Scribd Logo
Upload

Welcome to Scribd!

  • W

    Uploaded by

    Patricia Atienza
    11 views31 pages

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    Download as pdf
    11 views31 pages

    W

    Uploaded by

    Patricia Atienza

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    Download as pdf
    of 31
    916/23, 033 PM Par1 - Dashboard -Assessment Review Question TAL tetfsa.027 805 Losianst Lesson Reference: Statement of Cash Flows and Financial Statement Articulation Difficulty mecium Bloom Code: 4 How can comparing a company's income statement tots statement of cash flows reveal information about the “quality” ofthe company's reported netincome? “The statement of cashflows reflects accrual based secountng technique ang thus relies on fewer estimates than the income statement. The statement of cashflows reflects cash-based accountng technique and thus elles on more estimates than the income statement The statement of cashflows reflects accrual-based accounting echnique ane thus relies on mare estimates than the income statement. “The statement of cashflows reflects cash-based accounting technique and thusrelies on fewer estimates than the income statement Rationale © The statement of cash flows reflects accrua-baced accounting technique and thus relies on fewer estimates than the income statement mings quality refer tothe extent that a firm's earings are converted into cashflow. The statement of cash flows is prepared based on cash-based accounting not accruab-based accounting, while the income statement prepared based on accrual-based accounting, not cash-bazed accounting Wile the statement of cash lows relies on fewer estimates than the income statement, t's because the statement of cash flows is based on cash-based accounting and the income statement is based on accruaL based accountng. Therefor, this isan incorrect Rationale © The statement of cash flows reflects cash-based accounting technique and thus rs ‘on more estimates than the income statement. amings quality refers tothe extent that a firm's earings are converted into cashflow. The statement of cashflows is prepared based on cash-based accounting while the income Statements prepared based on sccrua-based accounting, Cash-based accounting relies on fewer estimates than the income statement, not more estimates, Therefore, tis san incorrect Rationale © The statement of cash flows reflects acerua-based accounting technique and thus relies on more estimates than the income statement. ammings quality refers tothe extent that a frm’s earings are converted into cashflow, The statement of cash flows is prepared based on cash-based accounting, net acctual-based accounting. Ths means thatthe statement of cash lows relies on fewer estimates than the income statement, no more estimates. Therefore, hiss an incorrect answer. Rationale © The statement of cath flows reflects cash-based accounting technique and thus fon fewer estimates than the Income statement. Earnings quality refers tothe extent that firm's earings are converted intocash flow. The statement of cashflows s prepared based on cash-based accounting while the income statements prepared based an accrua-based accounting, Cash-based accounting rales on fewer estimates ands considered more objective than accrual-based accounting. Thats why comparing cas flows from operating activities to netincome|sa way to assess the “quality” of the company’s nt income. Therefore this isthe correct answer |ntps:fappeffcientoaming.comipySv6/s/applemalema._parl_1.himi?#assessmentReviow st 916/23, 033 PM Par1 - Dashboard -Assessment Review Question2 TAL tet#sa.024_ 1805 Los:iany Lesson Reference: Statement of Cash Flows and Financial Statement Articulation Difficulty mecium Bloom Code: 4 [statement of cash lows can partially econcile which ofthe folowing? ‘Netincome tonetchangeincash ‘et income to year-end eash balance “The cash basis and accrual basis of accounting Investing aetities to financing acthvies Rationale {© Netincome to net changein cath Tre income statement, comprehersiveincome statement, balance sheet, and statement of stockholders’ equity areal prepared using accrual accounting The statement of cashflows is prepared using cash accounting, The operating section af the statement of ash ows reconciles net income (prepared using accrual accounting) to cashflow from operating activities (prepared using cash accounting). It does nt reconcile net income to net change in cash, a cash also changes duet investing an financing activites aswell as foreign currency Issues Therefore, this san incorect answer Rationale © Net income to year-end