Fero Inc. (Fero) is a successful computer consulting services firm that has an established policy of investing its excess cash in short-term, virtually riskless, and highly liquid money market securities. However, it has recently deviated from this policy by investing in commercial paper and medium-cap domestic equities. As well, Fero entered into a $1.0 million lease with Pasquale Inc. (Pasquale) for some specialized computer equipment on December 28, 2008 that will be shipped at the very start of its next fiscal period on January 1, 2009. In exchange for the lease, Fero agrees to provide consulting services to Pasquale. Which of the following activities is one in which Fero is least likely involved? A) Managing cash flow. B) Misclassifying cash flow. C) Ignoring cash flow.
B
i made the same mistake. its not A. i just cant understand what they r trying to say. Your answer: B was incorrect. The correct answer was A) Managing cash flow. Firms can misrepresent their cash generating ability by misclassifying investing activities as operating activities and vice versa. For example, under U.S. GAAP, the cash flow statement reconciles the changes in cash and cash equivalents. Cash equivalents include short-term, highly liquid investments. Some firms park cash in longer-term investments such as marketable debt and equity securities. Typically, the acquisition and disposal cash flows from these longer-term investments are reported as investing activities in the cash flow statement. However, there is no evidence presented that Fero has misclassified its cash flow. Noncash investing and financing activities are not reported in the cash flow statement since they do not result in an inflow or outflow of cash. For example, a capital lease is both an investing and financing decision in that the transaction is the equivalent of borrowing the purchase price. However, since no cash is involved, the transaction is not reported (it is ignored) on the cash flow statement throughout the life of the lease.
I hope this type of question is not on the exam.
I’ve had this question at least twice on Qbank and I get it wrong every time - just a stupid question really
December 28 is my birthday! I also got the question wrong.
newsuper Wrote: ------------------------------------------------------- > I’ve had this question at least twice on Qbank and > I get it wrong every time - just a stupid question > really same here
trying to make cash outflow look like CFI and cash inflow look like CFO. Make the good stuff Operating that will always happen. Make the bad stuff Investing that nobody cares much about
I got it right, but with a blind guess.