19: Cash Flows

Question 1

How do you convert an indirect CFS to a direct CFS?

Answer 1

adjusting each income statement account for changes in associated balance sheet accounts
eliminating noncash and nonoperating items (deferred tax asset/liabilites) and income taxes payable

Question 2

Which items can be classified as either operating or investing activity for IFRS?

Answer 2

interest received
dividends received

Question 3

Which items can be classified as either operating or financing under IFRS?

Answer 3

Dividends paid
Interest paid

Question 4

What is the difference between classifying income taxes for GAAP and IFRS?

Answer 4

GAAP: operating activity
IFRS: generally an operating activity, but a portion can be allocated to investing or financing activities if it is specifically identified with those activities

Question 5

For the direct method of CF, each line item on the _______ is converted into _____ or _____.

Answer 5

income statement
cash receipts
cash payments

Question 6

Noncurrent assets are classified as?

Answer 6

Investing

Question 7

Trading securities are classified as?

Answer 7

Operating activities (for both financial and nonfinancial firms)

Question 8

Payment of dividends are classified as?

Answer 8

financing activity

Question 9

Obtaining/repaying capital & noncurrent liabilities is which CF?

Answer 9

Financing

Question 10

Current assets/liabilities is which CF?

Answer 10

Operating

Question 11

In terms of payment and receival of interest and dividends and taxes, how are they classified?

Answer 11

Interest paid/received= OCF
Dividends received= OCF
Dividends paid= Financing
Taxes paid= OCF

Question 12

The ____ method provides specific information on the sources of operating cash flows?

Answer 12

direct

Question 13

Unearned revenue will (increase or decrease) cash collections?

Answer 13

Increase
goods haven’t been transferred, but the cash has

Question 14

Prepaid expenses are (curren/non current) (assets/liabilities), that will (increase/decrease) cash expenses?

Answer 14

Prepaid expenses are an current asset, because they represent economic resources to be provided to the firm, but have not yet been supplied, but have been paid for resulting in cash outflow

Question 15

When solving for COGS, what two items are adjusted?

Answer 15

Beginning inventory + purchases- ending inventory

Question 16

Cash paid to suppliers=?

Answer 16

Purchases - accounts payable

Question 17

expresses each inflow of cash as a percentage of total cash inflows and each outflow as a percentage of total cash outflows

Answer 17

common-size cash flow statement

Question 18

measures a firm’s ability to acquire long-term assets with cash flows from operations

Answer 18

The reinvestment ratio

Question 19

more comprehensive, measures the firm’s ability to purchase assets, satisfy debts, and pay dividends.

Answer 19

the investing and financing ratio

Question 20

measures the ability to generate cash from a firm’s operations and is a performance ratio for cash flow analysis purposes

Answer 20

The cash-to-income ratio

Question 21

measures the firm’s ability to satisfy long-term debt with cash flow from operations but it is more of a coverage ratio than a performance ratio.

Answer 21

The debt payment ratio

Question 22

Bonds payable is categorized as a CF from?

Answer 22

financing

Question 23

Gain (losses) are _____ to CFO

Answer 23

subtracted (losses= added)

Question 24

How do we handle depreciation expenses in cash flows?

Answer 24

for the indirect method, we add it back to net income in CFO