Which of the following statements regarding problems that are commonly encountered in the analysis of a firm’s financial reports is FALSE? A) Cash flows may be affected by the exclusion of off-balance sheet obligations. B) Income statement items that may require adjustment include accounting changes, one-time charges and restructuring charges. C) Adjustments to the income statement that may not be recorded include operating leases, take-or-pay contracts and environmental obligations. Your answer: A was incorrect. The correct answer was C) Adjustments to the income statement that may not be recorded include operating leases, take-or-pay contracts and environmental obligations. Adjustments to the balance sheet, (not income statement) that may not be recorded include operating leases, take-or-pay contracts and environmental obligations. Watch the wording AliMan, watch the wording! Cash flows may be affected by the exclusion of off-balance sheet obligations because capitalizing will have different effects on CFO and CFF, right?
AliMan, I answered this question yesterday and I made the exact same mistake/reasoning as you. Balance Sheet! Not Income Statement! =) I believe yes, there should be changes to CFF/CFO & reclassification of CF’s.
yeps - I think changes to CFF and CFO in terms of Rent Expense, Interest Expense and Depreciation Expense
I have a tough time remembering this. If lease is operating lease, all cash flow out is CFO If lease is capitalized Interest expense portion is CFO outflow Amorization of the lease is a reduction of CFF?
C. Because A and B are nto false. Enron/worldcome being example of A. and tons of other companies being example of B.
Ok. I am talking gibberish. What SS is this question from?
I picked "Cash flows may be affected by the exclusion of off-balance sheet obligations. " as false because total cash flows are not affected…they ddn’t explictly ask about the different proportions of CF’s.