Ac 352 Test 2

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Ac 352 Test 2
2013-02-26 22:52:21
Ac 352 Test

Review for Test 2 in AC 352
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  1. Accrual accounting relies on..
    subjective judgments that may introduce measurement error and uncertainity into reported earnings
  2. Statement of cash flows-
    Explains WHY a firm's cash position changed between successive balance sheet dates.
  3. Deriving cash flow information..
    You can ALWAYS derive any one finacial statement from information available in the other three statements
  4. Statement format
    • Operating cash flows- result from event or transactions that enter into the determination of net income; i.e., the cash-based revenues and expenses of a company
    • Investing cash flows- result from the purchase or sale of productive assets like plant and equipment, marketable securities, and from acquisitions and divesitures
    • Financing cash flow- result when a company sells its own stocks or bonds, pays dividends or buys back its own shares, or borrows money and repays the amount borrowed
  5. Operating Cash Flows
    • Inflows: Cash provided by- collecting from customers, receiving dividends, receiving interest
    • Outflows: Cash used for- purchasing services (electricity, etc.) and goods for resale, paying salaries and wages, paying income taxes, paying interest
  6. Investing Cash Flows
    • Inflows: Cash provided by- sale or disposal of property, plant, and equipment, sale or maturity of investments in securities
    • Outflows: Cash used for- purchase of property, plant, and equipment, purchase of investments in securities
  7. Financing Cash Flows
    • Inflows: Cash provided by- borrowing from lenders through formal debt contracts, issuing stock to owners
    • Outflows: Cash used for- repaying principal to lenders, repurchasing stock from owners, paying cash dividends to owners
  8. Statement of Cash Flow formats
    • Direct Method- Lists all cash activities throughout the period
    • Indirect Method- Adjusts Net Income for non-cash activities that occurred during the period
  9. Firms using the _________ are also required to provide a reconciliation between accrual earnings and operating cash flow, and to separately disclose income taxes paid.
    direct approach
  10. Firms using the ________ are required to separately disclose interest paid and income taxes paid.
    indirect approach
  11. Use this table when adjusting Net Income to Operating Cash Flows using the indirect method.
    • ^^^ (left hand side of chart) change in account balances during the year
  12. The indirect method begins with _______.
    Net Income...comes from the Income Statement
  13. Depreciation
    • Step 1. The journal entry that generated the account change was:
    • Dr Deprecation expense.........$158,000
    •       Cr Accumulated depreication...$158,000

    Step 2. Neither of these two accounts involve cash

    Step 3. Because depreciation expense was included in the determination of net income but does not represent a cash outflow, the expense must be added back to net income
  14. Management can improve the short-run appearance of a firm's operating cash flows by:
    • Accelerate the collection of receivables in the current period
    • Special cash discounts or incentive programs to encourage payment
    • Delay the payment of accrued expenses and accounts payable until after period pay
  15. Firms can accelerate the conversion of receivables into cash by:
    • Selling (factoring) receivables – sell the receivables (or rights to collect from customers) to a 3rd party for the amount of the receivables less a fee for the time value of money and the risk that the customer will not pay (bad debts)
    • Securitizing the receivables – bundle the receivables together and sell to a 3rd party as one lump receivable (mortgages and car loans often do this)
    • Borrowing against the receivables (Collateralized borrowing) – take out a loan or note by putting up your receivables as collateral.  If you do not pay the loan, the bank will take the receivables and related future cash flows.
  16. Capital leases vs Operating Leases
    • Capital Leases- an asset and a liability equal to the present value of the minimum lease payments are recorded on the lessee's balance sheet.
    • No immediate cash flow imapct. Interest expense is later shown as an operating cash outflow and the principle payment is a financing cash flow activity
    • Operating Leases- Lessee records no asset or liability on its balance sheet
    • Records the entire amount of the lease as rent expense on the operating cash flow section, resulting in lower operating cash flows compared to capital leases
  17. GAAP puts capital leases on the ________, but operating leases are "off-balance-sheet".
    balance sheet
  18. How can ROA be increased?
    • Increase the operating profit margin, or
    • Increase the intensity of asset untilization (turnover rate)
  19. A company's ability to repay debt is determinded by..
    its capacity to generate cash from operations, asset sales, or external financial markets in excess of its cash needs
  20. A company's willingness to repay debt depends on..
    which of the competing cash needs management believes is most pressing at the moment
  21. In a statement of cash flows, which of the follwing items is reported as a cash outflow from financing activities?
    I. Payments to retire mortgage notes
    II. Interest payments on mortgage notes
    III. Dividend payments
    I and III only
  22. How should a gain from the sale of used equipment for cash be reported in the statement of cash flows using the indirect method?
    In operating activities as a deductiong from income.
  23. Carson Co. has provided the following account...table...

    Kreseley's net income for the period is $150,000. Net cash provided by operating activities in the statement of cash flows should be:
  24. The primary purpose of the statement of cash flows is to provide relevant information about:
    The cash receipts and cash disbursements of an enterprise during the period
  25. Using the indirect method for a statement of cash flow, cash flow from operations:
    can be calculated by adding to or deducting from net income changes in current assets (other than cash) and current liabilities and NONCASH items on the income statement
  26. Rosa Dairy has the follwing activities during 2011:...table

    In Rosa's 2011 statement of cash flows, cash flow from operatings is equal to:
  27. Ledger, Inc. had the follwing activities during 2011:...table..

    In Ledger's 2011 statement of cash flows, net cash used (i.e., cash outflows) in investing activities should be:
  28. Financing activities of a corporation include all of the following except:
    Interest paid on a long-term note payable
  29. Investing activities of a corporation include all of the following except:
    Depreciation on plant assets during the fiscal period
  30. The follwing information has been provided to you by your controller: table...

    What is the net cash flow from operating activities?
  31. The method of preparing the statement of cash flows used by the majority of the firms is the:
    indirect method
  32. A decrease in accounts receivable of $16,000 for the year:
    increases cash flow from operating activities by $16,000
  33. Using the following data, the amount reported as net cash from investing activities is:..table..
  34. A decrease in prepaid expenses of $8,000 for the year:
    increases cash flow from operating activities by $8,000
  35. A useful tool in financial statement analysis is the common-size financial statement. What does this tool enable the financial analyst to do?
    Compare the mix of assets, liabilities, owners' equity, revenue, and expenses within a given industry without respect to realtive size
  36. In a common size cash flow statement, all items are expressed as a percentage of:
  37. Which one of the following successful strategies will increase the Return on Assets (ROA)?
    Increase the profit margin
  38. Returns on Assets (ROA) measures a firm's
    profitable use of its assets
  39. Condensed financial data are presented below for the Phoenix Corporation:..big table..

    The return on assets ratio for 2012 is (rounded):
  40. Manero Company included the following information in its annual repory:..table..

    In a common size income statement for 2010, the operating expenses are expressed as
  41. Post Corporating purchases from suppliers on net 30 day terms, has an Accounts Receivable Turnover of 8 times, and an Inventory Turnover of 12 times. Cash inflows and outflows are:
    negatively mismatched by 45 days.
  42. The percentage of assets financed by long-term is best described by the
    long-term debt to asset ratio
  43. Condensed financial date are presented below for the Phoenix Corporation:..big table..

    If there is no preferred stock, the return on common equity for 2012 is (rounded):