Stama

CHAPTER 2

FINANCIAL STATEMENTS, CASH FLOW, AND TAXES

(Difficulty: E = Easy, M = Medium, and T = Tough)

Multiple Choice: Conceptual

Easy:

Net cash flow Answer: e Diff: E

[i]. Last year Aldrin Co. had negative net cash flow, yet its cash on the balance sheet increased. What could explain these events?

a. Aldrin issued long-term debt.

b. Aldrin repurchased some of its common stock.

c. Aldrin sold some of its assets.

d. Statements a and b are correct.

e. Statements a and c are correct.

Net cash flow Answer: d Diff: E

[ii]. Last year, Blanda Brothers had positive net cash flow, yet cash on the balance sheet decreased. Which of the following could explain the company’s financial performance?

a. The company issued new common stock.

b. The company issued new long-term debt.

c. The company sold off some of its assets.

d. The company purchased a lot of new fixed assets.

e. The company eliminated its dividend.

Net cash flow Answer: c Diff: E R

[iii]. Last year, Sewickley Shoes had negative net cash flow; however, cash on its balance sheet increased. Which of the following could explain this?

a. The company repurchased some of its common stock.

b. The company had large depreciation and amortization expenses.

c. The company issued a large amount of long-term debt.

d. The company dramatically increased its capital expenditures.

e. All of the statements above are correct.

Net cash flow Answer: d Diff: E N

[iv]. Which of the following factors could explain why last year Cleaver Energy had negative net cash flow, but the cash on its balance sheet increased?

a. The company paid a large dividend.

b. The company had large depreciation and amortization expenses.

c. The company repurchased common stock.

d. The company issued new debt.

e. The company made a large investment in new plant and equipment....