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e. The statement of cash flows shows how much the firm’s cash--the
total of currency, bank deposits, and short-term liquid securities (or cash
equivalents)--increased or decreased during a given year.
3. Which of the following statements is CORRECT?
a. Dividends paid reduce the net income that is reported on a company’s
income statement.
b. If a company uses some of its bank deposits to buy short-term, highly
liquid marketable securities, this will cause a decline in its current assets
as shown on the balance sheet.
c. If a company issues new long-term bonds during the current year, this
will increase its reported current liabilities at the end of the year.
d. Accounts receivable are reported as a current liability on the balance
sheet.
e. If a company pays more in dividends than it generates in net income,
its retained. earnings as reported on the balance sheet will decline from
the previous year's balance.
4. Last year Roussakis Company’s operations provided a negative net
cash flow, yet the cash shown on its balance sheet increased. Which of
the following statements could explain the increase in cash, assuming
the company’s financial statements were prepared under generally
accepted accounting principles?
a. The company repurchased some of its common stock.
b. The company dramatically increased its capital expenditures.
c. The company retired a large amount of its long-term debt.
d. The company sold some of its fixed assets.
e. The company had high depreciation expenses.