Question: 1. A creditor is reviewing Hoffman Electronics' statements of retained earnings for the last 3 years. The creditor is trying to determine whether a substantial loan should be given to Hoffman Electronics. Which question will most likely be answered by reviewing the statement of retained earnings?
a. Does Hoffman Electronics make risky investments that impede the cash flow of the firm?
b. What was the ending permanent account balance for Hoffman Electronics last quarter?
c. What assets owned by Hoffman Electronics are valuable enough to cover debt repayment?
d. Does Hoffman Electronics have enough earnings to pay both dividends and debts?
2. True or false. By reviewing a company's statement of retained earnings over multiple reporting periods, an investor can evaluate the company's future growth potential based on net income changes.
3. A creditor would most likely be interested in reviewing a firm's statement of retained earnings to determine if the firm
a. exhibits liquidity.
b. can repay its debt obligations.
c. makes risky investments.
d. has sufficient receivables.
4. On statement of cash flow, the repayment of loans is categorized as a cash flow from ____activities.
a. operating
b. financing
5. "Fill in the blank" question: select the correct answer.
In a statement of cash flows, cash inflows that result from providing goods to customers are included in the section called "cash flows from_______ activities.
a. investing
b. operating
c. sales
d. investing
6. Creditors want to know whether Photon, Inc. uses its available cash to purchase new equipment. Which section of the statement of cash flows would provide this information?
a. Cash flows from operating activities
b. Cash flows from sales activities
c. Cash flows from financing activities
d. Cash flows from investing activities
7. Creditors are examining the statement of cash flows for Photon, Inc. Which of the following questions can be answered by reviewing the statement of cash flows?
a. What is the average net income of Photon?
b. What type of assets does Photon possess?
c. Does Photon reset its temporary accounts?
d. Does Photon pay its bills when they are due?