CFA Practice Question

There are 90 practice questions for this study session.

CFA Practice Question

Agency Rent-A-Car reports cash flows from acquisitions and sales of rental automobiles (RA) as investing activities. It provides an unclassified balance sheet, with RA reported under Property and Equipment and amounting to at least 49% of total assets in 2010; car rentals are 77% of total revenue. Net cash received on RA transactions of $5.751 million ($68.96 million realized on sales less $63.21 million spent on purchases) is highly material to Agency's net $9.06 million investing cash outflow, less so to the $83.15 million reported operating cash flow. Agency's rental fleet turns over about every other year. The predominance of rental revenues and low RA turnover supports investing activity classification. This classification has a material effect on reported operating cash flow and investing cash flow. Reclassifying Agency's $5.75 million RA net cash inflow as operating rather than investing will ______ its net investing cash flow by 63% percent while ______ operating cash flow by 7%.
A. increase; increasing
B. decrease; increasing
C. decrease; decreasing
Explanation: Note that RA net cash flow is positive.

User Contributed Comments 6

User Comment
clipp struggling to understand how it increases operating cash flow. any help?
zed888 just stuggling to read thrugh question and make sense of it!
dipu617 I've read the question a couple of times but could not figure out anything!! Is it a difficult question or I'm lacking something??!!
AnalystBklyn its a lot of extra info i believe!
read the last sentence:
reclassifying net cash flow inflow from investing to operating will obviously decrease investing and increase operating
Mikehuynh I read only the last sentence and ignore the rest.
Polagaro I´ve also just read the last sentence. I hope we are not missing anything important and just answering good by chance.
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