Question 1

Identify each expense or revenue as a cash flow from operating activities (O), a cash flow from investment activities (I), or a cash flow from financing activities (F).
Administrative expenses
Rent payment
Interest on a note payable
Sale of equipment
Dividend payment
Stock repurchase
Sale of finished goods
Labor expense
Sale of a bond issue
Repayment of a long-term debt
Selling expenses
Depreciation expense
Sale of common stock
Purchase of fixed assets

Accepted Answer

The answer of Identify each expense or revenue as a...

Question 2

Under MACRS, an asset which originally cost $10,000 is being depreciated using a 5-year normal recovery period. What is the depreciation expense in year 3?

Accepted Answer

A)  $1,900 
B)  $1,200 
C)  $1,500 
D)  $2,100

Question 3

Table 4.1
True Sandpaper Co.
Balance Sheets
For the Years Ended 2014 and 2015 
-The firm may have increased long-term debts to finance ________. (See Table 4.1)

Accepted Answer

A)  an increase in net fixed assets 
B)  an increase in current assets 
C)  accounts receivable payments 
D)  an increase in dividends

Question 4

Gerry Jacobs, a financial analyst for Best Value Supermarkets, has prepared the following sales and cash disbursement estimates for the period August through December of the current year.  Ninety percent of sales are for cash, the remaining 10 percent are collected one month later. All disbursements are on a cash basis. The firm wishes to maintain a minimum cash balance of $50. The beginning cash balance in September is $25. Prepare a cash budget for the months of October, November, and December, noting any needed financing or excess cash available.

Accepted Answer

The answer of Gerry Jacobs, a financial analyst for Best...

Question 5

The primary purpose in preparing pro forma financial statements is ________.

Accepted Answer

A)  for cash planning 
B)  to ensure the ability to pay dividends 
C)  to reduce risk 
D)  for profit planning

Question 6

If the ending cash is greater than the minimum cash balance, excess cash exists.

Accepted Answer

A) True 
 B)False

Question 7

The key input to any cash budget is ________.

Accepted Answer

A)  the sales forecast 
B)  the production plan 
C)  the pro forma balance sheet 
D)  the current tax laws

Question 8

A projected excess cash balance for the month may be ________.

Accepted Answer

A)  financed with short-term securities 
B)  financed with long-term securities 
C)  invested in marketable securities 
D)  invested in long-term securities

Question 9

The Modified Accelerated Cost Recovery System (MACRS) is a depreciation method used for ________ purposes.

Accepted Answer

A)  tax 
B)  financial reporting 
C)  budget 
D)  cost accounting

Question 10

Table 4.7
The income statement and balance sheet for the ZZZ Mattress Co. for the year ended December 31, 2015 follow.  Balance Sheet
ZZZ Mattress Company
December 31, 2015  The ZZZ Mattress Co. has been requested by the 1st National Bank, a major creditor, to prepare a pro forma balance sheet for the year ending, December 31, 2016. Using the percent-of-sales method and the following financial data, prepare the pro forma income statement and balance sheet and discuss the resulting external financing required. (See Table 4.7)
∙ 2016 sales are estimated at $330,000.
∙ Accounts receivable represent 20 percent of sales.
∙ A minimum cash balance of $1,650 is maintained.
∙ Inventory represents 32 percent of sales.
∙ Fixed-asset outlays in 2006 are $20,000. Total depreciation expense for 2016 will be $15,000.
∙ Accounts payable represents 15 percent of sales.
∙ Notes payable and accruals will remain the same.
∙ No long-term debt will be retired in 2016.
∙ No common stock will be repurchased in 2016.
∙ The firm will pay dividends equal to 50 percent of its earnings after taxes.

Accepted Answer

The answer of Table 4.7
The income statement and balance sheet...

Question 11

For the year ended December 31, 2014, a corporation had cash flow from operating activities of -$10,000, cash flow from investment activities of $4,000, and cash flow from financing activities of $9,000. The statement of cash flows would show a ________.

