Allen Company Bought a New Copy Machine to Be Depreciated

question 3

Multiple Choice

Allen Company bought a new copy machine to be depreciated straight line for three years for use by sales personnel. Where would this purchase be reflected on the Statement of Cash Flows?

• A) It would be an expense on the income statement so it would be reflected in operating cash flows.
• B) It would be an addition to property, plant and equipment so it would be an investing activity.
• C) It would be an addition to cash so it would be reflected in the change in cash.
• D) None of the above answers is correct.

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Definitions:

Degree Of Financial Leverage (DFL)

A ratio indicating how much a company's earnings before interest and taxes (EBIT) can be affected by a change in its capital structure.

EPS

Earnings Per Share – a company's profit divided by the outstanding shares of its common stock, providing an indicator of the company's profitability.

Degree Of Total Leverage

A ratio that measures the sensitivity of a company's earnings per share to fluctuations in its operating income due to changes in its capital structure.

Financial Leverage

The use of borrowed funds to increase an investment's potential return, which also increases the risk of loss.