Question 1

Which of the following supplementary disclosures are required by GAAP to be reported on the statement of cash flows or as a note to the financial statements?
A)interest and taxes paid
B)free cash flow
C)earnings per share
D)operating activities plus dividends plus capital expenditures

Accepted Answer

Interest and taxes paid are required supplementary disclosures that must be reported on the statement of cash flows or as a note to the financial statements. Free cash flow, earnings per share and operating activities plus dividends plus capital expenditures are not required disclosures on the statement of cash flows or as a note to the financial statements according to GAAP.

Question 2

Williston Skateboards had net cash from operating activities of $33,780.During the month,the firm paid no dividends and $435 in interest.Williston Skateboards also spent $12,740 on office equipment.Free cash flow for the month was ________.
A)$20,505
B)$33,780
C)$33,345
D)$21,040

Accepted Answer

The answer of Williston Skateboards had net cash from operating...

Question 3

The following information is available for two different retailers,both of whom began business this year:  Which company appears to be purchasing long-term assets?
A)Gnu Co.
B)Lube Co.
C)Both are purchasing long-term assets
D)Neither is purchasing long-term assets

Accepted Answer

The answer of The following information is available for two...

Question 4

Analysts use the statement of cash flows to measure ________.
A)the profitability of a company
B)the amount of the company's obligations
C)the amount of excess cash generated by operating activities
D)all of these

Accepted Answer

The statement of cash flows provides information on the cash generated or used by a company's operating activities, investing activities, and financing activities. This information can be used to measure the amount of excess cash generated by operating activities, which can be an indication of a company's financial health. However, it does not directly measure profitability or the amount of a company's obligations.

Question 5

Free cash flows measures ________.
A)the ability of a company to raise money through the sale of stock
B)the amount of cash available to pay dividends
C)the amount of excess cash generated by operating activities
D)a firm's ability to engage in long-term investment opportunities

Accepted Answer

Free cash flows measure a firm's ability to engage in long-term investment opportunities by calculating the amount of cash generated by operating activities that is available for capital expenditures, debt repayment, and other long-term investments. It is not directly related to the ability of a company to raise money through the sale of stock or the amount of cash available to pay dividends.

Question 6

A positive cash flow from investing activities indicates the company is expanding.

Accepted Answer

A positive cash flow from investing activities often indicates that a company is selling more of its investment assets than it is buying, which doesn't necessarily mean expansion. It could be divesting assets rather than expanding.

Question 7

During the year,Team Shirts,Inc.had net cash from operating activities of $50,000; it paid $20,000 in dividends; it purchased equipment for $30,000; and it purchased office supplies for $10,000.Free cash flow for the year was ________.
A)$0
B)$(10,000)
C)$10,000
D)$100,000

Accepted Answer

Free cash flow is calculated as net cash from operating activities minus capital expenditures and dividends. Here, $50,000 (operating activities) - $30,000 (equipment) - $20,000 (dividends) = $0.

Question 8

Free cash flow measures a company's ability to engage in long-term investment opportunities.

Accepted Answer

Free cash flow is the amount of cash a company produces from its operations after subtracting any capital expenditures necessary to maintain or expand its current assets. This excess cash can be used for long-term investments. Therefore, free cash flow is a good indicator of a company's ability to engage in long-term investment opportunities.

Question 9

The following information is available for two different retailers,both of whom began business this year:  Which company would you expect to have high interest expense?
A)Gnu Co.
B)Lube Co.
C)Both Gnu Co.and Lube Co.
D)Neither Gnu Co.nor Lube Co.

Accepted Answer

The answer of The following information is available for two...

Question 10

A continued trend of ________ may indicate a company is in poor financial health.
A)positive cash flow from financing activities
B)positive cash flow from operating activities
C)negative cash flow from operating activities
D)negative cash flow from investing activities

Accepted Answer

Negative cash flow from operating activities indicates that a company is using more cash to operate its business than it is generating, which can be a sign of poor financial health.

Question 11

During the year,Team Shirts,Inc.had net cash from operating activities of $50,000; it paid $10,000 in dividends; and it purchased long-term assets for $30,000.Free cash flow for the year was ________.
A)$90,000
B)$40,000
C)$20,000
D)$10,000

Accepted Answer

The answer of During the year,Team Shirts,Inc.had net cash from...

Question 12

Williston Skateboards had net cash from operating activities of $63,780.During the month,the firm paid no dividends and $575 in interest.Williston Skateboards also spent $4,925 on office equipment.Free cash flow for the month was ________.
A)$63,780
B)$63,205
C)$58,280
D)$58,855

Accepted Answer

Free cash flow = net cash from operating activities - capital expenditures
Free cash flow = $63,780 - $4,925
Free cash flow = $58,855

Question 13

A positive cash flow from operating activities indicates the company is healthy.

Accepted Answer

The answer of A positive cash flow from operating activities...

Question 14

A company that has a negative cash flow from operating activities and a positive cash flow from investing activities may be in poor financial health and having to sell its long-term assets to pays its current liabilities.

Accepted Answer

The answer of A company that has a negative cash...

Question 15

Why would a company cut its cash dividends? Is it ethical to cut the dividends?

Accepted Answer

The answer of Why would a company cut its cash...

Question 16

How does the statement of cash flows aid analysts in the evaluation of a company's financial situation?

Accepted Answer

The answer of How does the statement of cash flows...

Question 17

Why is evaluating a company's cash flow important for analysts?

Accepted Answer

The answer of Why is evaluating a company's cash flow...

Question 18

A company that has a positive cash flow from operating activities and a negative cash flow from investing activities may be in poor financial health and having to sell its long-term assets to pays its current liabilities.

Accepted Answer

The answer of A company that has a positive cash...

Question 19

Why do investors use free cash flow to analyze a company?

Accepted Answer

The answer of Why do investors use free cash flow...

Question 20

Jo Lynn Lee is learning about investing.She has learned that Warren Buffet uses free cash flow as one of the tools to analyze companies.Explain to Jo Lynn why Warren Buffet and other investors believe that free cash flow is a valuable tool to use when analyzing companies.

Accepted Answer

The answer of Jo Lynn Lee is learning about investing.She...

Quiz 9: Preparing and Analyzing the Statement of Cash Flows

Which of the following supplementary disclosures are required by GAAP to be reported on the statement of cash flows or as a note to the financial statements?

Williston Skateboards had net cash from operating activities of $33,780.During the month,the firm paid no dividends and $435 in interest.Williston Skateboards also spent $12,740 on office equipment.Free cash flow for the month was ________.

The following information is available for two different retailers,both of whom began business this year: Which company appears to be purchasing long-term assets?

Analysts use the statement of cash flows to measure ________.

Free cash flows measures ________.

A positive cash flow from investing activities indicates the company is expanding.

During the year,Team Shirts,Inc.had net cash from operating activities of $50,000; it paid $20,000 in dividends; it purchased equipment for $30,000; and it purchased office supplies for $10,000.Free cash flow for the year was ________.

Free cash flow measures a company's ability to engage in long-term investment opportunities.

The following information is available for two different retailers,both of whom began business this year: Which company would you expect to have high interest expense?

A continued trend of ________ may indicate a company is in poor financial health.

During the year,Team Shirts,Inc.had net cash from operating activities of $50,000; it paid $10,000 in dividends; and it purchased long-term assets for $30,000.Free cash flow for the year was ________.

Williston Skateboards had net cash from operating activities of $63,780.During the month,the firm paid no dividends and $575 in interest.Williston Skateboards also spent $4,925 on office equipment.Free cash flow for the month was ________.