Intermediate ACCT - Cash flow

What is a pro forma Cash Flow Statement?

A forecast or projection of the amounts that will be in the cash flow statement in a future period.

How does FASB classify cash inflows from interest or dividends?

Although cash inflows from interest or dividends logically might be classified as investing or financing activities, the FASB decided to classify them as operating activities

Investments in equity securities are disclosed as current assets on a company's balance sheet if a. Management intends to sell them within a year and they have a ready market exists. b. The fair market value cannot be determined. c. Management intends to convert them into common stock within one year. d.Management owns less than 50% of the outstanding stock.

Answer a

Net cash provided (used) by operating activities − net cash used in acquiring property, plant,and equipment − cash dividends paid is the calculation for a. Free cash flow b.Cash flow f rom investing activities c.Working capital d.Current ratio

Answer a

A firm's ability to obtain cash for business operations change is the definition of a. Liquidity b. Solvency c. Financial flexibility d. Working capital

Answer b

Income and cash flows from operations are seldom the same number True False

False Income and cash flows from operations are seldom the same number

What is a non-cash investing or financing activity?

Noncash investing and financing activities Investing and financing transactions that affect a company's financial position but not the cash flows during the period; an example is the purchase of land by issuing stock.

What has FASB chosen to use to measure income?

The FASB has chosen to measure income using the financial capital maintenance concept.

Where are the changes in long-term debt and paid-in capital typically shown in the statement of cash flows? a. In the financing activities section b. In the operating activities section c. In the noncash transactions schedule d. In the investing activities section

a. In the financing activities section

In accounting, what does articulation mean? a. It means that the three primary financial statements are not isolated lists of numbers but are an integrated set of reports on a company's financial health. b. It means never having to correct journal entries. c. It means that revenues are matched with the expenses for the same period. d. It means adding a reconciliation of all calculations to the financial statements

a. It means that the three primary financial statements are not isolated lists of numbers but are an integrated set of reports on a company's financial health.

According to the text, which financial statement can be viewed as the mother of all financial statements? a. The Balance Sheet b. The Statement of Cash Flows c. The Income Statement d. The Pro Forma Cash Flow Statement

a. The Balance Sheet

Noncash investing and financing activities, if material, are a. disclosed in a note or separate schedule accompanying the statement of cash flows. b. reported in the statement of cash flows under the "all-financial-resources concept." c. not reported or disclosed because they have no impact on cash. d. reported in the statement of cash flows only if the indirect method is used.

a. disclosed in a note or separate schedule accompanying the statement of cash flows.

When preparing a statement of cash flows using the indirect method, the amortization of trademarks should be reported as a(n) a. increase in cash flows from operating activities. b. increase in cash flows from investing activities. c. reduction in cash flows from operating activities. d. reduction in cash flows from investing activities.

a. increase in cash flows from operating activities.

In a statement of cash flows, receipts from sales of property, plant, and equipment would be classified as cash inflows from a. investing activities. b. liquidating activities. c. financing activities. d. operating activities.

a. investing activities.

In general, the cash-flow-to-net-income ratio has a value that is a. more than 1.0. b. equal to 1.0. c. None of these are correct. d. less than 1.0.

a. more than 1.0.

In rapidly growing firms, all of the following are typical except: a. operations generate more cash than they are consuming. b. it may be difficult to service debt and satisfy inventory demands for cash dividends. c. the firm experiences growing accounts receivable. d. large amounts of cash is used to expand inventory.

a. operations generate more cash than they are consuming.

If bank loans are projected to increase from $300 to $500, the difference will represent what in the forecasted statement of cash flows? a. An inflow from operating activities b. An inflow from financing activities c. A deduction from net income in the operating activities section, if the indirect method is used. d. An inflow from investing activities

b. An inflow from financing activities

In a statement of cash flows using the direct method, which of the following would increase reported cash flows from operating activities? a. Gain on sale of a business segment b. Dividends received from investments c. Sale of treasury stock d. Gain on sale of equipment

b. Dividends received from investments

Which of the following effectively indicates the amount of cash flow from investing activities? a. The exchange of common stock for attorney legal services. b. The beginning and ending balances in the buildings and accumulated depreciation accounts combined with information about depreciation expense from the income statement c. The net increase in cash over the period. d. The amount of cash received from accounts receivable.

b. The beginning and ending balances in the buildings and accumulated depreciation accounts combined with information about depreciation expense from the income statement

Jurgens Corporation purchased a 3-month U.S. Treasury bill. In preparing Jurgens' statement of cash flows, this purchase would a. be treated as an outflow from investing activities. b. have no effect. c. be treated as an outflow from financing activities. d. be treated as an outflow from operating activities.

b. have no effect.

