Ch. 27 Cash Flow - Concept Checkers

Which of the following is least likely a change in cash flow from operations under US GAAP? A. A decrease in notes payable. B. An increase in interest expense. C. An increase in accounts payable.

A. A change in notes payable is a financing cash flow.

Under US GAAP, interest paid would be classified as

A. operating cash flow.

Under US GAAP, taxes paid would be classified as

A. operating cash flow.

Torval, Inc. retires debt securities by issuing equity securities. This is considered a:

non-cash transaction

Monique's cash flow from operations Net income $78,000 Depreciation 12,000 Unrealized gain (15,000) Increase in accounts receivable (52,000) Increase in accounts payable 29,000 CF from operations = 52,000

$52,000

Sale of inventory would be classified as

A. Operating cash flow.

Under IFRS, interest expense would be classified as

A. Under IFRS, interest expense can be classified as either an operating cash flow or financing cash flow.

Continental Corporation reported sales revenue of $150,000 for the current year. If accounts receivable decreased $10,000 during the year and accounts payable increased $4,000 during the year, cash collections were: A. $154,000. B. $160,000. C. $164,000.

B. $150 sales + $10,000 decrease in accounts receivable = $160,000 cash collections. The change in accounts payable does not affect cash collections. Accounts payable results from a firm's purchase from its suppliers.

An increase in notes payable would be classified as

B. financing cash flow.

Issuing bonds would be classified as

B. financing cash flow.

Sale of land would be classified as

B. investing cash flow.

Sale of obsolete equipment would be classified as

B. investing cash flow.

Which of the following would be least likely to cause a change in investing cash flow? A. The sale of a division of the company. B. The purchase of new machinery. C. An increase in the depreciation expense.

C. Depreciation does not represent a cash flow. To the extent that it affects the firm's taxes, an increase in deprecation changes operating cash flows, but not investing cash flows.

The write-off of obsolete equipment would be classified as

C. no cash flow impact.

Assuming US GAAP, cash flow from investing actives is Net income $45 Depreciation 75 Taxes paid 25 Interest paid 5 Dividends paid 10 Cash Received from sale of Co. building 40 Issuance of preferred stock 35 Repurchase of common stock 30 Purchase of machinery 20 Issuance of bonds 50 Debt retired through issuance of common stock 45 Paid off long-term bank borrowings 15 Profit on sale of building 20

Cash from sale of building - purchase of machinery = 40 - 20 = $20

Depreciation expense would be classified as

Depreciation expense would be classified as no cash flow impact

Assuming US GAAP, cash flow from operations is Net income $45 Depreciation 75 Taxes paid 25 Interest paid 5 Dividends paid 10 Cash Received from sale of Co. building 40 Issuance of preferred stock 35 Repurchase of common stock 30 Purchase of machinery 20 Issuance of bonds 50 Debt retired through issuance of common stock 45 Paid off long-term bank borrowings 15 Profit on sale of building 20

Net income - profit on sale of building + depreciation = 45 - 20 + 75 = $100. Note that taxes and interest are already deducted in calculating net income, and that the profit on the sale of the building should be subtracted from net income.

What is the firm's cash flow from operations? Net income $120 Decrease in accounts receivable 20 Depreciation 25 Increase in inventory 10 Increase in accounts payable 7 Decrease in wages payable 5 Increase in deferred tax liabilities 15 Profits from the sale of land 2

Net income - profits from sale of land + depreciation + decrease in receivables - increase in inventories + increase in accounts payable - decrease in wages payable + increase in deferred tax liabilities = 120 - 2 + 25 +20 - 10 + 7 - 5 + 15 = $170. Notes that the profit on the sale of land should be subtracted from net income because this transaction is classified as investing, not operating.

Given the following: Sales $1,500 Increase in inventory 100 Deprecation 150 Increase in accounts receivable 50 Decrease in accounts payable 70 After-tax profit margin 25% Gain on sale of machinery $30

Net income = $1,500 x 0.25 = $375, and cash flow from operations = net income - gain on sale of machinery + depreciation - increase in accounts receivable - increase in inventory - decrease in accounts payable = 375 - 30 + 150 - 50 - 100 - 70 + $275

Under US GAAP, dividends received from investments would be classified as

Operating cash flow

Martin, Inc. had the following transactions during 20X7: * Purchased new fixed assets for $75,000. * Converted $70,000 worth of preferred shared to common shares. * Received cash dividends of $12,000. Paid cash dividends of $21,000. * Repaid mortgage principle of $17,000. Assuming Martin follows US GAAP, which of the following amounts represents Martin's cash flows from investing and cash flows from financing in 20X7, respectively?

Purchased new fixed assets for $75,000 -- cash outflow from investing Converted $70,000 of preferred shares to common shares -- noncash transaction Received dividends of $12,000 -- cash inflow from operations Paid dividends of $21,000 -- cash outflow from financing Mortgage repayment of $17,000 -- cash outflow from financing CFI = (75,000) CFF = (21,000) + (17,000) = (38,000)

Assuming US GAAP, cash flow from financing actives is Net income $45 Depreciation 75 Taxes paid 25 Interest paid 5 Dividends paid 10 Cash Received from sale of Co. building 40 Issuance of preferred stock 35 Repurchase of common stock 30 Purchase of machinery 20 Issuance of bonds 50 Debt retired through issuance of common stock 45 Paid off long-term bank borrowings 15 Profit on sale of building 20

Sale of preferred stock + issuance of bonds - principle payments on bank borrowings - repurchase of common stock - dividends paid = 35 + 50 - 15 - 30 - 10 = $30. Note that we did not include $45 of debt retired through issuance of common stock since this as a non-cash transaction. Knowing how to handle non-cash transactions is important.

Which of the follow items is least likely considered a cash flow from financing activity under US GAAP C. The payment of interest on debt

The payment of interest on debt is an OPERATING cash flow under US GAAP

In preparing a common-size cash flow statement, each cash flow is expressed as a percentage of:

Total revenues

Where are dividends paid to shareholders reported in the cash flow statement under US GAAP and IFRS?

Under US GAAP, dividends paid are reported as financing activities. Under IFRS, dividends paid can be reported as either operating or financing activities.