Question 1

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.

Accepted Answer

The answer of Jarrett Company, home improvement retailer, reported cost...

Question 2

Selected financial statement information for Filmco appears below:
 $\begin{array}{llcc}
  \text {  Balance Sheet accounts} &\text { Jan. } 1,2010&\text { Dec. } 31,2010 \ 
\
 \text {Inventory  } &\$210,000&\$340,000\
 \text {AccountsReceivable  } &\$85,000&\$60,000\
\end{array}$
 $\begin{array}{c}
\begin{array}{lll}
\underline{\text {Income Statement (partial)}}\
\
\text {Sales}\
\text {Cost of Goods Sold}\
\text {Gross Profit}\ 
\end{array}
\begin{array}{lll}
\underline{\text {For the year ended Dec. 31,2010}}\
\
\$ 824,000 \
\underline{\$ 658,000)}\
\$ 166,000 
\end{array}
\end{array}$
 Calculate the amount of cash collected from customers and the amount of cash spent on inventory for 2010 by Filmco.

Accepted Answer

Cash collected from customers: $824,000 + $85,000 - $60,000 = $849,000
Cash spent on inventory: $658,000 + $340,000 - $210,000 = $788,000

Question 3

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

Accepted Answer

direct

Question 4

Under the indirect method of preparing the statement of cash flows, addbacks to net income include all of the following except:

Accepted Answer

A)   depreciation expense
B)   deferred tax expense
C)   asset write-downs
D)   share-based compensation

Question 5

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

Accepted Answer

A)   Sale of long-term investments in common stock.
B)   Purchase of merchandise for resale.
C)   Payment of a note payable.
D)   Sale of a piece of land no longer used in operations.

Question 6

The acquisition of new investments would be classified as ____________________ activities in the statement of cash flows.

Accepted Answer

The answer of The acquisition of new investments would be...

Question 7

Normally, cash flows from operations will peak during which phase of the product life cycle?

Accepted Answer

A)   Introduction
B)   Growth
C)   Maturity
D)   Decline

Question 8

As a complement to the balance sheet and the income statement, the statement of cash flows is an informative statement for analysts for all the following reasons except:

Accepted Answer

A)   The statement of cash flows provides information to assess the financial health of a firm. Analysts increasingly recognize that cash flows do not necessarily track income flows. A firm with a healthy income statement is not necessarily financially healthy, and vice versa. Cash requirements to service debt, for example, may outstrip the ability of operations to generate cash.
B)   The existence of negative cash flows from operations can be eliminated by using this financial statement.
C)   The statement of cash flows highlights accounting accruals, which can provide insight into the overall sustainability and quality of a firm's reported earnings.
D)   Analysts who understand the types of information this statement presents and the kinds of interpretations that are appropriate find that the statement of cash flows reveals information about the economic characteristics of a firm's industry, its strategy, and the stage in its life cycle.

Question 9

When preparing the statement of cash flows using the indirect method, the payment of dividends would appear as

Accepted Answer

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

Question 10

Cash flows from ____________________ activities will normally be negative during all of the introduction and growth phase of the product life cycle.

Accepted Answer

The answer of Cash flows from ____________________ activities will normally...

