"Financial Report":Direct cash flow statement
Questions 1:
Which of the following is the most likely reason for an analyst to choose the direct method rather than the indirect method for analyzing a firm’s operating cash flows?
A、To understand the relationship between net income and operating cash flows
B、To identify operating cash flows by source and by use
C、To avoid making adjustments for non-cash items
【Answer to question 1】B
【analysis】
B is correct.The direct method cash flow statement presents specific operating cash flows by source and use.
A is incorrect because the indirect method starts with net income and presents clearly the relationship between net income and operating cash flows.
C is incorrect because the indirect method cash flow statement adjusts for non-cash items,not the direct method
Questions 2:
A company incurred the following unrealized holding gains in the current year:
●$100,000 on securities held for trading
●$500,000 on the foreign currency translation adjustment of a self-sustaining non-domestic subsidiary
Other comprehensive income for the year is closest to:
A$600,000.
B$100,000.
C$500,000.
【Answer to question 2】C
【analysis】
C is correct.Unrealized holding gains foreign currency translation adjustments are included in other comprehensive income.
A is incorrect.This calculation incorrectly includes the gain on securities held for trading.These gains are recognized in net income,not other comprehensive income:$100,000+$500,000=$600,000.
B is incorrect.This calculation incorrectly excludes the foreign currency translation adjustment and fails to include the gains on securities held for trading.These gains are recognized in net income,not other comprehensive income.
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