cash balance Tre income statement, comprehensiveincome statement, balance sheet, and statement of stockholders’ equity areal prepared using accrual accounting The statement of cashflows is prepared using cash accounting. The operating section af the statement of ash Hows reconciles nt income (prepared using accrual accounting) ocash flow from operating activities (prepared using cash accounting}. It does nt reconcile net income to the year-end ‘ash balance, asthe year-end cash balance is also impact by the beginning cash balance, Investing and financing activities, and foreign currency ssues, Therefore, this isn incorrect Rationale {© The cash basis and accrual basis of accounting The income statement, comprehensive income statement, balance sheet, and statement of stockholders’ equity ae al prepared wsing accrual accounting, The statement of cash fos is prepared using cash accounting. The operating section of the statement of cash flows reconciles nt income (prepared using accrual accounting to cashflow from operating activities (prepare using cash accounting. Thisis a pata econclistion between the two ‘methods therefore, hiss the corect answer Rationale © Investing activities to financing activities The statement of cash fs provides information about cash lows from investing and financing activites. However, doesnot reconcile these two amounts as they measure diferent activites. Therefore, thsis an incorrect ansier. |ntps:fappeffcientoaming.comipySv6/s/applemalema._parl_1.himi?#assessmentReviow 916/23, 033 PM Par1 - Dashboard -Assessment Review Questions rALe tect #ea.035_ 1805, Los tang Lesson Reference: Statement of Cash Flows and Financial Statement Articulation Difficulty mecium Bloom Code: 4 ‘Onystne’s net income is $570,000, During the year accounts ecelvable increased $260,000 and accounts payable decreased $80,000, Using the indiect method of preparing the statement of cash flows, what amount wll be reported a8 cash provided by operating activities? $370,000 $210,000 $770,000 $930,000 Rationale © $270,000 The starting point fr ealeulating cashflow fom operating activities net income. The increase Inaccounts receivables subtracted since credit sales exceeded cash collections This means netincome overstates cash provide by operating activities. The decrease in accounts payable is subtracted since payments for inventory exceeded inventory purchases. This means that cost of goods sold understates cash used to purchase inventory, which means net income overstates cash provided by operating activities, itis added then the overstatement is double counted, the accounts payable decrease is mistakenly added then cash provided by operating activities would be $370,00 ($570,000 ~ $280,000 + $80,000). Therefore, tis san incorrect answer Rationale 19 $210,000 “The starting point for calculating cash low fom operating actities i netincome, Theinerease in accounts receivables subtracted since credit sales exceeded cash collections, This means netincome verstates cash provide by operating activities. The decrease in accounts payable Issubtacted since payments for inventory exceeded inventory purchases. Tis means that cost of goods sold understate cash used to purchase inventory, which means netincome overstates cath provided by operating activities, The final reultisa net inflow from operating activities of $210,000 ($570,000 = $280,000 ~ $80,000). Therefor, this isthe correct answer. Rationale @ $770,000 “The starting point or calculating cash low from operating acts i netincome, Theinerease in accounts receivables subtracted since credit sales exceeded cash collections, This means netincome overststes cash provided by operating activities. itis added then the ‘overstatement is double counted. The decrease n accounts payable is subtracted since payments for inventory exceeded inventory purchases. This means that cost of goods sold lunderstates cash used to purchase inventory, which means netincome overstates cash provided by operating activites. fthe accounts receivable increaseismistakenly added then ‘ash provided by operating activities would be $770,000 ($570,000 + $280,000 ~ $5000, Therefore, this san incorrect answer. Rationale © $930,000 The staring point for calulating cashflow from operating actiitles is net income. The increase Inaccounts receivables subtracted since credit sales exceeded cash collections This means netincomeoverstates cash provides by operating actives. itis addee then the ‘overstatement is double counted. The decrease in accounts payable subtract since payments for inventory exceeded inventory purchases. This means that cost of goods sold tunderstates cash used to purchase inventory, which means netincome overstates cash provided by operating activites fits added then the overstatement is double counted, the |ntps:fappeffcientoaming.compySv6/s/applemalema_part_1.himi?