Financial Reporting And Analysis - Financial Reporting And Analysis Section 2

Avatto>>CFA Level 1>>PRACTICE QUESTIONS>>Financial Reporting And Analysis>>Financial Reporting And Analysis Section 2

1. In 2012, PIA recorded unearned revenue related to advance booking of its tickets, which it will recognize as revenue during 2013. This recognition of the advance sale revenue will most likely have which of the following effects on cash from operations in 2013?

  • 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.
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3. The following information is available for Nishant Mills Ltd:

Net income $45,000
Depreciation $18,000
Amortization$10,000

  • 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
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4. The following information is available for Nissan Newspapers Ltd.

Cash balance as of June 30, 2012 $58,000
Cash balance as of July 1, 2011 $65,000
Cash flows: 
Operating activities($45,000)
Financing activities $90,000

  • 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)
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5. Amanda Mills Ltd. reported revenues of $10 million, expenses of $7.5 million, and a profit of $2.5 million. Accounts receivable increased by $4 million. The cash received from its customers is closest to:

  • Option : A
  • Explanation : Cash collected = Revenue - Increase in Accounts receivable Cash collected = $10 million - $4 million = $6 million.
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