ACCT 712
ACCT 712
Final Exam
1. Net cash will be different from a company's net income because of the changes in working capital (inventories, receivables, etc.) which is derived in the operating flows on a cash flow statement. By taking net income and making adjustments to reflect the changes, net cash flow from operating section will show how cash was generated. Another main reason is the translation process from accrual accounting to cash accounting because for example revenue reported on a accrual basis may not have been collected but on the cash flow statement and changes in cash is accounted for. For the operating section of the cash flow (CF) statement a positive sign will show high quality and identifies that the cash is flowing is available to pay operating expenses. For the investing section of the CF statement a negative sign will usually show investing of capital expenditures, investments, acquisitions. For a growing company a negative investing flow is preferred to show grow potential. Lastly, the financing section of the CF statement should show a positive to be evidence in the ability to pay debts or other flows. A growing company would show negative cash flow due to the start up of taking out debt to finance capital within a growing company. Investing and financing sections for a growing company will likely show a negative due to the growth potential and start up of limited cash flows available. Sale proceeds from a sale of accounts receivable will result in a gain on sale affecting the balance sheet, income statement, CF statement.
2. Intrinsic value method - is the difference between the market price and the preset strike price at any point in time. It represents the amount realized by the option holder, if exercised. Also known as the true value of a company's stock. Fair value method - total compensation expense is computed based on the fair value of the options expected to vest on the date the options are granted to the
Final Exam
1. Net cash will be different from a company's net income because of the changes in working capital (inventories, receivables, etc.) which is derived in the operating flows on a cash flow statement. By taking net income and making adjustments to reflect the changes, net cash flow from operating section will show how cash was generated. Another main reason is the translation process from accrual accounting to cash accounting because for example revenue reported on a accrual basis may not have been collected but on the cash flow statement and changes in cash is accounted for. For the operating section of the cash flow (CF) statement a positive sign will show high quality and identifies that the cash is flowing is available to pay operating expenses. For the investing section of the CF statement a negative sign will usually show investing of capital expenditures, investments, acquisitions. For a growing company a negative investing flow is preferred to show grow potential. Lastly, the financing section of the CF statement should show a positive to be evidence in the ability to pay debts or other flows. A growing company would show negative cash flow due to the start up of taking out debt to finance capital within a growing company. Investing and financing sections for a growing company will likely show a negative due to the growth potential and start up of limited cash flows available. Sale proceeds from a sale of accounts receivable will result in a gain on sale affecting the balance sheet, income statement, CF statement.
2. Intrinsic value method - is the difference between the market price and the preset strike price at any point in time. It represents the amount realized by the option holder, if exercised. Also known as the true value of a company's stock. Fair value method - total compensation expense is computed based on the fair value of the options expected to vest on the date the options are granted to the