Three-Statement Modeling and Earnings Quality

1.A manufacturer ships $120,000 of goods on credit and removes $75,000 of inventory. The inventory was paid for last quarter. With no collection or tax effect this quarter, what are the changes in net income and operating cash flow?

2.A customer pays $24,000 upfront for a year of service. None has been delivered and there are no related costs yet. What changes at receipt?

3.A software company recognizes $9,000 of revenue from service paid for last quarter. Ignore costs and tax. What is the current cash flow effect?

4.A wholesaler buys $70,000 of inventory on credit and sells none of it this month. What happens when it records the purchase?

5.A company pays $18,000 to a supplier for inventory purchased on credit last month. This payment creates no current expense. What is the effect?

6.A company collects $55,000 on an opening receivable. It recorded the sale last quarter. What happens this quarter?

7.A firm incurs $16,000 of wages late in the month and pays them next month. Ignore tax. What happens in the month the work occurs?

8.A business pays $12,000 for 12 months of insurance at the start of January. What remains at January month-end if coverage is consumed evenly?

9.A company buys $100,000 of equipment for cash at year-end. It has not placed the equipment into service and records no depreciation. What is the entry's statement impact?

10.A company records $30,000 of equipment depreciation and ignores taxes. What effect does that entry alone have on operating cash flow?

11.A company records $20,000 of depreciation that is fully deductible for current cash taxes at 25%. The tax saving is realized this period. Compared with no depreciation, what happens to net income and operating cash flow?

12.A company sells a machine with a $35,000 carrying value for $48,000 cash. Ignore tax. How is the sale reflected in the cash flow statement?

13.Equipment with a $60,000 carrying value is sold for $46,000 cash. Ignore taxes. What adjustments are needed in an indirect cash flow statement?

14.A bank wires $500,000 under a new loan to a manufacturer. There are no fees and interest starts next month. What changes at receipt?

15.A manufacturer repays $95,000 of debt principal and $5,000 of accrued interest. It previously expensed the interest and classifies interest paid as operating. What are the cash flow effects?

16.A company declares a $30,000 dividend in March and pays it in April. It classifies dividends paid as financing. What happens in March?

17.A company repurchases $40,000 of shares for cash. Ignore fees. What is the effect at the time of repurchase?

18.A company issues $2 million of common shares to acquire a business. No cash changes hands. Where should an analyst capture the transaction?

19.A company acquires a business for $150 million cash. The acquired balance sheet includes $20 million of cash. The cash flow statement presents acquisitions net of cash acquired. What investing outflow should the model use?

20.A business records a $12 million goodwill impairment. Ignore taxes. What happens to cash and operating cash flow from the entry alone?

21.A business recognizes $7 million of stock-based compensation for equity-settled awards. Ignore taxes. What is the current-period cash flow effect of the expense itself?

22.A firm accrues a $10 million warranty expense and pays $3 million of claims against the provision. Ignore tax. What are the resulting changes?

23.A distributor writes down inventory by $4 million with no sale or disposal this period. Ignore taxes. What should the indirect model avoid?

24.A lender records a $5 million credit loss provision, increasing its allowance. It makes no cash settlement at recognition. What is the effect of the entry alone?

25.A company writes off a $2 million receivable against an existing allowance that fully covers it. What changes at write-off?

26.A firm recognizes $11 million of income tax expense, including $3 million of deferred tax expense. Current tax payable is unchanged and there are no other tax items. How much tax did it pay?

27.A firm has $20 million of current tax expense and its tax payable rises $4 million. Assume no other movements in tax payable. What is cash tax paid?

28.A retailer records $15 million of expected customer returns as a refund liability when it recognizes sales. Ignore inventory recovery and taxes. Why can this estimate affect earnings ahead of cash?

29.A cash flow statement shows $60 million of operating inflow, $45 million of investing outflow, $8 million of financing outflow, and a $2 million favorable FX effect. Beginning cash is $30 million. What is ending cash?