Question 11

J. Jill is a women's clothing retailer. The company started as a mail order company and has expanded into mall department stores. The company now receives approximately half of its revenues from mail order and half from retail outlets. Over the time period 2010 to 2012, sales increased approximately 25%.
Discuss the relationship between net income, working capital from operations, and cash flow from operations, and between cash flows from operating, investing, and financing activities over the three-year period.
 \(\begin{array}{c}
\begin{array}{|l}
 \hline\text { CASH FLOW STATEMENT (in thousands) }\
 \hline\
 \hline \text {Cash from operations}\
 \hline \text {Net income}\
 \hline \text {Depreciation \& amoitization}\
 \hline \text {Net increase (decrease) in assets \& liab.}\
 \hline \text {Other adjustments, net}\
 \hline \text {Net cash provided by (used in) operations}\ 
 \hline \
 \hline \text {Cash from investinents}\
 \hline \text {(Increase) decrease in property \& plant}\
 \hline \text {Other cash inflow (outflow)}\
 \hline \text {Net cash provided by (used in) irvesting}\
 \hline \
 \hline \text {Cash from financing}\
 \hline \text {Issuances (purchases) of equity shares}\
 \hline \text {Increase (decrease) in borrowings}\
 \hline \text {Net cash provided by (used in) financing}\
 \hline \
 \hline \text {Net change cash \& cash equivalents}\
 \hline \text {Cash and cash equivalents at stant of year}\
 \hline \text {Cash and cash equivalents at year end}\
 \hline   
\end{array}
\begin{array}{|l|}
 \hline\
 \hline\
\hline12 / 25 / 2012 \
\hline 8,706 \
\hline 18,663 \
\hline 6,696 \
\hline 1,396 \
\hline 35,461\
\hline\
\hline\
\hline-28,784 \
\hline-35,434 \
\hline-64,218\
\hline\
\hline\
\hline 3,142 \
\hline-1,706 \
\hline 1,436\
\hline-\
\hline -27,321\
\hline59,287\
\hline31,966\
\hline
\end{array}
\begin{array}{l|}
 \hline\
 \hline\
\hline12 / 27 / 2011 \
\hline 7,025 \
\hline 116,131 \
\hline 26,659 \
\hline 924 \
\hline 50,739\
\hline\
\hline\
\hline-34,265 \
\hline-1,143 \
\hline-35,408\
\hline\
\hline\
\hline 870\
\hline-1,648 \
\hline -778\
\hline-\
\hline 14,553\
\hline44,734\
\hline59,287\
\hline
\end{array}
\begin{array}{l|}
 \hline\
 \hline\ 
\hline12 / 28 / 2010\
\hline 18,434 \
\hline 12,672 \
\hline 10,623 \
\hline 3,996 \
\hline 45,725\
\hline\
\hline\
\hline-34,734 \
\hline-2,454 \
\hline-37,188\
\hline\
\hline\
\hline 7,800\
\hline-1,755\
\hline -6,045\
\hline-\
\hline 14,582\
\hline30,152\
\hline44,734\
\hline
\end{array}
\end{array}\)

Accepted Answer

The answer of J. Jill is a women's clothing retailer....

Question 12

The expense incurred by issuing stock options should be

Accepted Answer

A)   classified as a financing activity.
B)   added back to net income in the operating activities section.
C)   subtracted from net income in the operating activities section.
D)   does not appear in the statement of cash flows.

Question 13

The calculation of cash flow from operations under the indirect method involves two types of adjustments. Discuss each type of adjustment and provide an example of each type of adjustment.

Accepted Answer

The answer of The calculation of cash flow from operations...

Question 14

Which of the following statements is false?

Accepted Answer

A)   Purchase of equipment is an investing cash outflow.
B)   Sale of equipment creates investing cash outflow equal to its selling price.
C)   Purchase of short-term investments is an investing cash outflow.
D)   Purchase of a patent is an investing cash outflow.

Question 15

Krenshaw Company reported total sales revenue of $80,000, total expenses of $72,000, and net income of $8,000 for the year ended December 31, 2009. During 2009, accounts receivable increased by $3,000, merchandise inventory decreased by $2,000, accounts payable increased by $1,000, and $5,000 in depreciation expense was recorded. Assuming no other adjustments to net income are needed, the net cash inflow from operating activities using the indirect method was

Accepted Answer

A)   $19,000
B)   $13,000
C)   $10,000
D)   $11,000

Question 16

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.

Accepted Answer

The answer of Under the ______________________________ of preparing the statement...

Question 17

____________________ activities relate to transactions between the firm and its creditors and owners.

Accepted Answer

The answer of ____________________ activities relate to transactions between the...

Question 18

Lagos Corp. recorded sales of $345,000 in 2010, in addition its accounts receivable and accounts payable balances at the beginning and end of 2010 were as follows: $\begin{array} { l l } 
\text { Jan. 1, 2010 } & \text { Dee.31, 2010 } &\
\text { A.cornts Receivible } & \$ 65,000 &\$90,000\
\text { A.cedrts Fayable } & \$ 32,000&\$28,000
\end{array}$ How much cash did Lagos collect from customers in 2010?

Accepted Answer

A)   $345,000
B)   $320,000
C)   $324,000
D)   $316,000

Question 19

While preparing a statement of cash flows, you encountered the following transaction:
February 1, 2011: Galvinize Corporation acquired a small office building in exchange for 5,000 shares of its own common stock; par value $10 per share; market value $15 per share.
A. Should this transaction be shown on the statement of cash flows?
B. Why or why not?

Accepted Answer

The answer of While preparing a statement of cash flows,...

Question 20

Many analysts use ____________________ as a crude measure of a firm's ability to pay down debt.

Accepted Answer

The answer of Many analysts use ____________________ as a crude...

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