is incorrect and options B and C are partially correct.

Question 7

The extent to which a firm adjusts net income for changes in noncurrent assets and noncurrent liabilities in deriving cash flow from operations depends on the nature of its operations. _____ usually show an addback for deferred tax expense, whereas firms that _____ show a subtraction.
A)Rapidly growing firms; have operating losses
B)Firms that have operating losses; are profitable
C)Profitable firms; have operating losses
D)Firms that stop growing or that shrink; rapidly growing firms
E)Rapidly growing firms; stop growing or that shrink

Accepted Answer

The answer of The extent to which a firm adjusts...

Question 8

The product life-cycle concept from microeconomics and marketing provides useful insights into the relations between cash flows from operating, investing, and financing activities.At the beginning of the decline phase,
A)profitability increases.
B)accounts receivable decline.
C)inventories increase.
D)all of the above.
E)none of the above.

Accepted Answer

At the beginning of the decline phase, accounts receivable decline as sales decrease.

Question 9

The product life-cycle concept from microeconomics and marketing provides useful insights into the relations between cash flows from operating, investing, and financing activities.During the growth phase
A)cash inflow exceeds cash outflow for operations.
B)cash outflow exceeds cash inflow for operations.
C)cash inflow exceeds cash outflow for investing activities.
D)cash outflow exceeds cash inflow for financing activities.
E)cash inflow exceeds cash outflow for financing activities.

Accepted Answer

The answer of The product life-cycle concept from microeconomics and...

Question 10

The adjustment for changes in operating working capital accounts depends in part on a firm's rate of growth.Some firms use short- or long-term borrowing or equity financing, which is
A)classified as operating activities.
B)classified as financing activities.
C)classified as investing activities.
D)disclosed in a supplementary schedule or notes to the financial statements.
E)disclose such changes in managements' discussion and analysis.

Accepted Answer

Short- or long-term borrowing or equity financing is classified as financing activities as it involves obtaining funds for the company's activities and affects the company's financial structure. The adjustment for changes in operating working capital accounts is also classified as operating activities. Both activities are separately disclosed in the statement of cash flows.

Question 11

The product life-cycle concept from microeconomics and marketing provides useful insights into the relations between cash flows from operating, investing, and financing activities.The beginning of the decline phase can produce
A)negative cash flow from operations.
B)sales of unneeded property, plant, and equipment can result in negative cash flow from investing activities.
C)excess cash flow to repay remaining debt or diversify into other areas of business.
D)all of the above
E)none of the above

Accepted Answer

In the decline phase, a company may generate excess cash flow from operations as sales decrease but costs are reduced, allowing it to repay debt or invest in other areas.

Question 12

(CMA adapted, Jun 94 #4) Spring Corporation, a public company, has prepared all of its year-end financial statements with the exception of the statement of cash flows.Presented below is condensed financial information for the years ended May 31, Year 3 and Year 4, as well as supplemental data on certain transactions that occurred during the year ended May 31, Year 4.
  
  Required:
Using the indirect method, prepare the Statement of Cash Flows for Spring Corporation for the year ended May 31, Year 4.The statement should comply with the requirements of Statements of Financial Accounting Standards No.95, 'Statement of Cash Flows,' and be supported by appropriate calculations.

Accepted Answer

The answer of (CMA adapted, Jun 94 #4) Spring Corporation,...

Question 13

The product life-cycle concept from microeconomics and marketing provides useful insights into the relations between cash flows from operating, investing, and financing activities.During the introduction phase
A)cash inflow exceeds cash outflow for operations.
B)cash inflow exceeds cash outflow for investing activities.
C)cash outflow exceeds cash inflow for financing activities.
D)cash inflow exceeds cash outflow for financing activities.
E)cash outflow exceeds cash inflow for investing activities.

Accepted Answer

The answer of The product life-cycle concept from microeconomics and...

Question 14

Dmitri Company reported the following changes in the balance sheet accounts between Year 1 and Year 2.
  Assume that there were no sales of equipment and that no dividends were declared or paid.

Required:

Given the changes in the balance sheet for Year 2, state:
a.	whether the change in each account indicates that an addition or subtraction needs to be made to determine cash flow, and
b.	in what section of the statement of cash flows the adjustment would appear. Indicate if no adjustment is necessary.

Accepted Answer

The answer of Dmitri Company reported the following changes in...

Question 15

Clayborne Company reported the following changes in the balance sheet accounts between Year 1 and Year 2.No dividends are paid during the year, land was sold at its book value of $30,000 and any change in the patent account is due to amortization.
 Required:

Given the changes in the balance sheet for Year 2, state:
a.	whether the change in each account indicates that an addition or subtraction needs to be made to determine cash flow, and
b.	in what section of the statement of cash flows the adjustment would appear. Indicate if no adjustment is necessary.

Accepted Answer

The answer of Clayborne Company reported the following changes in...

