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How can management use data from the cash flow statement to improve its management of cash? As an investor, how will you use information from the cash flow statement? How can management use the knowledge about the company's operating cycle and data from the cash flow statement to control cash?

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Collen Von
Collen VonLv2
30 Sep 2019

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Lansing Company s 2017 income statement and selected balance sheet data (for current assets and current liabilities) at December 31, 2016, and 2017, follow:

1) Prepare the cash flow from the operating activities section only of the company's 2017 statement of cash flows using the indirect method.

2) Prepare the cash flow from the operating activities section only of the company's 2017 statement of cash flows using the direct method.

1) Is carrying value ever the same as market value?

2) What major advantage does a company that has positive freecash flow have over a company that has negative free cash flow?

1) Which statement is more useful - the income statement or thestatement of cash flows?

2) How would you respond to someone who says that the mostimportant item on the statement of cash flows is the change in thecash balance for the year?

3) If a company has positive earnings, can cash flow fromoperating activities ever be negative?

1) How are past performance and industry norms useful inevaluating a company's performance? What are their limitations?

2) What is one way a company can improve its earnings per sharewithout improving its earnings or net income?

3) Why is it essential that management compensation, includingbonuses, be linked to financial goals and strategies that achieveshareholder value?

Highlight your answers.
1. The indirect method is used to develop Which section of the cash flow statement?
a. Operating
b. Investing
c. Financing
d. All of them.
2. How is "depreciation expense" treated in developing cash flow statement using the indirect method?
a. Add to net income in calculating cash flow from operating activities
b. Subtracted from net income in calculating cash flow from operating activities
c. It is part of investing activities as it is related to PPE
d. It is not considered as it is not a cash activity
3. How is "increase in inventory" treated in developing cash flow statement using the indirect method?
a. Add to net income in calculating cash flow from operating activities
b. Subtracted from net income in calculating cash flow from operating activities
c. It depends
d. It is part of investing activities
4. How is "loss in selling machinery" treated in developing cash flow statement using the indirect method?
a. Add to net income in calculating cash flow from operating activities
b. Subtracted from net income in calculating cash flow from operating activities
c. It is part of investing activities as it is related to PPE
d. we need to know the selling price of the machinery to decide.
5. How is "decrease in investment" treated in developing cash flow statement using the indirect method?
a. Add to net income in calculating cash flow from operating activities
b. Subtracted from net income in calculating cash flow from operating activities
c. It is part of investing activities
d. It depends on whether it's long-term or short-term investment.

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