21. Net income for a particular period does not equal cash flow from operations because
A. most firms use the accrual basis of accounting to measure operating performance.
B. most firms typically recognize revenue at the time of sale, independent of when they receive the cash from the sale
C. some firms receive cash before providing services and recognizing revenues.
D. some firms receive cash after they have provided goods and recognized revenues.
E. all of the above
22. The faster a firm grows, the greater is the shortfall in cash and the firm might borrow funds from the bank on a revolving credit arrangement. Why?
A. Most of the cash outflows for expenses occur before the firm receives the cash inflows from a sale.
B. The lag between cash outflows and cash inflows can lead to cash shortfalls,
C. Cash disbursements to employees and suppliers precede cash collections from customers.
D. all of the above
E. none of the above
23. The balance sheet reports
A. the shortfall in cash at the beginning of the year
B. the balance in cash at the end of the year
C. how cash changed during the period.
D. how a firm obtains and uses cash.
E. choices a and b.
24. The income statement
A. measures the increase (or decrease) in net assets from selling goods and services for more (or less) than their costs
B. displays the firm’s sources and uses of cash
C. reports the balance in cash at the beginning and end of the year
D. helps a reader understand how a firm obtains and uses cash.
E. all of the above
25. The statement of cash flows
A. helps the reader judge a firm’s cash flow needs and how a firm has dealt with them
B. reflect the cash flows for the period
C. reports the impact of operations on cash flows
D. reports the impact of investing activities on cash flows
E. all of the above
26. Firms receive cash inflows and disburse cash outflows for investing activities such as to
A. pay dividends
B. build their productive capacity by acquiring property, plant, and equipment
C. make debt service payments
D. all of the above
E. none of the above
27. Firms receive cash inflows and disburse cash outflows for financing activities such as to
A. acquire property, plant, and equipment
B. pay dividends to shareholders
C. purchase intellectual property
D. pay interest on borrowings
E. all of the above
28. Which of the following statements is/are not true?
A. The statement of cash flows reports flows, or changes in cash over time.
B. The balance sheet reports changes in the amounts of cash over time.
C. The last few lines of each statement of cash flows report the amount of cash on each firm’s balance sheet at the beginning and the end of each period.
D. Both U.S. GAAP and IFRS require that the statement of cash flows explain changes in cash and cash equivalents.
E. all of the above are not true.
29. Cash equivalents represent _____ in which a firm has temporarily placed excess cash. We use the term cash flows to refer to flows of both cash and cash equivalents.
A. long-term, highly liquid investments
B. short-term, highly liquid investments
C. short-term, highly illiquid investments
D. long-term, highly illiquid investments
E. common stocks and bonds of other companies
30. Regarding the Statement of Cash Flow, which of the following is not true regarding operations?
A. a financially healthy company generates sustained cash inflows from selling goods and providing services
B. assessed over several years, the cash flow from operations indicates the extent to which operating activities generate more cash than they use
C. a firm can use the excess cash flow from operations to acquire buildings and equipment, pay dividends, retire long-term debt
D. a firm cannot use the excess cash flow from operations for investing and financing activities
E. all of the above are not true