30.A foreign subsidiary's cash balance stays unchanged in local currency. The reporting currency strengthens and translated cash falls. Where does the translation effect belong in the cash reconciliation?

31.A company prepays $15 million of service fees and then receives a $3 million cash refund of the unused prepayment before taking delivery. Assume both flows are operating. What are the net cash flow and remaining prepaid asset?

32.A company prepays $6 million to a supplier for goods it will receive next quarter. How does the payment affect this quarter before delivery?

33.A company acquires equipment under a financing arrangement that creates an asset and a liability at signing. No cash is paid. What happens to the cash flow statement at signing?

34.A manufacturer receives a $9 million insurance reimbursement that its policy classifies as investing. Net income includes the $9 million gain. What should its indirect cash flow bridge do?

35.A business delivers services worth $50,000. It collects $18,000 immediately, bills the remainder, and pays $12,000 of current labor costs. Ignore taxes. What are net income and operating cash flow?

36.A company prepays $36,000 of rent and records a prepaid asset. Later it expenses $9,000 of the prepaid balance. What is the later entry's cash flow effect, ignoring tax?

37.Beginning retained earnings is $140 million. The firm earns $32 million attributable to common equity and declares $9 million of common dividends. There are no other changes. What is ending retained earnings?

38.Beginning net PP&E is $240 million. Cash capital spending is $50 million, depreciation is $32 million, and disposed assets have a $12 million carrying value. What is ending net PP&E?

39.Beginning gross PP&E is $300 million and accumulated depreciation is $110 million. A fully depreciated asset with original cost of $20 million is retired with no proceeds. What is ending net PP&E from this entry alone?

40.A model adds disposal proceeds to net PP&E while also showing a cash inflow. What belongs in the PP&E roll-forward for the sale?

41.A retailer forecasts $365 million of annual credit sales and 45 ending receivable days. Using a 365-day model, what ending receivables does this imply?

42.A manufacturer forecasts $292 million of annual cost of sales and 50 ending inventory days. Using 365 days and cost of sales as the denominator, what inventory is implied?

43.A business forecasts $72 million of annual inventory purchases and 60 ending payable days on a 360-day convention. What ending trade payables are implied?

44.Beginning inventory is $30 million, ending inventory is $35 million, and cost of sales is $90 million. There are no write-downs, FX changes, or acquisitions. What inventory purchases should feed the payables schedule?

45.Beginning trade payables are $18 million. Inventory purchases are $96 million and ending payables are $24 million. With no other movements, what cash was paid to suppliers?

46.Beginning receivables are $15 million and ending receivables are $22 million. Credit sales are $105 million and all other receivable movements are zero. What cash was collected on credit sales and opening receivables?

47.A subscription model starts with $70 million of deferred revenue, collects $55 million in advance, and recognizes $62 million out of amounts previously deferred, including current advances. What is ending deferred revenue?

48.A company forecasts net income of $36 million, depreciation of $12 million, a $9 million increase in receivables, a $4 million decrease in inventory, and a $5 million decrease in payables. What is projected operating cash flow before other adjustments?

49.Operating current assets rise $14 million while operating current liabilities rise $6 million. Assume all changes are operating and cash-related. What working capital adjustment enters the indirect cash flow bridge?

50.Reported receivables rise $25 million. That includes $18 million acquired with a business. There are no other nonoperating changes. What receivables change belongs in the operating cash bridge?

51.Inventory rises $12 million, including a $4 million increase from currency translation. Assume the remaining change reflects operations. What operating cash flow adjustment should be used?

52.A debt schedule starts at $300 million. New cash borrowing is $40 million, principal repayments are $55 million, and paid-in-kind interest adds $8 million to principal. What are ending debt and net cash borrowing?

53.A borrower converts $25 million of debt to equity under terms with no gain, fee, or cash payment. Which forecast check should pass?

