Chapter 7: Funds Analysis, Cash Flow Analysis, and Financial PlanningJust click on the button next to each answer and you'll get immediate feedback.Note: Your browser must support JavaScript in order to use this quiz. Show
1.According to the accounting profession, which of the following would be considered a cash-flow item from an "investing" activity?cash inflow from interest income. cash inflow from dividend income. cash outflow to acquire fixed assets. all of the above. 2.According to the Financial Accounting Standards Board (FASB), which of the following is a cash flow from a "financing" activity?cash outflow to the government for taxes. cash outflow to shareholders as dividends. cash outflow to lenders as interest. cash outflow to purchase bonds issued by another company. 3.If the following are balance sheet changes: $5,005 decrease in accounts receivable $7,000 decrease in cash $12,012 decrease in notes payable $10,001 increase in accounts payable a "use" of funds would be the:$7,000 decrease in cash. $5,005 decrease in accounts receivable. $10,001 increase in accounts payable. $12,012 decrease in notes payable. 4.On an accounting statement of cash flows an "increase(decrease) in cash and cash equivalents" appears asa cash flow from operating activities. a cash flow from investing activities. a cash flow from financing activities. none of the above. 5.Uses of funds include a (an):decrease in cash. increase in any liability. increase in fixed assets. tax refund. 6.Which of the following would be included in a cash budget?depreciation charges. dividends. goodwill. patent amortization. 7.An examination of the sources and uses of funds statement is part of:a forecasting technique. a funds flow analysis. a ratio analysis. calculations for preparing the balance sheet. 8.Which of the following is NOT a cash outflow for the firm?depreciation. dividends. interest payments. taxes. 9.Which of the following would be considered a use of funds?a decrease in accounts receivable. a decrease in cash. an increase in account payable. an increase in cash. 10.The cash flow statement in the United States is most likely to appear usinga "supplementary method." a "direct method." an "indirect method." a "flow of funds method." 11.For a profitable firm, total sources of funds will always total uses of funds.be equal to be greater than be less than have no consistent relationship to  Multiple-Choice Quiz questions are Copyright © by Pearson Education Limited. Used by permission. All rights reserved.
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| Question | Answer |
|---|---|
| A balance sheet is a financial statement that: | reflects a firm’s accounting value on a particular date. |
| A current asset is defined as an asset that: | normally converts to cash within one year |
| A fixed asset by definition: | has a relatively long life. |
| A tangible asset: | s a fixed asset with a physical existence. |
| An intangible asset is a: | valuable fixed asset that has no physical existence. |
| Shareholders’ equity can be defined as | the residual value of a corporation after all debts have been paid. |
| Net working capital is defined as the: | difference between a firm’s current assets and its current liabilities. |
| Liquidity is best defined as the: | ease and speed with which an asset can be converted to cash. |
| Generally Accepted Accounting Principles (GAAP) | are a common set of procedures and standards for preparing audited financial statements. |
| An income statement is a financial statement that: | reflects a firm’s performance over a period of time |
| Earnings per share represent the: | amount of net income attributable to each share of stock |
| A noncash item is defined as: | an expense charged against revenues that does not affect the cash flow of a firm. |
| The average tax rate is defined as the | total tax paid divided by the total taxable income |
| The marginal tax rate is defined as the | amount of tax payable on the next taxable dollar earned |
| The cash generated from a firm’s normal business activities is referred to as the: | operating cash flow. |
| The cash flow from assets can be defined as the | cash available to distribute to the creditors and to the stockholders. |
| The net amount of a firm’s cash flows that are spent on fixed assets is called: | net capital spending. |
| Free cash flow is another term for the: | cash flow from assets. |
| Cash flow to creditors is defined as | interest paid minus net new borrowing |
| The amount of the dividends paid minus the net new equity raised is called the: | cash flow to stockholders |
| Which one of the following is a current asset? | inventory |
| Which one of the following statements is correct concerning fixed assets? | The book value of most fixed assets decreases over time |
| Tangible assets | are assets that can be physically touched, such as a computer. |
| Intangible assets: I. include trademarks. II. are generally classified as current assets. III. provide no value to a firm. IV. generally have a life of one year or more. | I and IV only |
