Interpreting Cash Flows Required Identify whether each of the following statements is true or false. Explain your

Question:

Interpreting Cash Flows

Required
Identify whether each of the following statements is true or false. Explain your answers. Write in complete sentences. Computations may be used as part of your explanation.
A. When a company prepares a cash flow statement using the indirect method, it adds depreciation expense to net income because depreciation is a source of cash during a fiscal period.
B. Alpha Company reported an increase in of $2 million during 2004. As a result, Alpha’s cash flow from operating activities was $2 million less than its operating revenues.
C. Beta Company purchased $40 million of merchandise inventory during 2004. Beta’s increased from $5 million to $8 million during the year. Beta’s cash flow statement (indirect method) would report an adjustment to net income of – $3 million.
D. Delta Company reported cost of goods sold of $27 million for 2004. Its merchandise inventory increased by $8 million during the year. If all inventory purchased was paid for in cash, then Delta’s cash payments to suppliers of inventory during the year were $35 million.
E. Gamma Company reported the following:
Net cash flow for operating activities ...... $80
Net cash flow from investing activities ..... 35
Net cash flow from financing activities ....... 50
Net change in cash ............. $ 5
From this information, it appears that Gamma is facing financial problems.

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