Accepted Answer

A)  net decrease of $3,000 in cash and marketable securities 
B)  net decrease of $5,000 in cash and marketable securities 
C)  net increase of $3,000 in cash and marketable securities 
D)  net increase of $5,000 in cash and marketable securities

Question 12

In the next planning period, a firm plans to change its policy of all cash sales and initiate a credit policy requiring payment within 30 days. The statements that will be directly affected immediately are the ________.

Accepted Answer

A)  pro forma income statement, balance sheet, and cash budget 
B)  pro forma balance sheet and cash budget 
C)  cash budget and statement of retained earnings 
D)  pro forma income statement and pro forma balance sheet

Question 13

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

Accepted Answer

A)  purchase of a long-term asset 
B)  decrease in accounts payable 
C)  increase in accounts payable 
D)  repurchasing stock

Question 14

To assess whether any developments have occurred that are contrary to a company's financial policies, the financial manager should pay special attention to both the major categories of cash flow and the individual items of cash inflow and outflow.

Accepted Answer

A) True 
 B)False

Question 15

As the typical cash budget shows cash flows only on a monthly basis, the information provided by the cash budget is not necessarily adequate for ensuring solvency.

Accepted Answer

A) True 
 B)False

Question 16

The MACRS depreciation method requires use of the half-year convention. Assets are assumed to be acquired in the middle of the year and only one-half of the first year's depreciation is recovered in the first year.

Accepted Answer

A) True 
 B)False

Question 17

A firm has projected sales in May, June, and July of $100, $200, and $300, respectively. The firm makes 20 percent of sales for cash and collects the balance one month following the sale. The firm's total cash receipts in July is ________.

Accepted Answer

A)  $220 
B)  $200 
C)  $180 
D)  $140

Question 18

The depreciable value of an asset, under MACRS, is the ________.

Accepted Answer

A)  current cost 
B)  current cost minus salvage value 
C)  the original cost plus installation 
D)  the original cost plus installation costs, minus salvage value

Question 19

One basic weakness of the simplified pro forma approaches lies in the assumption that certain variables, such as cash, accounts receivable, and inventories, can be forced to take on certain "desired" values.

Accepted Answer

A) True 
 B)False

Question 20

The sales forecast and various forms of operating and financial data are the key outputs of the short-run (operating) financial planning.

Accepted Answer

A) True 
 B)False

Exam 4: Cash Flow and Financial Planning

Under MACRS, an asset which originally cost $10,000 is being depreciated using a 5-year normal recovery period. What is the depreciation expense in year 3?

Table 4.1 True Sandpaper Co. Balance Sheets For the Years Ended 2014 and 2015 -The firm may have increased long-term debts to finance ________. (See Table 4.1)

The primary purpose in preparing pro forma financial statements is ________.

If the ending cash is greater than the minimum cash balance, excess cash exists.

The key input to any cash budget is ________.

A projected excess cash balance for the month may be ________.

The Modified Accelerated Cost Recovery System (MACRS) is a depreciation method used for ________ purposes.

For the year ended December 31, 2014, a corporation had cash flow from operating activities of -$10,000, cash flow from investment activities of $4,000, and cash flow from financing activities of $9,000. The statement of cash flows would show a ________.

In the next planning period, a firm plans to change its policy of all cash sales and initiate a credit policy requiring payment within 30 days. The statements that will be directly affected immediately are the ________.

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

To assess whether any developments have occurred that are contrary to a company's financial policies, the financial manager should pay special attention to both the major categories of cash flow and the individual items of cash inflow and outflow.

As the typical cash budget shows cash flows only on a monthly basis, the information provided by the cash budget is not necessarily adequate for ensuring solvency.

The MACRS depreciation method requires use of the half-year convention. Assets are assumed to be acquired in the middle of the year and only one-half of the first year's depreciation is recovered in the first year.

A firm has projected sales in May, June, and July of $100, $200, and $300, respectively. The firm makes 20 percent of sales for cash and collects the balance one month following the sale. The firm's total cash receipts in July is ________.

The depreciable value of an asset, under MACRS, is the ________.

One basic weakness of the simplified pro forma approaches lies in the assumption that certain variables, such as cash, accounts receivable, and inventories, can be forced to take on certain "desired" values.

The sales forecast and various forms of operating and financial data are the key outputs of the short-run (operating) financial planning.