Vol. 3 LM3 Practice Flashcards
The three major classifications of activities in a cash flow statement
A. inflows, outflows, and net flows
B. operating, investing, and financing
C. revenues, expenses, and net income
B. operating, investing, and financing
The sale of a building for cash would be classified as what type of activity on the cash flow statement
A. operating
B. investing
C. financing
B.
Purchases and sales of long-term assets are considered investing activities.
Note that if the transaction had involved the exchange of a building for other than cash), it would have been consider a significant non-cash activity
under which section of a manufacturing company’s cash flow statement are the following activities reported?
* item 1: purchases of securities held for trading
* item 2: purchases of securities held for investment
A. both items are investing activities
B. only item 1 is an operating activity
C. only item 2 is an operating activity
B.
* the purchase and sale of securities held for trading are considered operating activities, even for companies in which this activity is not a primary business activity
A conversion of a face value $1 million convertible bond for $1 million of common stock would most likely be
A. reported as a $1 million investing cash inflow and outflow
B. reported as a $1 million financing cash outflow and inflow
C. reported as supplementary information to the cash flow statement
C.
* non-cash transactions, if significant, are reported as supplementary information
A company recently engaged in a non-cash transaction that significantly affected its property, plant, and equipment. The transaction is:
A. reported under the investing section of the cash flow statement
B. reported differently in cash flow from operations under the direct and indirect methods
C. disclosed as a separate note or in a supplementary schedule to the cash flow statement
C.
* because no cash is involved in non-cash transaction, these transactions are not incorporated in the cash flow statement.
Which of the following is an example of a financing activity on the cash flow statement under US GAAP
A. payment of interest
B. receipt of dividends
C. payment of dividends
C. The payment of dividends is financing
* interest received or paid, and dividends received received is investing
Interest paid is classified as either operating cash flows under:
A. US GAAP, but may be classified as either operating or financing under IFRS
B. IFRS, but may be classified as either operation or financing under US GAAP
C. Both classify it as only cash flows from operating activities
A.
* interest expense is always classified as an operating cash flow under US GAAP, but
* may be classified as either an operating or financing cash flow
cash flows from taxes on income must be separately disclosed under
A. IFRS only
B. US GAAP only
C. both IFRS and US GAAP
C.
A benefit of using the direct method rather than the indirect method when reporting operating cash flows is that the direct method
A. mirrors a forecasting approach
B. is easier and less costly
C. provides specific information on the sources of operating cash flows
C.
Which of the following is most likely to appear in the operating section of a cash flow statement under the indirect method?
A. net income
B. cash paid to suppliers
C. cash received from customers
A. net income
Which of the following components of the cash flow statement may be prepared under the indirect method under both IFRS and US GAAP?
A. operating
B. investing
C. financing
operating
MC reported accounts receivable of $66 million at the end of its second fiscal quarter. MC had revenues of $72 million for its third fiscal quarter and reported accounts receivables of $55 million at the end of its third fiscal quarter. Based on this information, the amount of cash MC collected from customers during the third fiscal quarter is
A. $61 million
B. $72 million
C. $83 million
C.
* the amount of cash collected from customers during the quarter is equal to beginning accounts receivable plus revenues minus ending accounts receivable
* $66 mln + $72 miln - $55 mln = $83 mln
Red Road Co, a consulting company, reported
* total revenues of $100 million
* total expenses of $80 million, and
* net income of $20 million in the most recent year.
If accounts receivable increased by $10 million, how much cash did the company receive from customers?
A. $90 million
B. $100 million
C. $110 million
A.
* Revenues of $100 million minus the increase in accounts receivable of $10 million equal $90 million cash received from customers
* increase in accounts receivable means that the company recived less in cash than it reported as revenue
Green Glory Corp., a garden supply wholesaler, reported cost of goods sold for the year of $80 million. Total assets increased by $55 million, including an increase of $5 million in inventory. Total liabilities increased by $45 million, including an increase of $2 million in accounts payable. The cash paid by the company to its suppliers is most likely closest to:
A. $73 million.
B. $77 million.
C. $83 million.
C. $83 million
* cost of goods sold of $80 million plus increase in inventory of $5 million equals purchases from suppliers of $85 milmlion.
* The increase in accounts payable of $2 million means that the company paid $83 million in cash
Purple Fleur S.A., a retailer of floral products, reported cost of goods sold for the year of $75 million. Total assets increased by $55 million, but inventory declined by $6 million. Total liabilities increased by $45 million, and accounts payable increased by $2 million. The cash paid by the company to its suppliers is most likely closest to:
A. $67 million.
B. $79 million.
C. $83 million.
A.
* Cost of goods sold of $75 million less the decrease in inventory of $6 million equals purchases from suppliers of $69 million.
* The increase in accounts payable of $2 million means that the company paid $67 million in cash.
20
C. $27,826
