Question

Of the a. Predict future cash flows. b. Evaluate management decisions c. Predict ability to make payments to lenders d. All of the above. 5. Financing activities are most closely related to a. Current assets to current liabilities b. Long-term assets. c. Long-term liabilities and shareholder's equity d. Net income and dividend. 6. Which item does not appear on a statement of cash flows prepared by the indirect method? a. Collections from customers. b. Net income c. Depreciation d. Gain on sale of land 7. Robotics Inc. Eamed net income of $60,000 after deducting amortization of S4,000 and all other expenses. Current assets increased by $3,000 and current liabilities decreased by $5,000. Using the indirect method, how much was Robotics cash flows from operating activities. Show the Woking. a. $48,000 b. $50,000 c. $52,000 d. $56,000 8. ABC Corporation borrowed $15,000, issued common shares of S10,000, and paid dividends of S25,000. What was ABC Corporation's net cash provided or used by financing activities? a. SO b. S25,000 c. S25,000 d. $50,000 9. Robotics Inc. Earned net income of $60,000 after deducting depreciation of $4,000 and all other expenses. Current assets increased by $3,000 and current liabilities decreased by $5,000. Using the indirect method, how much was Robotics cash flows from operating activities. Show the Woking. c. $48,000 f. 550,000 g S52,000 h. 556,000 10. ABC Corporation borrowed $15,000, issued common shares of $10,000, and paid dividends of $25,000. What was ABC Corporation's net cash provided or used by financing activities? b. $25,000 c. S25,000 d. S50,000 b. SO

Answer 1

4.

the purpose of cash flow is to predict future cash flows which in turn helps in assessing the future cash requirments of the business. Cash flows can be used to evaluate the management decisions as it provides information of financing and investing activities. Cash flow can also be used to predict availability of funds for lenders as cash flow can help in assessing liquidity and solvency of the company.

Hence the correct answer is d. all of the above

5.

Financing activity are related to the change in the size of composition of owners equity and borrowing of the enterprise. Hence financing activity is most closely related to long term liabilities and share holde equity.

hence the correct answer is c. long term liabilities and share holde equity.

6.

in a cash flow statement only cash transactions are included and all non cash transactions are excluded. Non cash transactions include depreciations and amortization expenses and deferred income tax.

Hence the correct answer is c. Depreciation

7.

given net income 60000

amortization expenses 4000

current assets increased by 3000

current liabilities decreased by 5000

Net profit	$60,000
add amortizarion expenses	$4,000
operating profit before working capital changes	$64,000
less increase in current assets	($3,000)
less decrease in current liabilities	($5,000)
cash flows from operating activity	$56,000

Hence the correct answer is d. $56,000.

8

Cash flows from financing activity
Add increase in borrowings	$15,000
Add increase in common stock	$10,000
less dividend paid	$25,000
Cash flows from financing activity	$0

Hence the correct answer is a. $0.

9.

given net income 60000

amortization expenses 4000

current assets increased by 3000

current liabilities decreased by 5000

Net profit	$60,000
add depreciation expenses	$4,000
operating profit before working capital changes	$64,000
less increase in current assets	($3,000)
less decrease in current liabilities	($5,000)
cash flows from operating activity	$56,000

Hence the correct answer is d. $56,000.

10.

Cash flows from financing activity
Add increase in borrowings	$15,000
Add increase in common stock	$10,000
less dividend paid	$25,000
Cash flows from financing activity	$0

Hence the correct answer is a. $0.