| Which one of the following debts is a current liability? | bill payable to a supplier for the purchase of inventory for resale |
| Long-term debt can be computed by: | adding net working capital to total fixed assets and then subtracting owners’ equity. |
| Shareholders’ equity includes which of the following? I. paid in surplus II. bonds payable III. common stock IV. retained earnings | I, III, and IV only |
| Which of these accounts are included in net working capital? I. accounts payable II. bonds payable III. equipment IV. cash | I and IV only |
| Which one of the following will increase the net working capital of a firm? | selling shares in the company and using the funds to increase the inventory level |
| 30. Which of the following will increase the liquidity level of a firm? I. the purchase of inventory for cash II. the sale of inventory on credit III. the sale of inventory for cash IV. the collection of accounts receivable | II, III, and IV only |
| Holding highly liquid assets: | tends to reduce the potential profits as compared to holding less liquid assets. |
| The greater the degree of financial leverage employed by a firm, the: | greater the level of debt |
| Financial leverage: | when overextended greatly magnifies the possibility that a firm will become bankrupt. |
| Mark is trying to determine the amount of cash he will receive should he sell all of his firm’s assets. Which asset value should Mark use to estimate this potential cash inflow? | market value |
| The market value of land is equal to the: | anticipated selling price if the land were sold today. |
| The book value of an asset is equal to the: | initial cost minus the depreciation to date. |
| An income statement | reflects the income of a firm based upon the accounting methods employed. |
| All else constant, the net income, as computed in the income statement, will increase when: | the tax rate decreases |
| Which two of the following determine when revenue is recorded on the financial statements based on the recognition principle? I. when payment is collected for the sale of a good or service II. when the earnings process is virtually completed III. when | II and III only |
| Which one of the following is a noncash item? | annual depreciation on a fixed asset |
| Angie is analyzing the potential income and cash flows which she might realize if she adds a new product to her sales lineup. The tax rate relevant to this analysis is the: | marginal tax rate. |
| Which one of the following best exemplifies the concept of a marginal tax rate? | As the result of opening a new store, the Jones Co. had to pay an additional $1.2 million in taxes. |
| Which one of the following will increase the cash flow from assets, all else constant? | a decrease in net capital spending |
| A negative cash flow from assets | signals that a firm is relying on external financing for its operations. |
| If a firm has a negative cash flow from assets every year for several years, the firm: | Operating cash flow increases when |
| Capital spending | is the money spent by a firm for net new assets |
| A decrease in net working capital: | is a cash inflow for the firm. |
| All else constant, net working capital decreases when: | accounts payable increases more than accounts receivable increases |
| Party Town Downtown paid $800 in interest last year. During the past year, the company paid $500 on its loans and borrowed an additional $2,000. Which one of the following best describes this situation? | The cash flow to creditors is negative. |
| Cash flow to creditors is equal to interest paid minus: | ending long-term debt minus beginning long-term debt |
| Cash flow to stockholders: | is positive when the amount of the dividends paid exceeds the amount of net new equity raised. |
| A negative cash flow to stockholders indicates that a firm has: | sold additional shares of stock |
Which of the following will increase cash flow from assets?
Answer and Explanation: The correct answer is C. Decrease in the change in net working capital.
What causes cash flow from assets to increase?
Management can generate positive cash flow from assets by using a variety of techniques, including the following: Raise prices. Redesign products to reduce materials costs. Cut overhead to reduce operating costs.
Which one of the following changes during a year will increase cash flow from assets but not affect the operating cash flow?
Which one of the following changes during a year will increase cash flow from assets but not affect the operating cash flow? long-term debt is repaid.
Which cash flows are affected by taxes?
Simply, it is Total Revenue - Operating Expenses = Operating Cash Flow. Taxes are included in the calculations for the operating cash flow. Cash flow from operating activities is calculated by adding depreciation to the earnings before income and taxes and then subtracting the taxes.
