Wahlen_8e_Chapter 3,Income Flows versus Cash Flows Understanding the Statement of Cash Flows
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Course
FIN 4318
Institution
University Of Texas, El Paso
Chapter 3—Income Flows versus Cash Flows: Understanding the Statement of Cash Flows
MULTIPLE CHOICE
1. One rationale for the statement of cash flows is to
a. ensure that the cash account balances at year-end.
b. reconcile differences between net income and cash receipts and disbursemen...
one rationale for the statement of cash flows is t
normally cash flows from investing activities wil
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University of Texas, El Paso
FIN 4318
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Chapter 3—Income Flows versus Cash Flows: Understanding the Statement of Cash
Flows
MULTIPLE CHOICE
1. One rationale for the statement of cash flows is to
a.
ensure that the cash account balances at year-end.
b.
reconcile differences between net income and cash receipts and disbursements.
c.
calculate the company’s free cash flow.
d.
examine the cash effects of income from discontinued operations, extraordinary items
and changes in accounting principles.
2. 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
3. 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.
4. 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
5. 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
, 6. 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.
7. Normally, cash flows from operations will peak during which phase of the product life cycle?
a.
Introduction
b.
Growth
c.
Maturity
d.
Decline
8. 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
9. 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
10. Free cash flows to all debt and common equity shareholders represents the excess of cash flows from
a.
operating activities over cash flows for financing activities
b.
investing over cash flows for operating activities
c.
investing over cash flows for financing activities
d.
operating activities over cash flows for investing activities
11. 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
12. 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
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