FIN - 6465 EXAM 5 - USF

Silverago Incorporated, an international metals company, reported a loss on the sale of equipment of $2 million in 2010. In addition, the company's income statement shows depreciation expense of $8 million and the cash flow statement shows capital expenditure of $10 million, all of which was for the purchase of new equipment. Using the following information from the comparative balance sheets, how much cash did the company receive from the equipment sale?

$1 million.

Golden Cumulus Corp., a commodities trading company, reported interest expense of $19 million and taxes of $6 million. Interest payable increased by $3 million, and taxes payable decreased by $4 million over the period. How much cash did the company pay for interest and taxes?

$16 million for interest and $10 million for taxes Interest expense of $19 million less the increase in interest payable of $3 million equals interest paid of $16 million. Tax expense of $6 million plus the decrease in taxes payable of $4 million equals taxes paid of $10 million

White Flag, a women's clothing manufacturer, reported salaries expense of $20 million. The beginning balance of salaries payable was $3 million, and the ending balance of salaries payable was $1 million. How much cash did the company pay in salaries?

$22 million. Beginning salaries payable of $3 million plus salaries expense of $20 million minus ending salaries payable of $1 million equals $22 million. Alternatively, the expense of $20 million plus the $2 million decrease in salaries payable equals $22 million.

The following information is extracted from Sweetfall Incorporated's financial statements. The amount of cash Sweetfall Inc. paid to suppliers is:

$25,700. The amount of cash paid to suppliers is calculated as follows: = Cost of goods sold - Decrease in inventory - Increase in accounts payable = $27,264 - $501 - $1,063 = $25,700.

In 2014, a company using US GAAP made cash payments of $6 million for salaries, $2 million for interest expense, and $4 million for income taxes. Additional information for the company is provided in the table: Based only on the information given, the company's operating cash flow for 2014 is closest to:

$6 million. Operating cash flows = Cash received from customers - (Cash paid to suppliers + Cash paid to employees + Cash paid for other operating expenses + Cash paid for interest + Cash paid for income taxes) Cash received from customers = Revenue - Decrease in accounts receivable = $37 - ($19 - $22) = $40 million Cash paid to suppliers = Cost of goods sold + Decrease in inventory - Increase in accounts payable = $16 + ($40 - $36) - ($12 - $14) = $22 million Therefore, the company's operating cash flow = $40 - $22 - Cash paid for salaries - Cash paid for interest - Cash paid for taxes = $40 - $22 - $6 - $2 - $4 = $6 million.

Purple Fleur S.A., a retailer of floral products, reported cost of goods sold for the year of $75 million. Total assets increased by $55 million, but inventory declined by $6 million. Total liabilities increased by $45 million, and accounts payable increased by $2 million. The cash paid by the company to its suppliers is most likely closest to:

$67 million Cost of goods sold of $75 million less the decrease in inventory of $6 million equals purchases from suppliers of $69 million. The increase in accounts payable of $2 million means that the company paid $67 million in cash ($69 million minus $2 million).

Green Glory Corp., a garden supply wholesaler, reported cost of goods sold for the year of $80 million. Total assets increased by $55 million, including an increase of $5 million in inventory. Total liabilities increased by $45 million, including an increase of $2 million in accounts payable. The cash paid by the company to its suppliers is most likely closest to:

$83 million. Cost of goods sold of $80 million plus the increase in inventory of $5 million equals purchases from suppliers of $85 million. The increase in accounts payable of $2 million means that the company paid $83 million in cash ($85 million minus $2 million) to its suppliers.

Mabel Corporation (MC) reported accounts receivable of $66 million at the end of its second fiscal quarter. MC had revenues of $72 million for its third fiscal quarter and reported accounts receivable of $55 million at the end of its third fiscal quarter. Based on this information, the amount of cash MC collected from customers during the third fiscal quarter is:

$83 million. The amount of cash collected from customers during the quarter is equal to beginning accounts receivable plus revenues minus ending accounts receivable: $66 million + $72 million - $55 million = $83 million. A reduction in accounts receivable indicates that cash collected during the quarter was greater than revenue on an accrual basis.

Red Road Company, a consulting company, reported total revenues of $100 million, total expenses of $80 million, and net income of $20 million in the most recent year. If accounts receivable increased by $10 million, how much cash did the company receive from customers?

$90 million. Revenues of $100 million minus the increase in accounts receivable of $10 million equal $90 million cash received from customers. The increase in accounts receivable means that the company received less in cash than it reported as revenue.

An analyst gathered the following information from a company's 2010 financial statements (in $ millions): Based only on the information above, the company's 2010 statement of cash flows in the direct format would include amounts (in $ millions) for cash received from customers and cash paid to suppliers, respectively, that are closest to:

259.5 182.1

An analyst gathered the following information from a company's 2010 financial statements (in $ millions In 2010, the company declared and paid cash dividends of $10 million and recorded depreciation expense in the amount of $25 million. The company considers dividends paid a financing activity. The company's 2010 cash flow from operations (in $ millions) was closest to

45. All dollar amounts are in millions. Net income (NI) for 2010 is $35. This amount is the increase in retained earnings, $25, plus the dividends paid, $10. Depreciation of $25 is added back to net income, and the increases in accounts receivable, $5, and in inventory, $3, are subtracted from net income because they are uses of cash. The decrease in accounts payable is also a use of cash and, therefore, a subtraction from net income. Thus, cash flow from operations is $25 + $10 + $25 - $5 - $3 - $7 = $45.

Based on the following information for Star Inc., what are the total net adjustments that the company would make to net income in order to derive operating cash flow?

