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Exam 3: Income Flows Versus Cash Flows: Understanding the Statement of Cash Flows

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Question 41

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Free cash flows to all debt and common equity shareholders represents the excess of cash flows from

A) operating activities over cash flows for financing activities
B) investing over cash flows for operating activities
C) investing over cash flows for financing activities
D) operating activities over cash flows for investing activities

E) None of the above
F) All of the above

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Question 42

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When preparing the statement of cash flows using the indirect method, an increase in inventories would appear as

A) a decrease in the operating activities section
B) an increase in the operating activities section
C) a use of cash in the investing activities section
D) a source of cash in the investing activities section

E) A) and B)
F) All of the above

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Question 43

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Normally, cash flows from investing activities will start providing cash during which phase of the product life cycle?

An example of an item that is deducted from net income when preparing the operating activities section of the statement of cash using the indirect method is

One factor that may cause cash flow from operations to differ from net income is the length of the ______________________________.

Fizzzle Inc. sold a piece of equipment during the period for $230,000 and recorded a gain of $45,000 on the sale. How should this gain be treated when preparing the operating activities section of the statement of cash flows using the indirect method?

What is working capital from operations? Discuss what types of firms will have similar net income and working capital from operations? For which types of firms will net income and working capital from operations be significantly different?

Norton Company reported total sales revenue of $55,000, total expenses of $45,000, and net income of $10,000 on its income statement for the year ended December 31, 2010. During 2010, accounts receivable decreased by $4,000, merchandise inventory decreased by $6,000, accounts payable increased by $2,000, and depreciation of $8,000 was recorded. Therefore, based only on this information, the net cash flow from operating activities using the indirect method for 2010 was:

As products move through the maturity phase, companies invest to ___________ productive capacity.

An increase in accounts receivable during a period indicates that a firm did not collect as much ____________________ as the amount of revenues included in net income.

When preparing the statement of cash flows using the indirect method, the purchase of equipment would appear as

When net income is low relative to operating cash flows, we describe the firm as having recorded

Lui Company's 2010 income statement reported total sales revenue of $250,000. The 2009-2010 comparative balance sheets showed that accounts receivable decreased by $20,000. The 2010 "cash receipts from customers" would be

In 2010, Lamar Industries reported the following: proceeds from short-term borrowings of $419 million; proceeds from long-term borrowings of $147 million; long-term debt repayments of $45 million; interest paid, $128 million; treasury shares repurchased, $632 million; and exercise of stock options by employees, $2 million. How much is net cash flow from financing activities in 2010?

Bankers Company reported net income of $40,000, which included depreciation expense and depletion expense of $21,000 and $18,000, respectively. The following changes also occurred during 2010: $\begin{array}{|l|l|l|}\hline \text { Inventory } & \$ 10,000 & \text { decrease } \\\hline \text { Accounts payable } & 5,000 & \text { decrease } \\\hline \text { Notes payable (long-term) } & 15,000 & \text { decrease } \\\hline \text { Income taxes payable } & 7,000 & \text { increase } \\\hline \text { Accounts receivable } & 10,000 & \text { increase } \\\hline & & \\\hline\end{array}$ Required: Calculate cash flows from operating activities.

Which of the following would not be a cash flow from investing activities?

Under the _________________________, firms begin with net income to calculate cash flow from operations for the period.

When net income is high relative to operating cash flows, we describe the firm as having recorded

Use the following information to prepare a statement of cash flows (indirect method) for Sink Industries for the year ended December 31, 2010: Net income for the year 2010 was $5,000. Accounts receivable decreased $2,000, while inventories increased $4,000, and accounts payable decreased $7,000. Depreciation expense included in net income was $8,000.

The length of the operating cycle is another factor that may cause cash flow from operations to differ from __________________________________________________.