Why is the operating activities section of the statement of cash flows often believed to be the most important part of the statement? a

1. Why is the operating activities section of the statement of cash flows often believed to be the most important part of the statement?
   a. Because it shows the dividends that have been paid to stockholders.
   b. Because it indicates a company's ability to generate cash from sales to meet current cash payments for goods or services.
   c. Because shows the net increase or decrease in cash during the period.
   d. Because it gives the most information about how operations have been financed.

b

2. One rationale for the statement of cash flows is to
   a. ensure that the cash account balances at year-end.
   b. reconcile differences between net income and cash receipts and disbursements.
   c. calculate the company's free cash flow.
   d. examine the cash effects of income from discontinued operations, extraordinary items and
   changes in accounting principles.

b

3. Which of the following is not one of the reasons why net income differs from cash flows from
   operations under the indirect method of calculating cash flows?
   a. non-cash items, such as depreciation and amortization
   b. changes in working capital accounts
   c. gains and losses related to the sale of plant, property and equipment
   d. sale or repurchase of capital stock

d

4. A company in the growth phase of its product life cycle will normally have the following pattern of
   cash flows
   a. Negative cash flows from operations, negative cash flows from investing and positive cash
   flows from financing.
   b. Negative or positive cash flows from operations, negative cash flows from investing and
   positive cash flows from financing.
   c. Positive cash flows from operations, positive cash flows from investing and positive cash
   flows from financing.
   d. Negative or positive cash flows from operations, negative cash flows from investing and
   negative cash flows from financing

b

5. Which of the following is an adjustment that would need to be made to net income when calculating
   cash flows from operations under the indirect method?
   a. Subtract amortization expense
   b. subtract gain on sale of subsidiary
   c. add an increase in accounts receivable
   d. add a decrease in accounts payable

b

6. If a firm is growing and expanding its accounts receivable and inventories faster than its current
   operating liabilities its cash flow from operation will normally be
   a. greater than net income
   b. less than net income
   c. greater than the change in working capital from operations
   d. greater than the change in cash

b

7. Firms with short operating cycles will experience less of a lag between the creation and delivery of
   their products and the collection of cash from customers because
   a. their cash flow from operations will be much greater than their working capital from
   operations.
   b. their cash flow from operations will not differ much from their working capital from
   operations.
   c. their cash flow from operations will be much less than their working capital from
   operations.
   d. there will be no relation between their cash flow from operations and working capital from
   operations.

b

8. Normally, cash flows from operations will peak during which phase of the product life cycle?
   a. Introduction
   b. Growth
   c. Maturity
   d. Decline

c

9. Normally, cash flows from investing activities will start providing cash during which phase of the
   product life cycle?
   a. Introduction
   b. Growth
   c. Maturity
   d. Decline

c

10. Normally, cash flows from financing will start using cash during which phase of the product life
    cycle?
    a. Introduction
    b. Growth
    3-3
    c. Maturity
    d. Decline

c