CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

The following information is from a company's 2015 financial statements ($ millions):

Balances as of the year ending 31 December | 2015 | 2014
Retained earnings: 140 | 120
Accounts receivable: 43 | 38
Inventory: 48 | 45
Accounts payable: 29 | 36

In 2015 the company declared and paid cash dividends of $5 million and recorded depreciation expenses in the amount of $25 million. The company's 2015 cash flow from operations ($ millions) is closest to______.
A. 25
B. 30
C. 35
Explanation: The change in retained earnings is $20 and dividends are paid from retained earnings. 2015 net income equals the change in retained earnings plus any dividends paid during 2015.

Depreciation expense is added to net income and the changes in balance sheet accounts are also considered to determine cash flow from operations.

20 + 5 (dividends) + 25 (depreciation) - 5 (increase in receivables) - 3 (increase in inventory) - 7 (decrease in payables) = $35 million.

User Contributed Comments 3

User Comment
Inaganti6 EXCELLENT QUESTION. So so so tricky. What a testicle twister of a question.
Mhmdjamal Dividends must be deducted from net income(25)
so why the correct answer is not 30?
bosher No Mhmdjamal. Dividends are included in net income. It is not included in retained earnings.
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