Question #24
Reading: Reading 12 Evaluating Quality of Financial Reports
PDF File: Reading 12 Evaluating Quality of Financial Reports.pdf
Page: 19
Status: Incorrect
Correct Answer: A
Your Answer: B
Question
Which of the following statements about cash flow is (are) CORRECT? Statement #1: The cash effects of decreasing accounts payable turnover are unlimited. Statement #2: The tax benefits from employee stock options can result in a significant source of investing cash flow. Statement #1 Statement #2
Answer Choices:
A. Correct Incorrect
B. Incorrect Correct
C. Incorrect Incorrect
Explanation
Statement #1 is an incorrect statement. The cash effects of decreasing accounts payable
turnover are limited. Suppliers will eventually stop extending credit because of delayed
payments. Statement #2 is an incorrect statement. The tax benefits from employee stock
options can result in a significant source of operating and financing cash flows. Tax
benefits do not affect investing cash flows.