Deck 6: Cash Flow Statements: Understanding and Preparation

Question 1

Riff Raff plc reported the following cash flow information for year 2010:
$$\begin{array} { l c } \text { Cash used in operating activities } & 35,000 \\\text { Cash used in investing activities } & ( 28,000 ) \\\text { Cash generated from finance activities } & \underline { 23,000 } \\\text { Net cash outflow } & 30,000\end{array}$$
Which of the following balance sheet extracts for Riff Raff plc is correct?

A) $\begin{array} { c c c } & \mathbf { 2 0 0 9 } & \mathbf { 2 0 1 0 } \\\text { Cash } & 7,000 & 27,000\end{array}$
B)B. $\begin{array} { l r r } & \mathbf { 2 0 0 9 } & \mathbf { 2 0 1 0 } \\\text { Cash } & ( 7,000 ) & 23,000\end{array}$
C)C. $\begin{array} { l r r } & \mathbf { 2 0 0 9 } & \mathbf { 2 0 1 0 } \\\text { Cash } & 10,000 & 30,000\end{array}$
D)D. $\begin{array} { c c r } & \mathbf { 2 0 0 9 } & \mathbf { 2 0 1 0 } \\\text { Cash } & 10,000 & ( 20,000 )\end{array}$

Answer 1

B. $\begin{array} { l r r } & \mathbf { 2 0 0 9 } & \mathbf { 2 0 1 0 } \\\text { Cash } & ( 7,000 ) & 23,000\end{array}$

Question 2

The statement of financial position and income statement are based on the accruals concept

Answer 2

True

Question 3

Which of the following statements is false?

A) An increase in trade receivables is treated as an outflow of cash
B) Interest paid is an outflow of cash
C) An increase in trade payables is treated as an outflow of cash
D) An increase in inventory is treated as an outflow of cash

Answer 3

C

Question 4

B.Scott Ltd reported the following cash flow information for year 2010: $$\begin{array} { l c } \text { Cash used in operating activities } & ( 4,000 ) \\\text { Cash used in investing activities } & ( 36,000 ) \\\text { Cash generated from finance activities } & \underline { 32,000 } \\\text { Net cash outflow } & ( 8,000 )\end{array}$$ Which of the following balance sheet extracts for B.Scott Ltd is correct?

A)
$\begin{array} { l l c } & \mathbf { 2 0 0 9 } & \mathbf { 2 0 1 0 } \\\text { Cash } & 16,000 & 24,000\end{array}$
B) $$\begin{array} { l l c } & \mathbf { 2 0 0 9 } & \mathbf { 2 0 1 0 } \\\text { Cash } & 16,000 & 48,000\end{array}$$
C)
$$\begin{array} { c c c } & \mathbf { 2 0 0 9 } & \mathbf { 2 0 1 0 } \\\text { Cash } & 4,000 & ( 4,000 )\end{array}$$
D)
$$\begin{array} { c r r } & 2009 & 2010 \\\text { Cash } & 4,000 & ( 8,000 )\end{array}$$

Question 5

Which of the following statements is false?

A) Not all revenues are receipts of cash
B) Some receipts of cash do not add to profits
C) Not all expenses are payments of cash
D) All payments of cash are expenses

Question 6

From the following information,calculate the amount to be shown as income tax paid on the cash flow statement (year 2):

Income statement for year 2 showed tax charge of £24,000

A) £30,000
B) £34,000
C) £24,000
D) £14,000

Question 7

Using the following information,calculate the cash flow from investing activities:
Disposal of fixed assets for £9,000,with a gain of £1,000; purchase of machine for £11,000; pay-off mortgage £3,000; dividends paid £20,000

A) £4,000 net cash outflow from investing activities
B) 24,000 net cash outflow from investing activities
C) 5,000 net cash inflow from investing activities
D) 5,000 net cash outflow from investing activities

Question 8

Using the following information,calculate the cash flow from operating activities:
Cash from trade receivables £80,000,cash sales £30,000; depreciation expense £3,000; rent paid £2,000

A) £105,000 net cash inflow from operating activities
B) £110,000 net cash inflow from operating activities
C) £108,000 net cash inflow from operating activities
D) £110,000 net cash outflow from operating activities

Question 9

All receipts of cash are treated as revenues

Question 10

If the opening balance on accounts receivable was £35,000 with a closing balance of £15,000 and the income statement reported revenue of £180,000,what is the cash collected from customers?

A) £195,000
B) £200,000
C) £20,000
D) £145,000

Question 11

The redemption of a loan would appear on the cash flow statement as a:

A) Financing activity
B) Operating activity
C) Investing activity
D) Debt activity

Question 12

Generating lots of cash is a definite sign of success

Question 13

Which of the following would not be included on the operating activity section of a cash flow statement?

A) Payment to suppliers
B) Purchase of inventory
C) Payment of loan
D) Payment of tax

Question 14

Which of the following would be classified as an operating activity on a cash flow statement?

A) Purchase of a building
B) Purchase of inventory
C) Repayment of loan
D) Issue of shares

Question 15

Not all revenues are receipts of cash

Question 16

The annual depreciation expense is an outflow of cash

Question 17

Which of the following statements is correct?

A) Interest paid is an inflow of cash
B) Taxation paid is an inflow of cash
C) Decrease in trade payables is an outflow of cash
D) A reduction in inventory is treated as an inflow of cash

Question 18

The purchase of fixed assets would appear on the cash flow statement as a:

A) Financing activity
B) Operating activity
C) Investing activity
D) Debt activity

Question 19

An increase in working capital would appear on the cash flow statement as a:

A) Financing activity
B) Operating activity
C) Investing activity
D) Debt activity

Question 20

The cash flow statement reports inflows and outflows of cash under which three headings?

A) Operating activities, investing activities and expense activities
B) Operating activities, investing activities and equity activities
C) Operating activities, investing activities and finance activities
D) Operating activities, investing activities and debt activities

Question 21

Which of the following statements is false?

A) Payment for inventory not sold until the next period, is an example of a payment of cash which is not an expense
B) Borrowing money is an example of a receipt of cash which is not revenue
C) Discount allowed to customers for prompt payment, is an expense that is treated as a payment of cash
D) Depreciation is an expense which is not a payment of cash

Question 22

Which of the following statements is false?

A) Not all payments of cash are expenses
B) Some payments are not charged against profits
C) Some receipts do not add to cash
D) All revenues are receipts of cash

Question 23

From the following information,calculate the cash flow from operating activities:
$$\begin{array} { l c } \text { Net Income } & 110,000 \\\text { Depreciation } & 25,000 \\\text { Decrease in accounts receivable } & 35,000 \\\text { Increase in accounts payable } & 9,000 \\\text { Decrease in inventory } & 30,000 \\\text { Interest paid } & 7,000 \\\text { Tax paid } & 15,000\end{array}$$

A) £59,000 net cash inflow
B) £187,000 net cash inflow
C) £119,000 net cash inflow
D) £99,000 net cash inflow

Question 24

From the following information,calculate the cash flow from operating activities:
$$\begin{array} { l c } \text { Net Income } & 80,000 \\\text { Depreciation } & 15,000 \\\text { Increase in accounts receivable } & 5,000 \\\text { Decrease in accounts payable } & 5,000 \\\text { Increase in inventory } & 5,000\end{array}$$

A) £80,000 net cash inflow
B) £70,000 net cash inflow
C) £75,000 net cash inflow
D) £110,000 net cash inflow

Question 25

If net cash from operating activities is £350,000 and the dividend paid is £140,000,what is the dividend cover?

A) 0.4 times
B) 2.5 times
C) 1.6 times
D) 0.6 times