Question

1. What is the primary purpose of the statement of cash flow?

elect one:

a. To provide information about the cash flow from operations for a period

b. To provide information about firm profitability

c. To provide pro forma information that helps users predict future cash flows

d. To provide information about where a company's cash comes from and where it goes

2.Partial financial results are presented below for McDonald's Restaurant:

  

Operating profit     $435,000

Cash flow from:   Operations

      115,000

  Investing      125,600

  Financing    (54,000)

What cash management actions most likely occurred during the year?

Select one:

a. Hamburger Restaurant used cash from operations and from selling long-term assets to pay dividends.

b. Hamburger Restaurant used cash from bank loans or from selling stock and from operations to buy long-term assets.

c. Hamburger Restaurant used cash from bank loans or from selling stock to fund operations and to buy long-term assets.

d. Hamburger Restaurant used cash from operations to buy long-term assets and to repay debt.

3.Brooks Power provided the following information:

Depreciation expense$ 30,000

Funds borrowed from the bank

200,000

Dividends paid to shareholders100,000

Proceeds from sale of building450,000

Purchase of inventories600,000

Purchase of equipment150,000

How much is the net cash from (for) investing activities?

Select one:

a. $400,000

b. $300,000

c. ($200,000)

d. $330,000

4.Pella Windows provided the following income statement information:

Sales$3,100,000

Cost of goods sold  1,650,000

Restructuring charges    320,000

Depreciation     48,000

Interest expense     21,500

Other operating expenses  980,000

Income before taxes     80,500

Income taxes expense   28,175

Net income$  52,325

How much is the company's EBITDA?

Select one:

a. $150,000

b. $ 80,500

c. $470,000

d. $ 11,000

5.Which of the following situations would most likely be observed on the statement of cash flow for a start-up company?

Select one:

a.Operating Cash Flow : positive

Investing Cash Flow: positive

Financing Cash Flow: positive

b.Operating Cash Flow: negative

Investing Cash Flow:negative

Financing Cash Flow:negative

c.Operating Cash Flow: positive

Investing Cash Flow:positive

Financing Cash Flow: NEGATIVE

d.Operating Cash Flow: negative

Investing Cash Flow: positive

Financing Cash Flow: positive

e.Operating Cash Flow: negative

Investing Cash Flow: negative

Financing Cash Flow: positive

6.The activities on the statement of cash flows relate to the Balance Sheet Equation as follows:

Select one:

a. Investing activities less financing activities equals assets

b. Financing activities reflect the mix of liabilities and shareholders's equity

c. Investing activities reflect which assets the company invests in

d. B and C

e. A, B and C

7.Which section of the statement of cash flows best predicts the company's ability to generate future cash flows?

Select one:

a. Operating activities

b. Investing activities

c. Financing activities

d. Change in cash balance

8.A common definition of Free Cash Flow is equal to:

Select one:

a.Cash Flow from Operations less Dividends

b.Cash Flow from Operations less Debt Payments

c.Cash Flow from Operations less Capital Expenditures

d. Cash Flow from Operations less Capital Expenditures less Debt Payments

9.The two most important measures of financial performance are:

Select one:

a.Cash flow from investing and operating activities

b. Cash flow from financing activities and net income

c. Gross profit and net income

d. Cash flow from operations and net income

Are restructuring charges included in operating income? If so why?

Select one:

a.Yes, because restructuring charges, while infrequent, occur often enough to be considered part of normal "core" operations.

b. Yes, because restructuring charges include operational related expenses such as lease write-off costs, asset impairment costs and employee layoff costs.

c.No, because restructuring charges are not part of normal company operations.

d.No, because restructuring charges do not occur on an annual basis..

Answer 1

Requirement 1 (Question 1):-

The correct answer for the question is Option D - To provide information about where a company's cash comes from and where it goes. This statement is true. The primary purpose of the Cash flow statement is to understand the cash receipts and cash payments of the business. Cash flow statement further helps us to understand the different sources from where the cash comes in and also how the cash is paid out. Hence, this is the correct answer.

Option A is incorrect as cash flow is not about providing information about operations alone for the period. Generally, it involves cash flow from investing and financing activities also.

Option B is incorrect as cash flow does not help in arriving at a firm's profitability.

Option C is incorrect as Cash flow does not help in predicting future cash flows.

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