#assessmentReviow 916/23, 033 PM Par1 - Dashboard -Assessment Review accounts receivable increase and the accounts payable decrease are both mistakenly added then cash provided by operating activities would be $830,000 ($870,000 + $280,000 + $80,000), Therefore, ths isan incoreect answer tps:/app.efciontleaming.comipy6IV8/Siapplemafema_part_1 himI?assossmentRoviow aist 916/23, 033 PM Par1 - Dashboard -Assessment Review Questions LALe tet #ea.033_1805, Los tang Lesson Reference: Statement of Cash Flows and Financial Statement Articulation Difficulty mecium Bloom Code: 4 Fielding Manufecturing reported netincome of $296,000 including depreciation expense of $0,000. ‘The company sole investments fo $2,000 that had 9 costo $36,000, Accounts receivable decreased $50,000 and accounts payable increased $4,000. What amount ci Fielding report as net cash provided by operating activities? $326,000 $266,000 $506,600 $314,000 Rationale © $326,000 “The starting point for calculating cash low from operating activities is netincome. Thenext step isto-add back the non-cash depreciation expense of $90,000. I hasta be added back since itwassubtracted when net income was calculated, but it doesnot involve 3 cash outlow. it is subtracted then t's double counted, The next step isto add back the loss onthe investment sale of $26,000, Thishasto be added back since it was subtracted when netincome was calculated, butit does not involve a cath outlaw. The decrease in account ecevable i added since cash collections exceeded credit sales. This means net incomeunderstates cas provided by operating activites. The increase in accounts payable is added since inventory purchases exceeded payments frinventry. This means that cos of goods sold overstates cash wed to purchase inventory, which means net income understates cash povided by operating activities Hf depreciation 's mistakenly subtracted then cash provided by operating activities woul be $526,000 (296,000 = $90,00 + $24,000» $50,000 + $46,000). Therefor, tis is an incorrect Rationale © $266,000 Tre starting point forcalulating cashflow fom operating activities net income. The next steps toad back the non-cash depreciation expense of $3000, I has to be added back since itwas subtracted when net income was calculated, butt does not involve a cash outflow. The next step isto add back theloss on the investment sale of $24,000 This has to be added back "ince fea subtracted when net income was calculated, butit does notinvoive 2 cash outflow, ifiis subtracted then tis being double counted, The decrease in accounts receivable is added since cash collections exceeded credit sales, This means net income understate eas provided by operating activites. If itis subtracted then the understatement is double counted. The increase in accounts payables adéed since inventory purchases exceedee payments for Inventory. Thismeans that cas of goods sole overstates cash used to purchase inventory, which means net income understates cash provided by operating activites. itissubtracted then the understatement is double counted these three items are mstakeny subtracted then cash provid by operating activities would be $268,000 ($295,000 + $80,000 ~ $24,000 ~ $80,900 ~ $46,000). Thereore, this is an incorrect answer. Rationale © $506,000 The starting point fr calculating cashflow from operating activities net income. The next step isto add back the non-cash depreciation expense of $90,000, I has to beaded back since itwas subtracted when net income was calculated, butit doesnot involve a cash outflow. The next step ito add back the loss on the investment sale of $24,000, This has to be added back "ince itwas subtracted when netincome was calculated, butt doesnotinvoive a cash outflow, ‘The decrease in account receivable ie added since cash collections exceeded cred saes, This ‘means net income understates cash proved by operating activities The increase in accounts payable i adéed since inventory purchases exceeded payments for inventory. This means that cost of goods sold overstates cash used to purchase inventory, which means net income |ntps:fappeffcientoaming.compySv6/s/applemalema_part_1.himi?