Add $6 million To derive operating cash flow, the company would make the following adjustments to net income: Add depreciation (a non-cash expense) of $2 million; add the decrease in accounts receivable of $3 million; add the increase in accounts payable of $5 million; and subtract the increase in inventory of $4 million. Total additions would be $10 million, and total subtractions would be $4 million, which gives net additions of $6 million

Which of the following is an appropriate method of computing free cash flow to the firm?

Add operating cash flows to after-tax interest payments and deduct capital expenditures Free cash flow to the firm can be computed as operating cash flows plus after-tax interest expense less capital expenditures.

Under which section of a manufacturing company's cash flow statement are the following activities reported? o Item 1: Purchases of securities held for trading o Item 2: Sales of securities considered cash equivalents

Both items are operating activities. The purchase and sale of securities considered cash equivalents and securities held for trading are considered operating activities even for companies in which this activity is not a primary business activity

The sale of a building for cash would be classified as what type of activity on the cash flow statement?

Investing. Purchases and sales of long-term assets are considered investing activities. Note that if the transaction had involved the exchange of a building for other than cash (for example, for another building, common stock of another company, or a long-term note receivable), it would have been considered a significant non-cash activity.

Jaderong Plinkett Stores reported net income of $25 million. The company has no outstanding debt. Using the following information from the comparative balance sheets (in millions), what should the company report in the financing section of the statement of cash flows in 2010?

Issuance of common stock of $42 million; dividends paid of $10 million. The increase of $42 million in common stock and additional paid-in capital indicates that the company issued stock during the year. The increase in retained earnings of $15 million indicates that the company paid $10 million in cash dividends during the year, determined as beginning retained earnings of $100 million plus net income of $25 million minus ending retained earnings of $115 million, which equals $10 million in cash dividends.

Which of the following is most likely to appear in the operating section of a cash flow statement under the indirect method?

Net income. Under the indirect method, the operating section would begin with net income and adjust it to arrive at operating cash flow. The other two items would appear in the operating section under the direct method.

Which of the following components of the cash flow statement may be prepared under the indirect method under both IFRS and US GAAP?

Operating. The operating section may be prepared under the indirect method. The other sections are always prepared under the direct method.

Which of the following is an example of a financing activity on the cash flow statement under US GAAP?

Payment of dividends. Payment of dividends is a financing activity under US GAAP. Payment of interest and receipt of dividends are included in operating cash flows under US GAAP. Note that IFRS allow companies to include receipt of interest and dividends as either operating or investing cash flows and to include payment of interest and dividends as either operating or financing cash flows

Which is an appropriate method of preparing a common-size cash flow statement?

Show each line item on the cash flow statement as a percentage of net revenue An appropriate method to prepare a common-size cash flow statement is to show each line item on the cash flow statement as a percentage of net revenue. An alternative way to prepare a statement of cash flows is to show each item of cash inflow as a percentage of total inflows and each item of cash outflows as a percentage of total outflows.

Which of the following would be valid conclusions from an analysis of the cash flow statement for Telefónica Group presented in Exhibit 3?

The primary source of cash is operating activities. The primary source of cash is operating activities. The primary use of cash is investing activities. Interest received for Telefónica is classified as an investing activity.

An analyst has calculated a ratio using as the numerator the sum of operating cash flow, interest, and taxes and as the denominator the amount of interest. What is this ratio, what does it measure, and what does it indicate?

This ratio is an interest coverage ratio, measuring a company's ability to meet its interest obligations and indicating a company's solvency. This ratio is an interest coverage ratio, measuring a company's ability to meet its interest obligations and indicating a company's solvency. This coverage ratio is based on cash flow information; another common coverage ratio uses a measure based on the income statement (earnings before interest, taxes, depreciation, and amortisation).

Interest paid is classified as an operating cash flow under:

US GAAP but may be classified as either operating or financing cash flows under IFRS. Interest expense is always classified as an operating cash flow under US GAAP but may be classified as either an operating or financing cash flow under IFRS.

Cash flows from taxes on income must be separately disclosed under:

both IFRS and US GAAP. Taxes on income are required to be separately disclosed under IFRS and US GAAP. The disclosure may be in the cash flow statement or elsewhere.

A company recently engaged in a non-cash transaction that significantly affected its property, plant, and equipment. The transaction is:

disclosed as a separate note or in a supplementary schedule to the cash flow statement Because no cash is involved in non-cash transactions, these transactions are not incorporated in the cash flow statement. However, non-cash transactions that significantly affect capital or asset structures are required to be disclosed either in a separate note or a supplementary schedule to the cash flow statement.

The first step in cash flow statement analysis should be to:

identify the major sources and uses of cash An overall assessment of the major sources and uses of cash should be the first step in evaluating a cash flow statement.

When computing net cash flow from operating activities using the indirect method, an addition to net income is most likely to occur when there is a:

loss on the retirement of debt. An addition to net income is made when there is a loss on the retirement of debt, which is a non-operating loss. A gain on the sale of an asset and a decrease in deferred tax liability are both subtracted from net-income.

The three major classifications of activities in a cash flow statement are:

operating, investing, and financing. Operating, investing, and financing are the three major classifications of activities in a cash flow statement. Revenues, expenses, and net income are elements of the income statement. Inflows, outflows, and net flows are items of information in the statement of cash flows.

A benefit of using the direct method rather than the indirect method when reporting operating cash flows is that the direct method:

provides specific information on the sources of operating cash flows. The primary argument in favor of the direct method is that it provides information on the specific sources of operating cash receipts and payments. Arguments for the indirect method include that it mirrors a forecasting approach and it is easier and less costly

A conversion of a face value $1 million convertible bond for $1 million of common stock would most likely be:

reported as supplementary information to the cash flow statement Non-cash transactions, if significant, are reported as supplementary information, not in the investing or financing sections of the cash flow statement.