36. The best measure of a company\'s ability to generate sufficient cash to cont

Question

36. The best measure of a company's ability to generate sufficient cash to continue as a going concern is net cash provided by
A) financing activities.
B) investing activities.
C) operating activities.
D) processing activities.

37. Using the indirect method, if equipment is sold at a gain, the
A) sale proceeds received are deducted in the operating activities section.
B) sale proceeds received are added in the operating activities section.
C) amount of the gain is added in the operating activities section.
D) amount of the gain is deducted in the operating activities section.

38. The statement of cash flows
A) is prepared instead of an income statement under generally accepted accounting principles.
B) is used to assess an entity's ability to pay dividends and meet obligations.
C) is prepared from comparative income statements.
D) reflects earnings per share figures on a cash basis and on an accrual basis in the body of the statement.

39. In the bottom portion of the statement of cash flows worksheet,
A) inflows of cash are debits in the reconciling columns.
B) outflows of cash are debits in the reconciling columns.
C) information pertaining to investing and financing activities only is entered.
D) only significant noncash transactions are entered.

40. Which of the following characteristics does not apply to cash equivalents?
A) Short-term
B) Highly-liquid
C) Readily convertible into cash
D) Sensitive to interest rate changes

Explanation / Answer

36) C Operating activities - if there is no cash flow from operations - i.e. the business, then its sustainability is in question. Selling investments and taking on debt and equity are only short term solutions for cash flow 37) D Gains are deducted in general, and cash flows for indirect method concerns gains/losses 38) B Without cash flows, then they can't meet obligations 39) C financing and investing activities come after operating activities. Non cash items are made in disclosures and not incorporated into the CF statement 40) D This really only applies to longer dated securities e.g. bonds etc

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