Financial Reporting And Analysis MCQ - Financial Reporting And Analysis Section 1

96 The excerpt from a company’s cash flow statement is presented below

Operating activities:
Cash received from customers	£50,000
Investing activities:
Interest and dividends received	£10000
Financing activities:
Net repayment of revolving credit loan	£ 25000

Which of the following standards and formats did the company most likely use in the preparation of its financial statements?

The direct method of cash flow statement presentation shows the specific cash inflows and outflows that result in reported cash flow from operating activities (cash from customers, cash to suppliers, etc.). Companies using IFRS can decide to report interest and dividend receipts as either an investing or operating activity, whereas under U.S. GAAP, they must report such income as an operating activity. The listed operating and investment activities indicate that the company reports under IFRS, using the direct method.

97 An analyst chooses the direct method rather than the indirect method for analyzing firm’s operating cash flows. The most likely reason for his selection is to:

The direct method cash flow statement presents specific operating cash flows by source and use.

98 Compared with the indirect method for reporting cash flow from operating activities, the least likely benefit of the direct method is that it provides:

Providing insight on the differences between net income and cash flow is a benefit of the indirect method. The indirect method starts with net income and integrates a series of adjustments to calculate cash flow from operations.

99 A manufacturing company has an accounts receivable balance of $10 million on 1 January 2014. During 2014 the reported revenue was $150 million and cash collected from customers was $155 million. The accounts receivable balance on 31 December 2014 was most likely:

An increase in a liability is a source of cash and is added. A decrease in liability is a use of cash and is subtracted.

100 In 2012, PIA recorded unearned revenue related to advance booking of its tickets that it will recognize as revenue during 2013. Ignoring income taxes, recognizing advance sale revenue will most likely have which of the following effects on cash from operations in 2013?

Since cash collections exceeded revenue by $5 million, the accounts receivable balance should come down by $5 million.