Chapter 16 Discussion Questions
1. Describe each of the three types of cash flows on a cash flow statement:
2. What is a noncash investing and financing transaction (NCIF)?
3. The indirect method starts with the net income, as if to say that net income is equal to cash flow. Why might the net income NOT be equal to the amount of cash flow from operations? (In other words, why do we need to make certain adjustments to convert net income to cash flow?)
4. When using the indirect method, the depreciation expense used to determine net income is ADDED back to the net income. Why is it added back?
5. Why would an increase in accounts receivable be SUBTRACTED from net income to derive cash flow from operations?
6. Name two cash transactions that would be classified as investing transactions.
7. Name two cash transactions that would be classified as financing transactions.
8. The final figure on the cash flow statement must match one account balance on another financial statement. What account is it and what statement is it on?
9. How is free cash flow calculated?
10. Larson Company sold some equipment, making a gain on the sale. How would this gain be treated in the cash flow from operations section? Should it be added or subtracted?
11. Decide whether each of the following transactions would be considered an operating, investing or financing transaction. Place an “O”, “I” or “F” next to each one.
12. Ross Company reported net income of $300,000 last year, but ended the year with a cash balance of zero. How is this possible?
13. Do you have questions about this chapter. Please post them on the discussion board.
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