The most likely situation in which reported earnings are positive but operations are consuming rather than generating cash would be a a. company using very conservative accounting standards that lower earnings. b. rapidly growing company. c. company paying large cash dividends to its shareholders. d. company reporting large noncash expenses.

b. rapidly growing company.

The firm's ability to use its financial resources to adapt to change is the definition of a. Liquidity b. Solvency c. Financial flexibility d. Working capital

c. Financial flexibility

Why is cash paid for dividends sometimes added to the denominator of the cash flow adequacy ratio? a. This will allow the ratio to indicate whether operating cash flow is sufficient to pay only capital additions. b. This will assist the board of directors in determining future stock dividends. c. This will allow the ratio to indicate whether operating cash flow is sufficient to pay both capital additions and regular dividends to stockholders. d. This will allow the ratio to indicate whether operating cash flow is sufficient to pay only regular dividends to stockholders.

c. This will allow the ratio to indicate whether operating cash flow is sufficient to pay both capital additions and regular dividends to stockholders.

A gain on the sale of a plant asset in the ordinary course of business should be presented in a statement of cash flows prepared using the indirect method as a. an addition to net income. b. a cash inflow from investing activities. c. a deduction from net income. d. a cash inflow from financing activities.

c. a deduction from net income.

Forecasted dividend payments paid to shareholders are reported as: a. cash outflows from investing activities. b. cash inflows from investing activities. c. cash outflows from financing activities. d. cash outflows from operating activities.

c. cash outflows from financing activities.

In preparing a statement of cash flows, sale of treasury stock at an amount greater than cost would be classified as a(n) a. investing activity. b. transfer activity. c. financing activity. d. operating activity

c. financing activity.

All of the following may distort the current operations picture of a company's earnings except: a. impairment writeoffs. b. large one-time noncash expenses. c. operating cash flows. d. provisions for future obligations.

c. operating cash flows.

The cash flow projection allows a company to plan ahead as far as timing of all the following except: a. long-term asset acquisitions. b. new loans. c. vendor strikes. d. stock issuances

c. vendor strikes.

Because Wendell Company is expected to have net income of $46 in 2013 and expects to pay $6 forecasted cash dividends, what is the change in Retained Earnings? a. A net decrease of $6. b. A net increase of $52. c. A net decrease of $52. d. A net increase of $40.

d. A net increase of $40.

According to the text, which ratio do you want to look at to determine if a business is a "cash cow?" a. Cash time interest earned ratio b. Current ratio c. Cash flow-to-net-income ratio d. Cash flow adequacy ratio

d. Cash flow adequacy ratio

How is the cash flow adequacy ratio calculated? a. Cash from operations divided by net sales b. Cash from operations divided by net income c. Cash from operations divided by cash paid for interest d. Cash from operations divided by expenditures for fixed asset additions and acquisitions of new businesses

d. Cash from operations divided by expenditures for fixed asset additions and acquisitions of new businesses

What type of statement provides a prediction of what the actual cash flow statement will look like in future years if the operating, investing, and financing plans are implemented? a. The Sectional Cash Flow Statement b. The Statement of Stockholders' Equity c. The Retained Earnings Statement d. The Pro Forma Cash Flow Statement

d. The Pro Forma Cash Flow Statement

Supplemental disclosures required only when the statement of cash flows is prepared using the indirect method include a. amounts deducted for depreciation and amortization. b. a schedule reconciling net income with net cash provided by (used in) operating activities. c. significant noncash investing and financing activities. d. amounts paid for interest and taxes.

d. amounts paid for interest and taxes.

A loss on the sale of machinery in the ordinary course of business should be presented in a statement of cash flows (indirect method) as a. an inflow and outflow of cash. b. a deduction from net income. c. an outflow of cash. d. an addition to net income.

d. an addition to net income.

Cash equivalents would not include short-term investments in a. commercial paper. b. money market funds. c. certificates of deposit. d. available-for-sale securities.

d. available-for-sale securities.

In a statement of cash flows, proceeds from issuing equity instruments should be classified as cash inflows from a. investing activities. b. brokerage activities. c. operating activities. d. financing activities.

d. financing activities.

In a statement of cash flows, payments to acquire debt instruments of other entities would typically be classified as cash outflows for a. operating activities. b. financing activities. c. equity activities. d. investing activities.

d. investing activities.