54.A model forecasts $20 million beginning cash, $32 million operating inflow, $44 million investing outflow, and $5 million financing outflow before any revolver draw. Minimum cash is $10 million. How large a period-end draw is required if available?

55.A model uses cash after financing to determine the revolver draw, and uses the draw to determine interest expense in the same period. What issue should the analyst handle explicitly?

56.A revolver automatically repays from cash above a $10 million minimum. Cash before repayment is $17 million and revolver debt is $5 million. What should the model do?

57.A company begins the year with $100 million of debt and issues another $60 million halfway through the year. The annual cash rate is 8%, and no principal is repaid. What full-year interest expense should the schedule estimate?

58.A firm expects to spend $24 million evenly on equipment through the year. New equipment is depreciated at 10% a year using a half-year convention. What first-year depreciation comes from those additions?

59.A forecast has $100 million of pretax income and $25 million of total tax expense. Deferred tax expense is $6 million and current tax payable rises $2 million. What cash taxes are implied, assuming no other movements?

60.A forecast balances only because other current assets increase by the exact amount of the balance sheet difference each year. What is the proper next step?

61.Beginning cash is $15 million. The cash flow statement shows an $8 million increase, but the linked ending balance sheet shows $21 million. What should the model check first?

62.A company forecasts a $10 million cash acquisition with no cash acquired. The model deducts it from cash in the acquisition schedule and again as a separate reduction after rolling investing cash flow into cash. What is the error?

63.A model tracks ending common shares in its equity schedule and uses weighted-average diluted shares for earnings per share. Why can those inputs legitimately differ?

64.A company buys back $50 million of shares and issues $12 million of shares for cash in the same quarter. Ignoring fees, what net cash flow from these equity transactions should the model show?

65.A liability is reclassified from long-term debt to current debt as maturity approaches. No repayment occurs. What effect should this reclassification have on financing cash flow?

66.A company declares dividends of $28 million and its dividends payable increases $4 million. There are no other movements and dividends paid are classified as financing. What outflow should the model show?

67.A forecast's prepaid expense balance grows $3 million, while accounts receivable and inventory are flat. Assume no acquisitions, FX, or other noncash changes. What adjustment belongs in operating cash flow?

68.A forecast grows sales 15% but uses a fixed ending receivable balance despite unchanged credit terms and collection assumptions. What inconsistency should the analyst question?

69.A company forecasts $45 million in operating cash flow and $28 million of capital spending. It reports $20 million of cash from asset sales. If free cash flow is defined as operating cash flow less gross capex, what is it?

70.A linked forecast shows steady sales and stable collection days, but customer advances fall materially as payment terms shift from annual to monthly billing. What should change in the forecast?

71.A model treats all growth investment as operating expense and also subtracts the same investment as capex. The company actually capitalizes the outlay. How should the forecast change?

72.A forecast has correct annual balances but an interim cash deficit is missed because all cash flows are modeled at year-end. What change helps expose the issue?

73.A company reports net income of $80 million and operating cash flow of $52 million. Using net income minus operating cash flow as a simple accrual measure, what is the gap?

74.A company's earnings rise from $70 million to $90 million, while operating cash flow stays at $75 million. How does operating cash flow divided by net income change?

75.A retailer's profit rises and operating cash flow falls as it builds inventory ahead of its normal peak season. What would best distinguish a seasonal timing gap from weak demand?

76.A wholesaler reports sales growth of 10%, receivable growth of 35%, and rising overdue balances. Which research step best tests whether cash conversion is weakening?

77.A subscription company increases annual upfront billing and reports operating cash flow well above earnings. What should the forecast assess?

78.A company boosts quarter-end operating cash flow by delaying routine supplier payments. Profit is unaffected. What should an analyst examine?

79.A manufacturer reports $110 million of operating cash flow, including a $30 million one-time release of excess inventory. What is operating cash flow excluding the release?

80.A supplier monetizes receivables shortly before period-end. Reported operating cash flow rises and receivables fall. What should the analyst check before extrapolating the improvement?

