Name:______________________________________ Id.

No:____________________

Birla Institute of Technology and Science, Pilani

First Semester: 2022-2023
Evaluative Tutorial 3
Course Name & No.: Fundamentals of Finance and Accounting ECON F 212
Maximum Marks: (30 Marks) 10% Weight-age Date: 29 Nov 22
Duration: 35 Minutes Type: Closed Book

Instructions for the students

1. Write your name and BITS Id No in the space provided on the top of this page
2. This paper consists of 10 multiple choice questions (choose the most appropriate answer; 2 marks each) and 10 true or
false questions (1 mark each). All questions are compulsory.
3. There is no negative marking.
4. Write your answers in the table provided below. Answers written elsewhere or in incorrect order will not be evaluated.
Overwritten/ambiguous answers will not be evaluated.

1 2 3 4 5 6 7 8 9 10

11 12 13 14 15 16 17 18 19 20

1. A company recently announced that its net income increased sharply from the previous year, yet its net cash flows
from operations declined. Which of the following could explain this?
A. The company’s operating income declined
B. The company’s depreciation expenses declined
C. The company’s interest expense increased
D. The company’s cost of goods sold increased

Ans: B

2. Which of the following statements is CORRECT?

A. In the statement of cash flows, a decrease in accounts receivable is reported as use of cash
B. Dividends do not show up in the statement of cash flows because dividends are considered to be a financing
activity, not an operating activity
C. In the statements of cash flows, interest receivable is considered a financing flow of cash
D. In the statement of cash flows, a decrease in accounts payable is reported as a use of cash
Ans: D

3. You observe that the company’s total equity at the beginning of the year was Rs 7500 and its ending equity as per
the latest financial statement is Rs 8000. The company’s net profit margin is 15%, its annual sales were Rs 8000,
and during the year the company did not issue or repurchase any shares. Using this information we can say that,
the company paid a dividend of:
A. Rs 7500
B. Rs 600
C. Rs 700
D. Rs 500
Ans: C

4. A company replaces its old machine with a new machine, when the old machine is sold the company also records
some profit on its sale, the cash flows that occur on account of this activity will fall under (assume taxes to be
zero):
A. Investing
B. Financing
C. Operating
D. Operating and Investing
Ans: A

5. The difference between the operating cash flows calculated using the direct and the indirect method is to the extent
of:
A. Depreciation and amortization
B. Loss on sale of old machine
C. Interest expense
 D. None of the above
Ans: D

6. An investor exercises her right to convert her debt holdings in a company into equity of that company, at no
additional cost. This transaction will result in:
A. Non-cash investing activity
B. Non-cash financing activity
C. Non-cash operating activity
D. Non-cash investing and financing activity
Ans: B

7. An decrease in pre-paid expenses:

A. Will impact the operating cash flows under the direct method
B. Will impact the operating cash flows under the indirect method
C. Will not impact the cash flows
D. Both A and B
Ans: D

8. A company in an expansion mode, is likely to witness (under reasonable):

A. Negative financing cash flows
B. Negative investing cash flows
C. Negative operating cash flows
D. Negative net change in cash
Ans: B

9. A company sold a machine for Rs 500 when its book value was Rs 455. The net cash flow from this event will be
(assume no taxes):
A. Rs 45
B. Rs 55
C. Rs 500
D. Rs 400
Ans: C

10. Operating cash flows are positively impacted by:

A. Depreciation and amortization
B. Decrease in notes payable
C. Lower interest expenses
D. Increase in marketable securities
Ans: C

11. Investment in marketable securities is an investing activity. True

12. It is possible to prepare operating cash flows using only the balance sheet without any assumptions. False
13. A low profitable company will generally have more transaction from non-cash investing and financing activity.
False
14. Retained earnings is an account that is related to both operating and financing aspect of the cash flow statement.
True
15. Since depreciation is a source of cash, the higher the depreciation the larger the retained earnings account will be.
False
16. When the book value is lower than the market value of an asset, the sale of that asset results in a net cash outflow
for the company. False
17. Keeping all else constant, when a company invests more in its inventory, the operating cash flows are negatively
impacted. True
18. Two accounts that are not considered for calculating net cash flow from operating, investing, and financing
activities are cash and cash equivalent and the retained earnings account. False
19. A company having a higher positive net cash flows from its operating activity will also have to face a higher tax
obligation. False
20. When a company purchases a new equipment, its gross fixed asset account changes by more than its net fixed asset
account. False

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