#assessmentReviow 916/23, 033 PM Par1 - Dashboard -Assessment Review understates cash provided by operating activites. The final result is a netinftow from operating activities of $506 00 ($296,000 +§90,00 + $24,000 $5,000 $4,000. Therefore thisis the correct answer, Rationale © $314,000 “The starting point for caleulating cash low from operating activities is netincome. Thenext step sto add back the non-cash depreciation expense of $90,000. I hasta be added back since Iwas subtracted when net income was calculated, but it doesnot involve a cash outflow. The next step i to add back the loss on the investment sale af $24,000, This has to be added back "ince it was subtracted when net income was calculated, butit does notinvoivea cash outflow, ‘The decresse in accounts receivables added since cash collections exceeded credit sales, This ‘means net income understates cash proved by operating activites. tis subtracted then the Understatement i double counted, The increase in accounts payable is added since inventory purchases exceeded payments for inventory. This means that costo goods sold overstates ash tused to purenat inventry, which means net income understate cash provided by operating actives, Hits subtracted then the understatement is double counted, these two items are mistakenly subtracted then cash provided by operating ecthtes would be $314,000 ($296,000 + $80,000 + §24,000~ $50,000 ~ 46,000). Therefore ths isan incorrect answer |ntps:fappeffcientoaming.comipySv6/s/applemalema._parl_1.himi?#assessmentReviow 916/23, 033 PM Par1 - Dashboard -Assessment Review Questions LAs q.ctfsa.004, 1602 Los:1are Lesson Reference: Statement of Cash Flows and Financial Statement Articulation Difficulty easy Bloom Code: 2 ma companys statement of cashflows, interest paid is: artof the investingsecion art ofthe financing section artof the operating section partofthe debt service section Rationale © partof the inverting section Tris answer is incorect. Interest paidisnot par of te investing section, Rationale © partof the financing section “Thisansweris incorrect. Interest paid outs nat prt of the financing section. Rationale © partof the operating section This answers correct. terest paid outs pat ofthe operating section, asits considered an operating expense. Rationale © partofthe debt service section This answeris incorrect. Thisis nota section onthe statement of ash lows, |ntps:fappeffcientoaming.comipySv6/s/applemalema._parl_1.himi?#assessmentReviow nist 916/23, 033 PM Par1 - Dashboard -Assessment Review Questions TAL tetfsa.012_1805, Losiant Lesson Reference: Statement of Cash Flows and Financial Statement Articulation Diffulychard Bloom Code: 4 Which ofthe folowing isthe best comparison of net income and net cash low from operations? "Netincore and net cash Now from aperaions are determined by diferent metnodsbutaree "Netincome consists of net cash flaw from operations after interest pal and received has been subtracted ‘Net cash few from operations Includes net ncome long.with net cash Tow fom Investment and financing activites. "Netincome is diferent fom net cash Now from operations because noncash items such as depreciation and amortization are pat of income, Rationale {© Netincome and net cashflow from operations butare the same amount. tile net income and net cash flow rom operations both assess operating performance, they are calculated under efferent assumptions. Netincomeis prepared using accrual accounting {and cashflow rom operations s prepared using cash accounting What this means s that tems that impactineame but nat cash ow ate included in net income but atin ash Now from operations. Given hs itis highly unlikely thatthe two gure wll be the same amount ‘Therefore, hiss an incorrect answer. 1 by different methods Rationale © Net income consists hasbeen subtracted. hile netincome and net cash fw rom operations both assess operating performance, they are calculated under efferent assumptions. Netincome is prepared using accrual accounting and cash flow from operations is prepared using cash accounting What thismeansis that tems that impactincome but nat ash low ate included innet income but natn cash Now from operations. Interest pal and received are» part of cash ow from operations but not apart of netincame. However interest expense and interest revenue ae ince in net income. In addition there are other differencesin the two figures. Therefore, tis isan Incorrect answer. net cash flow from: erations after Interest paid and received Rationale {@ Net cashflow from operations includes net income along with net cash flow from investment and financing activities, hile net income and net cash fw rom operations both assess operating performance, they are calculated under efferent assumptions. Netncome is prepared using accrual accounting and cash flow from operations s prepared