Cash Flow problem

CFA Level I
#1

A company accrued wages of $2,000 and collected accounts receivable of $10,000. What are the most likely effects of these two transactions on the company’s current ratio and CFO, respectively? (I-increase, D-decrease) CR CFO A. I I B. I D C. D I D. D D

#2

.

#3

C

#4

Does collected AR mean AR Reduction, Cash Increase> If it does – That will increase CR, Increase CFO Wage Payable Increase (Accrued wages) Means Liability increases – do Current ratio will drop, CFO will increase So CFO would be a net Increase because of both items. For current ratio - Numerator remains unchanged, denominator increases, so CR decreases. C?

#5

CR = CA/CL CR1 = CA / CL +2 == decreases? CFO = cash collected - accrued wages = net cash inflow of 8K = INCREASES C??

#6

nevermind, you changed your answer faster than I could type up mine… if I remember correctly, this was from one of the CFAI exams

#7

C?

#8

cpk, This is almost an exact question from June…you got the CFO part, but look at what current ratio is…when you collect A/R, it just moves from one asset account to another, specifically cash. So the numerator doesn’t change, but the denominator increases. It’s C. You could have everything is the ? the same, but ask about the cash ratio, and theb it would increase

#9

liaaba – I just corrected and edited it…

#10

C? CR drops because AR and Liabilities both drop. CFO increases because -AR and +Wages

#11

you need to realize that A/R and cash are both current assets, the movement from A/R to cash is meaningless when looking for Current Ratio

#12

C Cash moved to wages payable. A/R to cash has no impact. So CR go down. Increase in wages payable and decrease in A/R are both added to CFO.