Question

True or false

1. Calculation of retained earnings is one of the factors cited by our author for why NI and CF may be different.
2. COGS appears on the asset side of the BS.
3. Changes in interest expense do not affect a​ firm’s cash position.
4. the balance sheet identity indicates that total liabilities can be found by adding total assets to total equity.
5. If there is no change in gross fixed assets from one year to the​ next, then net fixed assets would have to have increased.
6. Accounts payable represents​ short-term loans extended to the corporation by suppliers.
7.  An increase in inventory constitutes a use of cash.
8. Ceteris paribus​, an increase in accounts receivable would reduce CFFA.
9. An increase in accounts receivable constitutes a use of cash while a decrease in accounts payable constitutes a source of cash.
10. If CFFA is​ 100, CFTC is 60 and dividends paid is​ 20, then the firm repurchased stock in the amount of 20.
11. If a​ firm’s CFFA or​ “free cash​ flow” is​ negative, this means that the firm will be unable to pay any cash dividends.
12. EBIT can be found by subtracting SGA and Depreciation from the gross profit.

Answer 1

1. Calculation of retained earnings is one of the factors cited by our author for why NI and CF may be different. FALSE
2. COGS appears on the asset side of the BS. FALSE
3. Changes in interest expense do not affect a​ firm’s cash position. FALSE
4. the balance sheet identity indicates that total liabilities can be found by adding total assets to total equity. FALSE
5. If there is no change in gross fixed assets from one year to the​ next, then net fixed assets would have to have increased. FALSE
6. Accounts payable represents​ short-term loans extended to the corporation by suppliers. TRUE
7. An increase in inventory constitutes a use of cash. TRUE
8. Ceteris paribus​, an increase in accounts receivable would reduce CFFA. TRUE
9. An increase in accounts receivable constitutes a use of cash while a decrease in accounts payable constitutes a source of cash. TRUE
10. If CFFA is​ 100, CFTC is 60 and dividends paid is​ 20, then the firm repurchased stock in the amount of 20. TRUE
11. If a​ firm’s CFFA or​ “free cash​ flow” is​ negative, this means that the firm will be unable to pay any cash dividends. TRUE
12. EBIT can be found by subtracting SGA and Depreciation from the gross profit. TRUE