Financial Reporting And Analysis - Financial Reporting And Analysis Section 2

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11. Retiring long-term debt is a:

  • Option : A
  • Explanation : Retiring long-term debt is a cash outflow related to financing activities.
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12. The retained earnings over the year increased by $4 million. The net income was $5 million. The dividend paid was most likely:

  • Option : C
  • Explanation : Cash dividend paid = net income – increased in retained earnings = 5 – 4 = 1.
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13. The following information is available for Frampton Corporation Ltd.

Cash received from customers $12,000
Cash paid to employees $2,000
Cash paid for income tax $1,500
Cash paid for purchase of equipment $20,000
Cash paid for dividends $1,800
Cash paid to retire long term debt $15,000

  • Option : B
  • Explanation : Cash paid for dividends + cash paid to retire long term debt, 1800+15000 = 16800$.
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14. The following information is available for HTC Corporation.

Income Statement Extract  20122011
Operating income $14 million$12 million
Depreciation$5 million$3 million
Net income $9 million$7 million

Balance Sheet Extract  20122011
Current Assets$8 million$6 million
Current Liabilities $10 million$12 million
The total adjustment in order to compute operating cash flow is closest to:

  • Option : B
  • Explanation :
    Add depreciation $5 million
    Subtract increase in current assets ($2 million)
    Subtract decrease in current liabilities ($2 million)
    Total adjustment $1 million
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