




























































































Study with the several resources on Docsity
Earn points by helping other students or get them with a premium plan
Prepare for your exams
Study with the several resources on Docsity
Earn points to download
Earn points by helping other students or get them with a premium plan
Community
Ask the community for help and clear up your study doubts
Discover the best universities in your country according to Docsity users
Free resources
Download our free guides on studying techniques, anxiety management strategies, and thesis advice from Docsity tutors
To provide information about the cash inflows and outflows of an entity during a period. To summarize the operating, investing, and financing activities of the business.
Typology: Exercises
1 / 105
This page cannot be seen from the preview
Don't miss anything!
The cash flow statement helps users to assess a company’s liquidity, financial flexibility, operating capabilities, and risk.
The statement of cash flows is useful because it provides answers to the following important questions:
Specifically, the information in a statement of cash flows, if used with information in the other financial statements, helps external users to assess:
It provides answers to important questions like:
Where did cash come from? What was cash used for? What was the change in the cash balance?
Net income does not always tell the whole story about operating performance.
A statement of cash flows is an excellent forecasting tool.
Cash and cash equivalents
(Usually associated with working capital accounts like Accounts receivable, inventory, salaries payable, etc.)
Inflows:
Outflows:
(Usually associated with long-term liability and equity items)
From issuance of debt (bonds and notes)
From issuance of equity securities
To stockholders as dividends
To repay or retire long-term debt, including capital leases for lessee (interest on leases is classified as operating)
To reacquire capital stock (treasury stock)
Dividends are paid to stockholders and interest is paid to bondholders.
Dividends paid are shown as outflows under financing activities
However, FASB defined interest expense to be an operating activity
Interest & dividend revenue are defined to be operating activities, too.
FASB Statement No. 95 allows two ways to calculate and report a company’s net cash flow from operating activities on its statement of cash flows.
Under the direct method, operating cash outflows are deducted from operating cash inflows to determine the net cash flow from operating activities.
Under the indirect method, net income is adjusted for noncash items related to operations to compute the net cash flow from operating activities.
Example 1 - Statement of Cash Flow – DIRECT METHOD Year ending
Year ending Palouse Pottery 12/31/06 Ref Debit Ref Credit 12/31/07 Target Cash 15,000 X 27,000 42,000 27,
Accounts Receivable 40,000 37,500 (2,500)
Allowance for doubtful accounts (3,000) (4,500) (1,500)
Merchandise Inventory 25,000 43,000 18,
Prepaid Expenses 3,000 6,000 3,
Plant, property & equipment 215,000 236,000 21,
Accumulated Depreciation (80,000) (82,000) (2,000)
215,000 278,
Accounts Payable (23,000) (31,000) (8,000)
Salaries Payable (2,000) (9,000) (7,000)
Interest payable (2,000) (1,500) 500
Income Taxes Payable (1,500) (5,500) (4,000)
Dividends Payable 0 (8,000) (8,000)
Long term liabilities (25,000) (15,000) 10,
Common stock, $1 par (100,000) (145,000) (45,000)
Retained Earnings (61,500) (63,000) (1,500)
(215,000) (278,000) 0 1997 1997
Closing entry for Rev/(Exp) Rec/(Disb)
Sales 93,
Gain/(loss) on sale of PP&E (4,000)
Realized gain/(loss) - land 20,
Cost of goods sold (35,000)
Salaries & other operating expenses
(37,000)
Bad debt expense (2,000)
Depreciation & amortization (11,000)
Interest expense (2,500)
Income taxes expense (7,000)
Net income (accrual basis) 14,
Statement of Cash Flows (INFLOWS)^ (OUTFLOWS)
Operating Activities
Investing Activities
Financing Activities
Noncash Financing/Investing
CHANGE IN CASH X 27, Totals
Additional information: a. Wrote off $500 accounts receivable as uncollectible d. Sold land for $30,000 that had been acquired for $10, b. Sold operational assets for $4,000 cash that had cost $17,000 and had a book value of $8,
e. Paid a $10,000 long-term note installment f. Purchase plant, property & equipment for $48,000 cash. c. Declared a cash dividend of $13,000 g. Issued common stock for $45,000 cash.
