Lesson 2: The Cash Flow Statement: Linkages and Preparation Results

Given the following information for a company, its CFO is closest to: Net income $1,000 Decrease in interest payable $85 Gain on sale of equipment$ 45 Increase in accounts payable $90 Decrease in inventory $35 Increase in prepaid assets $105 Depreciation $85 Increase in taxes payable $125

$1,100 CFO = 1,000 - 85 - 45 + 90 + 35 - 105 + 85 +125 = $1,100

Solitaire Inc. prepares its financial statements according to U.S. GAAP. During 2009, the company earned net income amounting to $102 million. During the year, it purchased machinery worth $22 million and recognized a total depreciation expense of $2.4 million. The company also paid an annual dividend amounting to $1.5 million. Based on this information, the company's cash flow from operations is closest to:

$104.4 million. CFO = Net income + Depreciation expense CFO = 102 + 2.4 = $104.4 million

A company has a net income of $150, an increase in accounts receivable of $30, depreciation of $55, and a decrease in accounts payable of $25. Its operating cash flow is closest to:

$150 Operating cash flow = 150 - 30 + 55 - 25 = $150

Net income = $1,120,000 Depreciation expense for the year = $27,000 Decrease in inventory = $13,800 Increase in taxes payable = $1,500 Issuance of common stock = $60,000 Dividends paid = $32,300 Purchase of land = $28,300 Investment in associate = $58,000 Purchase of held-for-trading securities = $7,200 Sale of available-for-sale securities = $84,700 Assume the company uses U.S. GAAP to prepare its financial statements. The company's cash flow from financing activities is closest to:

$27,700

Tiara Corporation reported net income of $8 million for the year 2009. Total revenue and cost of goods sold for the period amounted to $35 million and $20 million respectively. If accounts receivable is increased by $5 million during the period, cash received from customers during the period was closest to:

$30 million. Cash received from customers = Revenue - Increase in accounts receivable Cash received from customers = 35 - 5 = $30 million

Revenue = $85 million Cost of goods sold = $44 million Decrease in inventory = $7 million Increase in accounts payable = $4 million Decrease in accounts receivable = $5 millions Cash paid to suppliers is closest to:

$33 million. Cash paid to suppliers = Purchases - Increase in accounts payable Purchases = Cost of goods sold - Decrease in inventory Purchases = 44 - 7 = $37 million Therefore, cash paid to suppliers = 37 - 4 = $33 million

Magma Industries Ltd. reported a net profit of $104 million for 2009, with revenues of $500 million and COGS of $270 million. During the period, Magma made purchases worth $40 million. If the company's accounts payable increased by $4 million, cash paid to the company's suppliers was closest to:

$36 million Cash paid to suppliers = Purchases - Increase in accounts payable Cash paid to suppliers = 40 - 4 = $36 million

A company reported the following information: Cash received from customers = $27,300 Cash paid to suppliers = $11,400 Cash paid for other operating expenses = $7,400 Cash paid for income taxes = $3,250 The company's cash flow from operating activities is closest to?

$5,250 Cash flow from operating activities = Cash received from customers - Cash paid to suppliers - Cash paid for other operating expenses - Cash paid for taxes Therefore, CFO = 27,300 - 11,400 - 7,400 - 3,250 = $5,250

Revenue = $85 million Cost of goods sold = $44 million Decrease in inventory = $7 million Increase in accounts payable = $4 million Decrease in accounts receivable = $5 millions Cash received from customers is closest to:

$90 million. Cash received from customers = Revenue + Decrease in accounts receivable Cash received by the company = 85 + 5 = $90 million

Which of the following is most likely a use of cash for a company?

An increase in inventory

During 2009, Royal Superstores saw its accounts receivable and inventory increase by $5,600 and $3,700 respectively. At the same time, its accounts payable increased by $2,500. Based only on this information, the company's cash flow from operations will most likely:

Decrease by $6,800 Increases in accounts receivable and inventory are uses of cash while the increase in accounts payable is a source of cash. Therefore, CFO will decrease by $6,800 (-5,600 - 3,700 + 2,500).

Beta Inc. is an exporter of refined sugar. During 2009, it earned net income of $104,000, purchased inventory worth $13,000, and invested in new machinery worth $28,000. The company had previously invested in available-for-sale securities which were sold during the year for $8,000. The company's cash flow from investing activities is closest to:

−$20,000 CFI = Sale of available-for-sale securities - Investment in new machinery CFI = 8,000 - 28,000 = −$20,000

Using the following information and assuming that U.S. GAAP applies, the company's CFI is closest to: Proceeds from sale of equipment$32,000Loss on equipment sale$9,000Dividends paid$12,500Purchase of office premises$100,000Common stock repurchases$45,000Dividends received$8,500Interest received$1,200Supplier accounts paid$3,700Cash collections from customers$14,200Ending cash balance$98,000

−$68,000 CFI = 32,000 - 100,000 = −$68,000