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

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Question 1

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

A) income-decreasing accruals.
B) income-increasing accruals.
C) income-neutral accruals.
D) abnormal accruals.

E) A) and D)
F) A) and C)

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Question 2

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Firms with short operating cycles will experience less of a lag between the creation and delivery of their products and the collection of cash from customers because:

A) their cash flow from operations will be much greater than their working capital from operations.
B) their cash flow from operations will not differ much from their working capital from operations.
C) their cash flow from operations will be much less than their working capital from operations.
D) there will be no relation between their cash flow from operations and working capital from operations.

E) B) and D)
F) None of the above

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Question 3

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For the following types of companies,discuss whether you think their cash flows from operations,investing,and financing will be positive (the activity provides cash)or negative (the activity uses cash).Provide support for your answer. 1.Tech Corporation is a developer of computer software for the gaming industry.The company recently launched its first software title.The company is expanding its operations by hiring additional developers and administrative staff.The company is not yet profitable,but expects to break even within two years.Investors view it as having a first mover advantage and have been happy to invest in the company. 2.Midwest Corporation is a supplier to the agricultural industry.The company is experiencing its 25th year of profitability,but is concerned that sales have contracted for the fifth year in a row.Midwest prides itself in paying dividends and having no debt on its balance sheet. 3.Semi Inc.manufactures semiconductors.The company has just introduced its ninth new product and is the leader in market share for the industry.The company continues to invest in research and development and expand by purchasing competitors.The company has yet to pay dividends,but is considering it in the future.The company's largest current asset is cash,due to its high profit margin.

The receipt of cash when employees exercise stock options is a(n)____________________ activity.

In a statement of cash flows,interest received from sources other than a company's investments would be classified as cash inflows from:

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

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

Cilca Corporation is a supplier to the pulp and paper industry.Selected financial information about Cilca is listed below: • Purchased real estate for $440,000 in cash.The cash was borrowed from a bank. • Sold investments for $400,000. • Paid dividends of $480,000. • Issued shares of common stock for $200,000. • Purchased machinery and equipment for $100,000 cash. • Paid $360,000 on a bank loan. • Reduced accounts receivable by $80,000. • Increased accounts payable $160,000. Sales for the period were $450,000 Use the above information to calculate Cilca's: a.cash used or provided by operating activities b.cash used or provided by financing activities

Cash flow from operations should include none of the cash flows associated with marketable securities if such transactions are viewed as ___________________________________.

Cash collected from customers would appear in the operating activities section of a statement of cash flows prepared using the ____________________ method

Which of the following is a cash flow from operating activities? 

Which of the following is the correct formula for calculating cash collections from customers?

Jarrett Company,home improvement retailer,reported cost of goods sold of $33,729 million for the fiscal year ended January 30,2010.It reported merchandise inventories of $9,611 million at the beginning of fiscal 2010 and $10,209 million at the end of fiscal 2010.It reported accounts payable to suppliers of $5,713 million at the beginning of fiscal 2010 and $6,109 million at the end of fiscal 2010.Compute the amount of cash paid to merchandise suppliers during fiscal 2010.

Which of the following transactions would not create a cash flow? 

Selected financial statement information for Filmco appears below: $\begin{array} { l r r } \underline{\text { Balance Sheet accaunts }} &\underline{ \text { Jan.1,2010 }} &\underline{ \text { Dec. 31, 2010 }} \\\\\text { Inventary } & \$ 210,000 &\$90,000 \\\text { Accounts Receivable } & \$ 85,000 & \$ 45,000\end{array}$ $\underline{\text { Income Statement (partial)} } \quad \underline{\text { For the year ended Dec. 31, } 2010}$ $\begin{array}{ll}\text { Sales } &&& \$ 900,000 \\\text { Cost of Goods Sold }&& & \underline{\$ 730,000} \\\text { Gross Profit } & &&\$ 170,000\end{array}$ Calculate the amount of cash collected from customers and the amount of cash spent on inventory for 2010 by Filmco.

One rationale for the statement of cash flows is to:

When preparing the statement of cash flows using the indirect method,the sale of marketable securities would appear as:

Under the ______________________________ of preparing the statement of cash flow's operating activities section firms list the cash flows from selling goods and services and then subtract the cash outflows to providers of goods and services.

Academic research has found that market rates of return on common stock are the most highly correlated with:

____________________ activities relate to the normal operations of the firm,selling goods and providing services.