Financing Activities
Noncash Financing/Investing
CHANGE IN CASH X 27, Totals
Additional information: a. Wrote off $500 accounts receivable as uncollectible d. Sold land for $30,000 that had been acquired for $10, b. Sold operational assets for $4,000 cash that had cost $17,000 and had a book value of $8,
e. Paid a $10,000 long-term note installment f. Purchase plant, property & equipment for $48,000 cash. c. Declared a cash dividend of $13,000 g. Issued common stock for $45,000 cash. Example 2 - Statement of Cash Flow Year ending
Year ending Moscow Moving & Storage 12/31/06 Ref Debit Ref Credit 12/31/07 Target Cash 15,000 5,000 (10,000)
Accounts Receivable 30,000 28,500 (1,500) Allowance for doubtful accounts (1,500) (2,000) (500) Merchandise Inventory 10,000 17,000 7, Prepaid Expenses 4,500 500 (4,000)
Plant, property & equipment 220,100 289,100 69, Accumulated Depreciation (20,000) (16,000) 4, 258,100 322, Accounts Payable (10,000) (13,000) (3,000) Salaries Payable (3,000) (1,000) 2, Interest payable 0 (1,000) (1,000) Long term liabilities (30,000) (10,000) 20,
Common stock, $1 par (100,000) (181,000) (81,000) Retained Earnings (115,100) (116,100) (1,000) (258,100) (322,100) 0 1997 1997 Closing entry for Rev/(Exp) Receipt/(Disb) Sales 80, Gain/(loss) on sale of PP&E (2,000) Cost of goods sold (35,000) Salaries & other operating expenses
(26,000)
Bad debt expense (1,000)
Depreciation & amortization (5,000) Interest expense (2,000) Income taxes expense (3,000) Net income (accrual basis) 6, Statement of Cash Flows (INFLOWS)^ (OUTFLOWS) Operating Activities
Investing Activities
Financing Activities
Noncash Financing/Investing
CHANGE IN CASH Totals
Additional Information a. Wrote off $500 accounts receivable as uncollectible d. Issued common stock for $36,000 cash b. Sold operational assets for $4,000 cash e. Paid a $20,000 long-term note installment (cost $15,000, acc'd depreciation $9,000) f. Purchased operational assets, $39,000 cash c. Declared and paid a cash dividend, $5,000 g. Acquired land in exchange for 1,000 shares of common stock worth $45 each
Avery Slings & Arrows Income Statement For year ending 12/31/
Sales 6,600, Earnings of affiliates (equity method) 150, Realized loss on sale of equipment (65,000) Realized gain on sale of investments 53, Interest and dividend revenue 15, Total revenues 6,753,
Cost of goods sold 3,490, Salaries and wages 632, Other operating expenses 421, Bad debt expense 45, Depreciation expense 757, Amortization of intangibles 5, Accretion expense 25, Interest expense 935, Income tax expense 177,000 6,487, Net income 266,
Prepare a statement of cash flows (direct method) including the required reconciling schedule and any other required disclosures for Avery Slings & Arrows, Inc. Information from the balance sheet and income statement have been entered into a worksheet for your convenience. In addition to completing the worksheet, you MUST prepare a formal statement with headings, subtotals, etc. for full credit.
ADDITIONAL INFORMATION a. During the year, ASA paid $2,767,000 in cash for land, building, and equipment. b. On August 5, 2004, ASA issued 25,000 shares of common stock for $42 per share. c. ASA purchased $273,000 in marketable securities during the year. d. Equipment costing $500,000 was sold during the year for $59,000. The book value was $124,000. e. During the year, AAS declared cash dividends in the amount of $203,000. f. On April 1, 2004, the holders of $1,500,000 in convertible bonds elected to convert their bonds to common stock. The conversion ratio was 25 shares of common stock for each share $1,000 face value bond. g. The noncurrent investment represents 30% of the outstanding securities of the investee. This investment is accounted for on the equity method. During 2004, ASA received $29,000 in dividends from the investment. h. On May 1, 2004, ASA acquired equipment under a capital lease. At the inception of the lease, the present value of the minimum lease payments was $648,000. i. ASA acquired a patent on a new process for $500,000 on October 15, 2004. j. During 2004, ASA sold marketable securities which it had acquired for $222,000 for $275,000. k. In February, ASA issued 150,000 shares of common stock in a 50% stock dividend. l. ASA issued $3,000,000 in bonds at face value on August 1, 2004. m. ASA sold 500 shares of treasury stock which it had acquired for $20 per share for $46 per share on January 18,
n. In October, ASA acquired 1,000 shares of treasury stock at $38 per share. o. Bad debts in the amount of $33,000 were written off during the year.
Avery Slings & Arrows Year ending Year ending 12/31/03 Re f
Debit Re f
Credit 12/30/04 Target
Cash 2,850,000 x 589,000 2,261,000 (589,000) Securities Available for Sale 180,000 231,000 51, Allowance to adjust to market (80,000) 27,000 107, Accounts receivable (net) 1,900,000 1,947,000 47, Merchandise Inventory 900,000 602,000 (298,000) Prepaid Expenses 50,000 4,000 (46,000) Investments in affiliated companies (equity method)
Land, building & equipment 17,800,000 20,715,000 2,915,
Accumulated Depreciation (1,800,000) (2,181,000) (381,000) Intangible Assets 73,000 568,000 495, Total assets 23,873,000 26,295,
Accounts Payable (650,000) (347,000) 303, Salaries Payable (21,000) (18,000) 3, Interest payable (55,000) (156,000) (101,000) Income Taxes Payable (32,000) (45,000) (13,000) Dividends Payable (60,000) (128,000) (68,000) Bonds Payable (4,000,000) (7,000,000) (3,000,000) (Premium)/Discount on Bonds Payable
Convertible Bonds Payable (3,000,000) (1,500,000) 1,500, Lease obligation (1,825,000) (2,108,000) (283,000) Asset retirement obligation (250,000) (275,000) (25,000) Deferred Income Taxes (75,000) (122,000) (47,000) Other long term liabilities (2,590,000) (590,000) 2,000,