5/9/2016

Homework#3|Coursera

Homework #3

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1.
Which of the following would be a cash ow from operating activities?
(check all that apply)
Purchases of equipment
Correct Response

Purchases of equipment are an investing cash ow.

Collections from customers

Incorrect Response

Operating cash ow.

Loss on sale of equipment

Incorrect Response

Loss on sale of equipment is a cash ow from investing

activities.

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Amortization of a patent
Incorrect Response

Amortization of a patent is a noncash transaction, so it would

not be a cash ow.

Payments for salaries and wages

Correct Response

Operating cash ow.

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2.
Which of the following would be a cash ow from nancing activities?
(check all that apply)
Payments to suppliers
Correct Response

Payments to suppliers are operating cash ows.

Payments to acquire a company

Incorrect Response

Payments to acquire a company are investing cash ows.

Proceeds from issuing stock

Correct Response

Cash ow from nancing activities.

Proceeds from selling equipment

Incorrect Response

Proceeds from selling equipment are investing cash ows.

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Repayments of principal portion of debt

Correct Response

Cash ow from nancing activities.

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3.
A company has the following cash ows:
Cash from operations 10
Cash from investing activities (1)
Cash from nancing activities (9)
Which growth stage best describes this pattern of cash ows?
Decline
Correct Response

This pattern is typical for a company in decline. The company

still has a positive cash from operations, but is investing very
little in long-term assets, indicating that it doesn't have many
new opportunities. The company uses its excess free cash ow
to pay dividends, pay down debt, or buy back equity, which
leads to a negative nancing cash ow.

Early growth
Stable
Perky
Start-up

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4.
A company bought $50,000 of inventory for $20,000 cash, with the
balance due to the supplier in 30 days. What is the operating cash ow
in this transaction?
$0
($50,000)
($20,000)
Correct Response

You can think of this as two transactions. First, the company

bought $20,000 of inventory with cash. This is an operating
cash ow. Second, the company bought $30,000 of inventory
on account. This is a non-cash transaction. So, the operating
cash ow is ($20,000).

($70,000)
($30,000)

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5.
Which of the following would be shown as a negative number in the
Operating section of the SCF under the indirect method? (check all that
apply)
Capital expenditures
Incorrect Response

Capital expenditures are an investing activity.

Decrease in Accounts Receivable

Incorrect Response

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A decrease in Accounts Receivable would be added back

(decrease in a noncash asset = increase in cash on the balance
sheet equation).

Decrease in Accounts Payable

Correct Response

A decrease in Accounts Payable would be subtracted (decrease

in liability = decrease in cash on the balance sheet equation).

Depreciation on a building
Incorrect Response

Depreciation is added back to Net Income under the indirect

method, so it would be a positive number.

Gain on sale of equipment

Correct Response

Gain on sale of equipment would be subtracted from Net

Income under the indirect method (it increased net income but
must be subtracted out because it is not operating, but
investing).

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6.
A company has Net Income of $10, which included $2 of depreciation
expense. There were no other noncash expenses in Net Income and
there were no gains or losses. Accounts receivable was $20 at the
beginning of the year and $25 at the end of the year. Accounts Payable
was $15 at the beginning of the year and $5 at the end of the year.
Inventory was $12 at the beginning of the year and $7 at the end of the
year. All other balance sheet accounts were unchanged over the year.
What was the companys Cash Flow from Operating Activities?
$7

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$2
$12
($2)
Incorrect Response

Lets do the indirect method! Start with Net Income of $10. Add
back $2 of Depreciation Expense. Subtract the increase in A/R
of $5. Subtract the decrease in A/P of $10. Add the decrease in
Inventory of $5. The answer is $10 + $2 $5 $10 + $5 = $2.

$22

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7.

A company put together a preliminary version of its nancial

statements. Its Net Income was $300, its Depreciation Expense was
$80, and its Cash Flow from Operations was $190. The accountant
found an error in computing straight-line Depreciation Expense. It
should have been $70. What is Cash from Operations after xing this
mistake? (you can ignore taxes)
$190
Correct Response

Net Income would increase by $10 with the smaller expense.

The amount of depreciation expense added back would go
down by $10. These would cancel each other out and there
would be no eect on Cash from Operations. So, Cash from
Operations would remain at $190.

$200
$180
$370
$0
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8.

A company sold PP&E for $200 cash. Prior to the sale, the net book
value of the PP&E on the nancial statements was $240. Thus, the
company recorded a Loss on Sale of Equipment of $40 in Net Income.
What is the operating cash ow in this transaction?
$160
$40
$200
$0
Correct Response

The answer is zero! The entire $200 cash is an investing cash

ow. The loss will be added back in the operating section, but
that is merely to avoid double counting, since the loss also
shows up in Net Income (i.e., the loss reduced Net Income by
$40, then we added back $40 in the operating section to get to
no eect on operating cash ows).

$240

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9.
During the year, a company sold $500 of inventory, paid $400 to
suppliers for inventory previously purchased on account, purchased
$100 of inventory for cash, acquired $75 of inventory from another
company in an acquisition, and translated into US dollars the value of
inventory held in foreign subsidiaries, which increased inventory by
$25. Which of these Inventory transactions would show up in the
operating section of the SCF? (check all that apply)
Acquired $75 of inventory from another company in an
acquisition
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Correct Response

Acquisitions and foreign currency adjustments were two

reasons given in the video for why a number on the SCF might
not match the change on the Balance Sheet. Thus, those two
transactions will not appear in the operating section. In the
other cases, the sale or purchase of Inventory, or payments to
suppliers, will show up in the operating section.

Paid $400 to suppliers for inventory previously purchased on

account
Correct Response

Acquisitions and foreign currency adjustments were two

reasons given in the video for why a number on the SCF might
not match the change on the Balance Sheet. Thus, those two
transactions will not appear in the operating section. In the
other cases, the sale or purchase of Inventory, or payments to
suppliers, will show up in the operating section.

Sold $500 of inventory

Incorrect Response

Acquisitions and foreign currency adjustments were two

reasons given in the video for why a number on the SCF might
not match the change on the Balance Sheet. Thus, those two
transactions will not appear in the operating section. In the
other cases, the sale or purchase of Inventory, or payments to
suppliers, will show up in the operating section.

The value of inventory held in foreign subsidiaries increased

by $25 when translated into US dollars
Correct Response

Acquisitions and foreign currency adjustments were two

reasons given in the video for why a number on the SCF might
not match the change on the Balance Sheet. Thus, those two
transactions will not appear in the operating section. In the
other cases, the sale or purchase of Inventory, or payments to
suppliers, will show up in the operating section.

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Purchased $100 of inventory for cash

Incorrect Response

Acquisitions and foreign currency adjustments were two

reasons given in the video for why a number on the SCF might
not match the change on the Balance Sheet. Thus, those two
transactions will not appear in the operating section. In the
other cases, the sale or purchase of Inventory, or payments to
suppliers, will show up in the operating section.

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10.
A company had EBITDA of $1000, Depreciation and Amortization
Expense of $100, Interest Expense of $100, and Tax Expense of $50.
What was the companys Net Income?
$950
$1250
$1000
$750
Correct Response

EBITDA = Net Income (or Earnings) + Depreciation and

Amortization Expense + Interest Expense + Tax Expense. Thus,
$1000 = Net Income + $100 + $100 + $50 => Net Income =
$1000 $250 = $750.

($750)

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