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This document contains 20 multiple choice questions testing understanding of concepts related to cash flow statements, including: - Differences between net income and cash flows from operations under the indirect method - Typical cash flow patterns during different phases of a product life cycle - Adjustments made to net income when calculating cash flows from operations under the indirect method - How changes in working capital accounts are treated in the operating activities section of the statement of cash flows - Classification of various cash inflows and outflows within the operating, investing, and financing sections.

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181 views4 pages

Q2 PDF

This document contains 20 multiple choice questions testing understanding of concepts related to cash flow statements, including: - Differences between net income and cash flows from operations under the indirect method - Typical cash flow patterns during different phases of a product life cycle - Adjustments made to net income when calculating cash flows from operations under the indirect method - How changes in working capital accounts are treated in the operating activities section of the statement of cash flows - Classification of various cash inflows and outflows within the operating, investing, and financing sections.

Uploaded by

Dyen
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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1.

Which of the following is not one of the reasons why net income differs from cash flows from
operations under the indirect method of calculating cash flows?
a. non-cash items, such as depreciation and amortization
b. changes in working capital accounts
c. gains and losses related to the sale of plant, property and equipment
d. sale or repurchase of capital stock
ANS: D PTS: 1

2. A company in the growth phase of its product life cycle will normally have the following pattern of
cash flows
a. Negative cash flows from operations, negative cash flows from investing and positive cash
flows from financing.
b. Negative or positive cash flows from operations, negative cash flows from investing and
positive cash flows from financing.
c. Positive cash flows from operations, positive cash flows from investing and positive cash
flows from financing.
d. Negative or positive cash flows from operations, negative cash flows from investing and
negative cash flows from financing.
ANS: B PTS: 1

3. Which of the following is an adjustment that would need to be made to net income when calculating
cash flows from operations under the indirect method?
a. Subtract amortization expense
b. subtract gain on sale of subsidiary
c. add an increase in accounts receivable
d. add a decrease in accounts payable
ANS: B PTS: 1

4. If a firm is growing and expanding its accounts receivable and inventories faster than its current
operating liabilities its cash flow from operation will normally be
a. greater than net income
b. less than net income
c. greater than the change in working capital from operations
d. greater than the change in cash
ANS: B PTS: 1

5. Normally, cash flows from operations will peak during which phase of the product life cycle?
a. Introduction
b. Growth
c. Maturity
d. Decline
ANS: C PTS: 1

6. Normally, cash flows from investing activities will start providing cash during which phase of the
product life cycle?
a. Introduction
b. Growth
c. Maturity
d. Decline
ANS: C PTS: 1

7. Normally, cash flows from financing will start using cash during which phase of the product life
cycle?
a. Introduction
b. Growth
c. Maturity
d. Decline
ANS: C PTS: 1

8. 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
ANS: A PTS: 1

9. When preparing the statement of cash flows using the indirect method, an increase in accounts payable
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
ANS: B PTS: 1

10. When preparing the statement of cash flows using the indirect method, the payment of dividends
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 financing activities section
d. a source of cash in the financing activities section
ANS: C PTS: 1

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

a. a use of cash in the investing activities section


b. a source of cash in the investing activities section
c. a use of cash in the financing activities section
d. a source of cash in the financing activities section
ANS: B PTS: 1
12. Which of the following is not an expense excluded when calculating EBITDA?
a. depreciation expense
b. administrative expense
c. interest expense
d. tax expense
ANS: B PTS: 1

13. Toro Company recognized $655,000 of cost of goods sold in 2010, in addition its implementation of
a just-in-time inventory system allowed it to reduce its inventory from $325,000 at the beginning of the
year to $230,000 at the end of 2010. How much cash did Toro spend for inventory in 2010?
a. $655,000
b. $980,000
c. $560,000
d. $620,000
ANS: C $655,000 + $230,000 - $325,000 = $560,000

14. Which of the following companies would you expect to report significant amounts of cash provided
by financing activities?
a. A yet-to-be-profitable biotechnology company.
b. A mature company operating in the oil refinery industry.
c. A profitable established company in the retail industry.
d. A large multinational pharmaceutical company.
ANS: A PTS: 1

15. As products move through the maturity phase, companies invest to ___________ productive capacity.
a. increase
b. decrease
c. maintain
d. Not enough information to answer this question.
ANS: C PTS: 1

16. All of the following are firms that may experience a long lag between the expenditures of cash and the
receipt of cash from customers, except:
a. restaurants
b. wineries
c. construction companies
d. aerospace manufacturers
ANS: A PTS: 1

17. Academic research has found that market rates of return on common stock are the most highly
correlated with
a. net income.
b. cash flow from operations.
c. EBITDA.
d. cash flow from investing activities.
ANS: A PTS: 1
18. Which of the following would not be a cash flow from investing activities?
a. Sale of a patent.
b. Collection of interest revenue on a long-term note receivable.
c. Collection of principal of a note receivable.
d. Purchase of long-term investments.
ANS: B PTS: 1

19. A cash inflow from financing activities includes:


a. receipt of interest payments.
b. proceeds from selling equipment.
c. proceeds from issuance of bonds payable.
d. proceeds from selling investments in equity securities of another company.
ANS: C PTS: 1

20. Which of the following statements is true?


a. A cash dividend is an operating cash outflow.
b. Cash paid to repurchase treasury stock is an investing cash outflow.
c. Cash paid to acquire stock in another company is a financing outflow.
d. Purchase of a patent is an investing cash outflow.
ANS: D PTS: 1

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