Chapter 11 Financial Statement Analysis Case | Study Guide - Edubirdie

University:
Eastern Kentucky University
Course:
ACC 301 | Intermediate Accounting I
Academic year:

2021
Views:

94

Pages:

1
Author:

Nesbyenvkk

FINANCIAL STATEMENT ANALYSIS CASE (a) McDonald’s used the straight-line method for depreciating its property and equipment. (b) Depreciation and amortization charges do not increase cash flow from operations. In a cash flow statement, these two items are often added back to net income to arrive at cash flow from operations and therefore some incorrectly conclude these expenses increase cash flow. What affects cash flow from operations are cash revenues and cash expenses. Noncash charges have no effect, except for positive tax savings generated by these charges. (c) The schedule of cash flow measures indicates that cash provided by operations is expected to cover capital expenditures over the next few years, even as expansion continues to accelerate. It is obvious that McDonald’s believes that cash flow measures are meaningful indicators of growth and financial strength, when evaluated in the context of absolute dollars or percentages. LO: 1, 5, Bloom: K, Difficulty: Simple, Time: 5-10, AACSB: Analytic, Communication, AICPA BB: None, AICPA FC: Reporting, Research, AICPA PC: Communication 11-68

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