1. Which statement is FALSE?

a) Over an extended period of time average cash flow from operations would be expected to be higher than average net income.

b) Amortization of goodwill reduces net income and is a cash outflow.

c) Payment of a 5% stock dividend will not appear in the statement of cash flows.

d) A gain on sale of an asset would require adjusting net income, if preparing the statement of cash flows using the indirect method.

2. Which statement is FALSE?

a) The financing section of the statement of cash flows (prepared in accordance with GAAP) contains all cash inflows and cash outflows, relating to the financing of a company.

b) Depreciation and amortization expense needs to be added back to net income if preparing the statement of cash flows using the indirect method.

c) An increase in assets would usually show as an outflow in the statement of cash flows.

d) A decrease in liabilities would usually show as an outflow in the statement of cash flows.

3. Which statement is FALSE?

a) Many financial analysts subtract interest paid from cash from operations and reclassify it as part of cash from financing activities.

b) Depreciation expense decreases net income, but is not a use of cash.

c) Users sometimes compute net income plus depreciation and amortization (for example EBITDA) as a crude proxy for operating cash flows.

d) Increases in working capital are a source of funds.

4. Which statement is FALSE?

a) In firms that are experiencing tremendous growth, it is rare that net income will exceed cash generated by all activities.

b) Interest income is recorded as an operating inflow of cash.

c) A decrease in a liability is a use of cash.

d) The cash adequacy ratio is normally measured over an extended period of time to remove the effect of random disturbances.