C213 Final Exam - Questions & Detailed Solutions

Analyze a statement of cash flows to identify operating, investing, and financing activities. Operating Activities: {Ans: All categories that are on the income statement, and all current assets and liabilities. i.e. sales (cash received from customers); cost of goods sold (cash paid for inventory); operating expenses (cash paid for rent);}Materiality {Ans: The question of whether an item is large enough to make any difference to anyone.}Opportunity Costs: {Ans: The benefits not received because of actions NOT taken. For example, the opportunity cost of going to a basketball game is the increased points that you could have received on the next day's accounting exam if you had spent that time studying.}Financing cash flows {Ans: are those associated with someone investing in your firm, either stockholders (buying and selling your stock and paying dividends) and creditors (borrowing and paying back debt). However, any interest expense on loan payments is an expense and therefore an operating cash flows. Dividends are not an expense but a transfer of retained earnings back to the owners and is not an operating but a financing cash flow.}Service companies {Ans: do not produce products but provide services. These companies do not tend to