Which of the following could cause a firm's equity position to be weaker than is reflected in the balance sheet.
Answer(s): C
Evaluating available-for-sale securities in a portfolio can be challenging to the analyst. A firm might hold a variety of securities in a portfolio for which the unrealized gains of one or more securities offsets the unrealized losses of other securities. While these values offset each other, the security that has an unrealized loss might be a high-grade investment that is not subject to much fluctuation. On the contrary, the securities that have unrealized gains might be highly volatile securities that were at all time highs at the close of the firm's fiscal period but will these gains be sustainable? It is conceivable then that the firm's equity position might be a bit weaker that the balance sheet suggests.
In a statement of cash flows done using the indirect method all of the following would be included as cash flows from investing activities except for:
Answer(s): D
Gains and losses on the sale of fixed assets are included in cash flows from operating activities. The amount included in the investing activities area is the amount of the asset on the books of the company.
A firm has net total sales of 16,000 and administrative cash expense of 4,500. It paid taxes in the amount of 2,300 and had an increase in accounts payable of 400. The depreciation expense was estimated at 1,200.Then, the firm's operating cash flow was ________.
Answer(s): A
The increase in accounts payable implies that some of the operating expenses were on credit and did not cause a cash outflow. Therefore, this increase must be added to the net sales. Further, depreciation should be ignored since it is a non-cash expense and its effect on taxes is already impounded in the taxes of 2,300.Hence, the total operating cash flow = 16,000 + 400 - 4,500 - 2,300 = 9,600
Which of the following could increase outstanding capital stock?
Answer(s): B
All of these answers would cause a firm's capital stock to increase. While the exercise of stock options or warrants offers a price to the buyer that is more favorable than the firm's current market price, these still result in the issuance of new shares. Likewise, the conversion of bonds to stock swaps debt for equity and the payment of stock dividends means that the firm is issuing new shares.
A firm's operating cash flow is overstated by 90. Its non-cash expenses were correctly stated, noncash revenues were overstated by 55 and a total of 35 went into reducing outstanding current debt. The firm's tax rate is 40%. Then, the firm's net income is ________.
operating cash flow = net income + noncash expenses - non-cash revenues - cash reductions in operating accounts
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