ACC 305 Lecture Notes - Lecture 9: Accrual, Cash Flow, Strategic Sourcing

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orangegnat648

10 Mar 2019

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Objective 3: information useful in assessing company cash flows. Financial reporting should provide information to help external investors, lenders, and other creditors in assessing the amounts, timing and uncertainty of the prospective net cash inflows to the company. Company"s ability to generate net cash inflows determines both its ability to pay dividends and interest and the market prices of its securities. These affect the cash flows to investors, lenders, and creditors. Provides a better basis for assessing the company"s past and future performance than information solely about cash receipts and payments. Information about cash flow changes in the company"s resources and claims. Financial reporting should provide information about how a company"s cash flows cause changes in the company"s resources and claims. Cash flow information shows how a company obtains and spends cash for its operating, investing, and financing activities. Investors, lenders, and other creditors use cash flow information about a company to: Help understand its operations and its cash-generating ability.

Related Questions

Choose the correction answer

15. The statement of cash flowsprovides information to help investors and creditors assess thecash and noncash investing and financing transactions during theperiod.

T F

16. The net increase(decrease) in cash reported on the statement of cash flows shouldreconcile the beginning and ending cash balances reported in thecomparative balance sheets.

T F

17. Anobjective of the statement of cash flows is to

a. disclose changes during the period in all assetand all equity accounts.

b. disclose the change in working capital during theperiod.

c. provide information about the operating,investing, and financing activities of an entity during aperiod.

d. None of these answers are correct.

18. Theprimary purpose of the statement of cash flows is to provideinformation

a. about the operating, investing, and financingactivities of an entity during a period.

b. that is useful in assessing future cash flowprospects.

c. about the cash receipts and cash payments of anentity during a period.

d. about the entity's ability to meet itsobligations and to pay dividends.

19. Cash equivalents are

a. treasury bills, commercial paper, and moneymarket funds purchased with excess cash.

b. investments with original maturities of threemonths or less.

c. readily convertible into known amounts ofcash.

d. All of these answers are correct.

20. Xanthe Corporation had the following transactions occur in thecurrent year:

1. Cash sale of merchandise inventory.

2. Sale of delivery truck at book value.

3. Sale of Xanthe common stock for cash.

4. Issuance of a note payable to a bank forcash.

5. Sale of a security held as anavailable-for-sale investment.

6. Collection of loan receivable.

How many of the above items willappear as a cash inflow from investing activities on a statement ofcash flows for the current year?

a. Five items

b. Four items

c. Three items

d. Two items

erinchimpanzee626

Metro Clinicâ, a nonprofitâ organization, estimates that it can save $30,000 a year in cash operating costs for the next 10 years if it buys aâ special-purpose eye-testing $135,000. No terminal disposal value is expected. Metro Clinics required rate of return is 14â%. Assume all cash flows occur atâ year-end except for initial investment amounts. Metro Clinic Metro Clinic usesâ straight-line depreciation.

a. Net present valueâ (NPV

b. Payback period

c. Internal rate of return

d. Accrual accounting rate of return based on net initial investment

e. Accrual accounting rate of return based on average investment

Requirement 2. What other factors should Metro Clinic consider in deciding whether to purchase theâ special-purpose eye-testingâ machine?

A. Quantitative financial aspects.

B. Financingâ factors, such as the availability of cash to purchase the new equipment.

C. Qualitativeâ factors, such as the benefits to its customers of a betterâ eye-testing machine and theâ employee-morale advantages of havingâ up-to-date equipment.

D. All of the above.

E. None of the above. Using all four of the capital budgeting methodologies from requirement 1 will give management sufficient information to determine whether or not an investment in theâ eye-testing machine meets the organzation goals of the company.