Question 16

The product life-cycle concept from microeconomics and marketing provides useful insights into the relations between cash flows from operating, investing, and financing activities.During the maturity phase
A)cash inflow exceeds cash outflow for operations.
B)cash outflow exceeds cash inflow for operations.
C)cash outflow exceeds cash inflow for investing activities
D)cash inflow exceeds cash outflow for financing activities
E)cash inflow exceeds cash outflow for investing activities.

Accepted Answer

During the maturity phase, a product's cash inflow from operations usually exceeds its cash outflow as it has an established customer base and a stable market. This phase is characterized by a steady and predictable demand, which allows the product to generate cash inflow that is used for investing and financing activities. Therefore, choice A is the best answer.

Question 17

For each of the following transactions, determine what adjustment is necessary to prepare the statement of cash flows using the indirect method.

a.	Firm A sells equipment with a cost of $1,000 and accumulated depreciation of $800 for $400 cash.
b.	Firm A uses the equity method to record its investment in Firm B. In the current year, A records $1,000 as equity in earnings of affiliate. No dividends are paid by B.
c.	Firm A acquires a building through a capital lease transaction. The building and lease were recorded at $100,000. Firm A chooses to report this transaction in the statement of cash flows.

Accepted Answer

The answer of For each of the following transactions, determine...

Question 18

For each of the following items:

1.	identify whether the adjustment is an addition or a subtraction in preparing the statement of cash flows using the indirect method, and
2.	state which section of the statement of cash flows the addition or subtraction should be reported.
 	a. amortization of patent
 	b. bond premium amortization
 	c. increase in deferred taxes (hint: a liability)
 	d. sale of equipment

Accepted Answer

The answer of For each of the following items:

1.	identify whether...

Question 19

The product life-cycle concept from microeconomics and marketing provides useful insights into the relations between cash flows from operating, investing, and financing activities.During the introduction phase
A)cash inflow exceeds cash outflow for operating activities.
B)cash inflow exceeds cash outflow for investing activities.
C)cash outflow exceeds cash inflow for financing activities
D)cash outflow exceeds cash inflow for investing activities.
E)cash inflow exceeds cash outflow for financing activities

Accepted Answer

During the introduction phase of a product's life cycle, companies often invest heavily in research and development, production facilities, and market entry strategies, leading to a situation where cash outflow exceeds cash inflow for investing activities.

Question 20

For each of the following transactions, determine what adjustments are necessary to prepare the statement of cash flows using the indirect method.
a.	Firm A sells equipment with a cost of $2,000 and accumulated depreciation of $1,000 for $600 cash.
b.	Firm A uses the equity method to record its investment in Firm B. In the current year, A records $1,500 as equity in earnings of affiliate. A also received $1,600 in dividends from B in the current year.
c.	Firm A converts $50,000 of debt to common stock. Firm A chooses to report this transaction in the statement of cash flows.

Accepted Answer

The answer of For each of the following transactions, determine...

Quiz 16: Statement of Cash Flows: Another Look

The product life-cycle concept from microeconomics and marketing provides useful insights into the relations between cash flows from operating, investing, and financing activities.During the introduction phase

The product life-cycle concept from microeconomics and marketing provides useful insights into the relations between cash flows from operating, investing, and financing activities.In the United States, which phase best describes: Biotechnology firms Consumer foods companies Steel manufacturers

The product life-cycle concept from microeconomics and marketing provides useful insights into the relations between cash flows from operating, investing, and financing activities.When a product matures,

The product life-cycle concept from microeconomics and marketing provides useful insights into the relations between cash flows from operating, investing, and financing activities.When a product matures

The extent to which a firm adjusts net income for changes in noncurrent assets and noncurrent liabilities in deriving cash flow from operations depends on the nature of its operations. _ usually show an addback for deferred tax expense, whereas firms that _ show a subtraction.

The product life-cycle concept from microeconomics and marketing provides useful insights into the relations between cash flows from operating, investing, and financing activities.At the beginning of the decline phase,

The product life-cycle concept from microeconomics and marketing provides useful insights into the relations between cash flows from operating, investing, and financing activities.During the growth phase

The adjustment for changes in operating working capital accounts depends in part on a firm's rate of growth.Some firms use short- or long-term borrowing or equity financing, which is

The product life-cycle concept from microeconomics and marketing provides useful insights into the relations between cash flows from operating, investing, and financing activities.The beginning of the decline phase can produce

The product life-cycle concept from microeconomics and marketing provides useful insights into the relations between cash flows from operating, investing, and financing activities.During the introduction phase

The product life-cycle concept from microeconomics and marketing provides useful insights into the relations between cash flows from operating, investing, and financing activities.During the maturity phase

The product life-cycle concept from microeconomics and marketing provides useful insights into the relations between cash flows from operating, investing, and financing activities.During the introduction phase