If one company\'s Balance Sheet shows a huge decrease in its Notes Payable (N/P)
ID: 2816508 • Letter: I
Question
If one company's Balance Sheet shows a huge decrease in its Notes Payable (N/P) balance compared with the previous year, which one of the following analyses do you think is wrong? 1. The decrease of N/P indicates the company has borrowed a lot of long-term debt during the year. It must have increased its cash flows. 2. The decrease of N/P indicates the company has paid a lot of its previously existing long-term debt. 3. The decrease of N/P must have caused cash out-flows. 4. The decrease of N/P will reduce the amount of Interest Expenses in the future years.You have been investigating the performance of two companies - Company A and Company B - that operate in the same industry segment. Both companies are considered quite successful in their operating results. Their revenues are the same; and their net profits are the same. The only difference is the trends of their Assets. The amount of the Company A's Total Assets has been shrinking recently; while that of the Company B's Total Assets has been growing. You must conclude the performance of these two companies up to this point. Which company has conducted its business better? Do not consider the future performance. 1. Company A has been performing better than Co. B. 2. Company B has been performing better than Co. A. 3. Because their revenues and net profits are the same, there is no difference.
Which one of the following is considered an "Investing Activity" of a company? 1. The company has collected its outstanding Accounts Receivable amount. 2. The company has purchased Inventory for the next three day's operations. 3. The company has purchased a piece of kitchen equipment that will be in use for the next 5 years. 4. The company has made a monthly payment for its long-term debt.
Which one of the following is considered a "Financing Activity" of a company 1. A payment has been made for a previous purchase of supplies that had not been paid at the time. 2. A monthly payment has been made for a long-term debt. 3. A building has been purchased. 4. A loan of $100,000 has been made (lent) to a local business with the annual interest at 5%. If one company's Balance Sheet shows a huge decrease in its Notes Payable (N/P) balance compared with the previous year, which one of the following analyses do you think is wrong? 1. The decrease of N/P indicates the company has borrowed a lot of long-term debt during the year. It must have increased its cash flows. 2. The decrease of N/P indicates the company has paid a lot of its previously existing long-term debt. 3. The decrease of N/P must have caused cash out-flows. 4. The decrease of N/P will reduce the amount of Interest Expenses in the future years.
You have been investigating the performance of two companies - Company A and Company B - that operate in the same industry segment. Both companies are considered quite successful in their operating results. Their revenues are the same; and their net profits are the same. The only difference is the trends of their Assets. The amount of the Company A's Total Assets has been shrinking recently; while that of the Company B's Total Assets has been growing. You must conclude the performance of these two companies up to this point. Which company has conducted its business better? Do not consider the future performance. 1. Company A has been performing better than Co. B. 2. Company B has been performing better than Co. A. 3. Because their revenues and net profits are the same, there is no difference.
Which one of the following is considered an "Investing Activity" of a company? 1. The company has collected its outstanding Accounts Receivable amount. 2. The company has purchased Inventory for the next three day's operations. 3. The company has purchased a piece of kitchen equipment that will be in use for the next 5 years. 4. The company has made a monthly payment for its long-term debt.
Which one of the following is considered a "Financing Activity" of a company 1. A payment has been made for a previous purchase of supplies that had not been paid at the time. 2. A monthly payment has been made for a long-term debt. 3. A building has been purchased. 4. A loan of $100,000 has been made (lent) to a local business with the annual interest at 5%. If one company's Balance Sheet shows a huge decrease in its Notes Payable (N/P) balance compared with the previous year, which one of the following analyses do you think is wrong? 1. The decrease of N/P indicates the company has borrowed a lot of long-term debt during the year. It must have increased its cash flows. 2. The decrease of N/P indicates the company has paid a lot of its previously existing long-term debt. 3. The decrease of N/P must have caused cash out-flows. 4. The decrease of N/P will reduce the amount of Interest Expenses in the future years.
You have been investigating the performance of two companies - Company A and Company B - that operate in the same industry segment. Both companies are considered quite successful in their operating results. Their revenues are the same; and their net profits are the same. The only difference is the trends of their Assets. The amount of the Company A's Total Assets has been shrinking recently; while that of the Company B's Total Assets has been growing. You must conclude the performance of these two companies up to this point. Which company has conducted its business better? Do not consider the future performance. 1. Company A has been performing better than Co. B. 2. Company B has been performing better than Co. A. 3. Because their revenues and net profits are the same, there is no difference. You have been investigating the performance of two companies - Company A and Company B - that operate in the same industry segment. Both companies are considered quite successful in their operating results. Their revenues are the same; and their net profits are the same. The only difference is the trends of their Assets. The amount of the Company A's Total Assets has been shrinking recently; while that of the Company B's Total Assets has been growing. You must conclude the performance of these two companies up to this point. Which company has conducted its business better? Do not consider the future performance. 1. Company A has been performing better than Co. B. 2. Company B has been performing better than Co. A. 3. Because their revenues and net profits are the same, there is no difference.
Which one of the following is considered an "Investing Activity" of a company? 1. The company has collected its outstanding Accounts Receivable amount. 2. The company has purchased Inventory for the next three day's operations. 3. The company has purchased a piece of kitchen equipment that will be in use for the next 5 years. 4. The company has made a monthly payment for its long-term debt. Which one of the following is considered an "Investing Activity" of a company? 1. The company has collected its outstanding Accounts Receivable amount. 2. The company has purchased Inventory for the next three day's operations. 3. The company has purchased a piece of kitchen equipment that will be in use for the next 5 years. 4. The company has made a monthly payment for its long-term debt.
Which one of the following is considered a "Financing Activity" of a company 1. A payment has been made for a previous purchase of supplies that had not been paid at the time. 2. A monthly payment has been made for a long-term debt. 3. A building has been purchased. 4. A loan of $100,000 has been made (lent) to a local business with the annual interest at 5%. Which one of the following is considered a "Financing Activity" of a company 1. A payment has been made for a previous purchase of supplies that had not been paid at the time. 2. A monthly payment has been made for a long-term debt. 3. A building has been purchased. 4. A loan of $100,000 has been made (lent) to a local business with the annual interest at 5%.
Explanation / Answer
Answer A. Option 1 is correct answer: The decrease of N/P indicates the company has borrowed a lot of long-term debt during the year. It must have increased its cash flows. Decrease in N/P indicates that the company has repaid its debt and this had led to cash outflow and fir further reduce company's interest obligations in future.
Answer B. Option 2 is correct answer: Company B has been performing better than Co. A. This is beacuse, although both the companies are earning same reenues and net profit but company is being able to convert them into assets which will generate more revenue and income for the company in future.
Answer C. Option 3 is correct answer: The company has purchased a piece of kitchen equipment that will be in use for the next 5 years. This is capital expenditure made by the company. The company has purchased a asset which will give benefit to the company for the coming 5 years. Any purchase or sale of such asset is a part of investing activities.
Answer D. Option 2 is the correct answer: A monthly payment has been made for a long-term debt. As the debt is source of financing for the company, any debt raised or repaid, is considered a financing activity.
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