using cash accounting. Net cash low from ‘operations doesinclude netincame, butt doesnot include net ca low from investing and financing activites. Therefore, thisis an ncorect answer Rationale © Net income 38 depreciation and amortization are part of income. Whilenet income and net cash fw rom operations both assess operating performance they are calculated under efferent assumptions. Netincomeis prepared using scrual accounting ‘and cashflow rom operations s prepared using cash accounting What this means is that items that impactineame but nat ash ow ate included in net income but notin ash Now from operations. Two ofthe more common non-cash expenses are depreciation and amortization expense. Therefore, thisisthe corect answer |ntps:fappeffcientoaming.comipySv6/s/applemalema._parl_1.himi?#assessmentReviow 916/23, 033 PM Par1 - Dashboard -Assessment Review Question? rate tet #ea.039_1805, Los tare Lesson Reference: Statement of Cash Flows and Financial Statement Articulation Difficulty mecium Bloom Code: 4 The following information s avaiable or Becker Manufacturing. Net income $300,600 Depreciation expense 390,000 Dividends paid $135,000 Gainon sale of and $22,500 Increase in accounts receivable $45,000 Increase in accounts payable $135,000 Whats Becker's net cash provided by operating activities? $657,500 $522,500 $277,500 $480,000 Rationale © $457,500 The starting point forealulatingcash flow from operating activities net income. The next step is to add back the non-cash depreciation expense of $3000, I hasto be adds back since itwas subtracted when net income was calculated, butit does not involve a cash outflow. The next step Isto subtract the gan on the and sale of $22,500. This has to be subtracted since'it was added when net income was calculate, but it does nat involve a cash out. The Increase in accounts receivale's subtracted since credit sales exceedes cash collections. This ‘means net income oerstates cash provided by operating activities. The increase in accounts payable is adced since inventory purchases exceeded payments forinventry. This means that cost of gods sold overstates cash used to purchase inventory, which means net income uunderstates cash prouded by operating activites. The final result isa net now from operating activities of $457,500 ($300,000 +§50,000~ $22,500 ~ 5,000 + $135,000, Therefore thisis the correct answer, Rationale @ $222,500 The stating point fr caleulating cash flow fom operating activities is net income, The next stepis to add back the non-cash depreciation expense of $30,00. has to be added back since inwas subtracted when net income was calculated, outit doesnot involve a cash outflow. The next step isto subtract the gan on the and sale of $22,500. This has to be subtracted since'it was added when net income was calculates, bu it does nat involve a cash out. The increasein accounts receivable’ subtracted since credit sales exceedes cash collections. This ‘means net income verstates cash provided by operating activities. The ncressein accounts payable s adéed since inventory purchases exceeded payments for inventory. Tismeans that ‘ost of gods sold ovrstaes cash used to purchase inventory, which means net income understates cash provided by operating activites. Dividends pad arenot subtracted when calculating cashflow rom operating activities since that is placedin the financing activites section. If dividends are ncluéed then cash provided by operating activites woul be $322,500, ($300,000 + $90,000 = $22,500 ~ $4500 + §135,000-§135,000. Therefor, tis is a Incorrect Rationale © $277,500 |ntps:fappeffcientoaming.compySv6/s/applemalema_part_1.himi?#assessmentReviow 916/23, 033 PM Par4 - Dashboard -Assessment Review “Thestartng point or caleuating cash low from operating activities i etincome, The next step sto add back the non-cash depreciation expense of $90,000. I hasta be ade back since inwas subtracted when net income as calculated, but it doesnot involve 2 cash outflow. itis subtracted then ts double counted, The next step isto subtract the gan onthe land sale of $22,500. This has tobe subtracted since it was added when net income was calevlated, butt {doesnot involve a cath outlaw. The increase in accounts receivable subtracted since credit sles exceeded cash collections This means ntincame ovestates cash provided by operating activities, The increasen accounts payables added since inventory purchases exceeded payments for inventory. This means that cost of goods sold overstates cash used to purchase inventary, which means net income understates eas provided by operating activities.

    You might also like