Financial Reporting And Analysis - Financial Reporting And Analysis Section 2
- Option : A
- Explanation : PIA received the cash in 2012 when it recorded the unearned revenue and it was a part of the cash from operations in that year. In 2013, the revenue is earned so it will increase the taxes which will decrease the cash from operations.
2. To compute operating cash flow from net income, we start with net income:
- A
add non-cash charges such as depreciation, subtract the increase in current operating liabilities and add the increase in current operating assets.
- B
add non-cash charges such as depreciation, add the increase in current operating liabilities and subtract the increase in current operating assets.
- C
subtract non-cash charges such as depreciation, add the increase in current operating liabilities and subtract the increase in current operating assets.
- Option : B
- Explanation : To compute operating cash flow from net income, we start with net income, add non-cash charges such as depreciation, add the increase in current operating liabilities and subtract the increase in current operating assets.
3. The following information is available for Nishant Mills Ltd:
| Net income | $45,000 |
| Depreciation | $18,000 |
| Amortization | $10,000 |
Inventories increased by $1,500, accounts receivables decreased by $1,800,and accounts payables increased by $1,000. The net cash flow from operating activities under the indirect method is closest to:
- Option : C
- Explanation : Operating cash flow = Net income + Depreciation and amortization - Increase in working capital Operating cash flow = 45,000 + 18,000 + 10,000 + ( -1500 + 1800 + 1000) = $74,300
4. The following information is available for Nissan Newspapers Ltd.
| Cash balance as of June 30, 2012Â | $58,000 |
| Cash balance as of July 1, 2011Â | $65,000 |
| Cash flows: | Â |
| Operating activities | ($45,000) |
| Financing activities | $90,000 |
The cash flow from investing activities is closest to:
- Option : A
- Explanation : Ending balance = Beginning balance + Cash flows 58,000 = 65,000 - 45,000 + 90,000 + Investing cash flow Investing cash flow = ($52,000)
- Option : A
- Explanation : Cash collected = Revenue - Increase in Accounts receivable Cash collected = $10 million - $4 million = $6 million.
