Pre-UAS ALK

The three major classifications of activities in a cash flow statement are:

• inflows, outflows, and net flows.

• operating, investing, and financing.

• revenues, expenses, and net income.

• asset, liabilities, and equity

The sale of a building for cash would be classified as what type of activity on the cash flow statement?

• Operating

• Investing

• Financing

Which of the following is most likely to appear in the operating section of a cash flow statement under the indirect method?

• Net income.

• Cash paid to suppliers.

• Cash received from customers.

The first step in cash flow statement analysis should be to:

• evaluate consistency of cash flows.

• determine operating cash flow drivers.

• identify the major sources and uses of cash.

An analyst has calculated a ratio using as the numerator the sum of operating cash flow, interest, and taxes and as the denominator the amount of interest. What is this ratio, what does it measure, and what does it indicate?

• This ratio is an interest coverage ratio, measuring a company’s ability to meet its interest

  obligations and indicating a company’s solvency.

• This ratio is an effective tax ratio, measuring the amount of a company’s operating

  cash flow used for taxes and indicating a company’s efficiency in tax management.

• This ratio is an operating profitability ratio, measuring the operating cash flow generated

  accounting for taxes and interest and indicating a company’s liquidity.

A comparison of a company’s financial results to other peer companies for the same time period is called:

• technical analysis.

• time-series analysis.

• cross-sectional analysis.

Which ratio would a company most likely use to measure its ability to meet short-term obligations?

• Current ratio.

• Payables turnover.

• Gross profit margin.

A company purchases equipment for $200,000 with a five-year useful life and salvage

value of zero. It uses the double-declining balance method of depreciation for two years,

then shifts to straight-line depreciation at the beginning of Year 3. Compared with annual

depreciation expense under the double-declining balance method, the resulting annual

depreciation expense in Year 4 is:

• smaller

• the same

• greater

In contrast to earnings quality, financial reporting quality most likely pertains to:

• sustainable earnings.

• relevant information.

• adequate return on investment.

If a particular accounting choice is considered aggressive in nature, then the financial performance for the reporting period would most likely:

• be neutral.

• exhibit an upward bias.

• exhibit a downward bias.

Answer explanation

Aggressive accounting choices aim to enhance the company’s reported performance

by inflating the amount of revenues, earnings, and/or operating cash flow reported

in the period. Consequently, the financial performance for that period would most likely

exhibit an upward bias