275 b 215 c 285 solution a only the cash flows for

-$275.
B. -$215.
C. $285.
Solution: A
Only the cash flows for the purchase of the shares in an affiliated company are cash from
investing activities; therefore the net amount is - $275,000. Cash flows from trading securities
are operating activities.
Q88-4 ★ Which of the following is least likely a change in cash flow from operations under
U.S. GAAP? (NotesB3-134 8)
A. A decrease in notes payable.
B. An increase in interest expense.
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C. An increase in accounts payable.
Solution ： A
A change in notes payable is a financing cash flow.
Q89-4 Martin, Inc. had the following transactions during 20X7:
Purchased new fixed assets for $75,000.
Converted $70,000 worth of preferred shares to common shares.
Received cash dividends of $12,000. Paid cash dividends of $21,000.
Repaid mortgage principal of $17,000.
Assuming Martin follows U.S. GAAP, which of the following amounts represents
Martin's cash flows from investing and cash flows from financing in 20X7,
respectively?)
Cash flows from investing Cash flows from financing
A. ($5,000) ($21,000)
B. ($75,000) ($21,000)
C. ($75,000) ($38,000)
Solution ： C
Purchased new fixed assets for $75,000 — cash outflow from investing Converted $70,000 of
preferred shares to common shares — noncash transaction Received dividends of $12,000 —
cash inflow from operations
Paid dividends of $21,000 — cash outflow from financing
Mortgage repayment of $17,000 — cash outflow from financing
CFI = — 75,000
CFF = — 21,000 — 17,000 = — $38,000
Q90-4 In preparing a common-size cash flow statement, each cash flow is expressed as a
percentage of: (NotesB3-137 25)
A. total assets.
B. total revenues.
C. the change in cash.
Solution ： B
The cash flow statement can be converted to common-size format by expressing each line item
as a percentage of revenue.
Q91-4 ★ Which of the following transactions is least likely to increase reported operating
cash flow for the period?
A. Financing of payables.
B. Securitization of receivables.
C. Exercise of employee stock options.
Solution ： A
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Financing payables actually reduces operating cash flow as payables are reclassified as
short-term debt. Companies may decrease operating cash flows reported under the indirect
method by using this strategy. Securitization of receivables increases operating cash flows as
the funds received are treated as an operating cash inflow. Exercise of employee stock options
increases operating cash flows due to tax benefits associated with exercise.
Q92-4 ★★ Two firms are identical except that the first pays higher interest charges and
lower dividends, while the second pays higher dividends and lower interest charges.
Both prepare their financial statements under U.S. GAAP. Compared to the first, the
second will have cash flow from financing (CFF) and earnings per share (EPS) that are:
CFF EPS
A. The same Higher
B. Lower Higher
C. Lower The same
Solution ： B
Interest paid is an operating cash flow, and dividends paid are a financing cash flow, so the
firm that pays higher dividends will have lower CFF. The firm with lower interest expense will
have higher EPS.