81.A company shows a large rise in operating cash flow after adopting supplier financing that changes payment timing. What is the strongest comparison with a peer that pays suppliers directly?

82.A business shifts a recurring software development outlay from expense to capitalization, with cash development spending unchanged and reported as investing. Ignoring taxes and amortization for this comparison, what effect can the change have?

83.A company extends equipment useful lives, lowering current depreciation by $6 million. Tax deductions and all cash transactions are unchanged. What happens to pretax earnings and operating cash flow?

84.A company reverses a $9 million warranty provision after changing its estimate. No cash is recovered or paid. Ignore taxes. What happens in the period of reversal?

85.A company releases part of its credit loss allowance just as overdue receivables rise. What should the analyst investigate?

86.A company's profit exceeds expectations because of a gain from selling land. What should a recurring earnings comparison do?

87.A company excludes restructuring charges from adjusted earnings every year. What should the analyst check before accepting the exclusions?

88.A company adds back stock-based compensation and reports strong operating cash flow. What should an equity analyst also quantify?

89.A manufacturer reports steady EBITDA, but maintenance capex rises and cash conversion after investment falls. What does EBITDA miss here?

90.A company's free cash flow rises after it defers equipment replacements. Service outages are increasing. What should the analyst test?

91.A firm reports $100 million operating cash flow and $35 million gross capex. It includes a $20 million one-time tax refund in operating cash. What is operating cash flow less capex excluding the refund?

92.A profitable company pays little cash tax because it is using past losses. What should an analyst test before treating current cash flow as sustainable?

93.A company records a one-time tax benefit from changing its assessment of deferred tax asset realizability. There is no current tax refund. How should an analyst explain the earnings beat?

94.A company records a $12 million unrealized gain on an investment in net income. It has neither sold the asset nor collected cash. Ignore tax. How should an analyst explain the earnings-to-cash gap?

95.A business acquires a company and consolidated revenue rises 20%. Its reported receivables also jump, largely because of balances acquired at closing. What is the best cash conversion comparison?

96.A distributor switches to net revenue presentation. Revenue falls and reported gross margin rises, while gross profit dollars and cash receipts after supplier remittances are unchanged. What best explains the divergence?

97.A seller offers unusually generous quarter-end payment terms to pull forward orders. What evidence best tests whether the earnings are sustainable?

98.A company meets earnings guidance exactly for several periods while operating cash flow steadily weakens. Which interpretation fits the available evidence?

99.A company reports sharply higher operating cash flow solely after reclassifying a recurring cash payment to financing under its stated reporting policy. What is the best peer comparison?

100.A retailer's operating cash flow exceeds profit because it received deposits from customers for orders it still must fulfill. Which follow-up best assesses the quality of that cash?

101.A mature company shows $70 million of net income and $100 million of operating cash flow. It has $45 million of depreciation and $55 million of recurring maintenance capex. What is cash flow after maintenance capex?

102.A business reports cash growth despite negative operating cash flow because it issued new debt. How should a research note describe the improvement?

103.A firm's gross receivable days improve after it writes off a large delinquent balance. Why does that ratio require context?

104.A company reports 120% operating cash flow conversion versus net income this year, up from 90%. The only major driver is a rise in accruals for employee bonuses that will be paid next quarter. What does the move signal?

105.A distributor grants discounts for early payment. Gross sales volume is unchanged, net revenue falls, and customers pay sooner. What should the analyst compare before calling the move an improvement?

106.A company reports $40 million of earnings and $62 million of operating cash flow. Depreciation contributes $15 million to the bridge and payables growth contributes $10 million. What is the net effect of all other adjustments?

107.A research note says a $25 million earnings increase is supported by cash. Operating cash flow rose $8 million, including a $12 million one-time supplier-payment deferral. How did operating cash flow change excluding that deferral?

108.A chief investment officer asks why reported income grew while cash flow shrank. A noncash asset gain and a receivables buildup explain most of the gap. Which response is strongest?