Exam 19: Statement of Cash Flows

Hoboken's activities for the year ended December 31,2018 included the following: • Sold a held-for-trading investment for $12,000.The book value was $10,000. • Sold an available-for-sale investment for $8,000.The book value was $9,000. How much would be presented as cash flow from operations for the "held for trading" investment?

The activities for the year ended December 31,2015 included the following: • 2018's net income after taxes totaled $125,000. • Accounts receivable Increased $32,000 • Recorded a $10,000 goodwill impairment loss during the year • Inventory decreased $8,000 How much would be presented as cash flow from operations?

What criterion is required for a "cash equivalent"?

Which statement is not correct?

What is a financing activity?

What is an investing activity?

Financial information for Fesone Inc.'s balance sheet for fiscal 2013 and 2014 follows: 2014 2013 Cash 204,800 550,000 Accounts receivable 1,150,000 1,300,000 Inventory 410,000 250,000 Investments - held for trading 400,000 Investments - held to maturity 150,000 Property plant and equipment 3,400,000 3,400,000 Accumulated depreciation (1,860,000) (1,570,000) Total Accounts payable 260,000 80,000 Bank loan 2,226,000 2,850,000 Bonds payable 187,800 185,000 Preferred shares 0 15,000 Common shares 597,000 450,000 Retained earnings 584,000 350,000 Total Additional information: 1.Preferred shares were converted to common shares during the year at their book value. 2.The face value of the bonds is $200,000; they pay a coupon rate of 6% per annum.The effective interest rate of interest is 8% per annum. 3.Net income was $290,000. 4.There was an ordinary stock dividend valued at $12,000 and cash dividends were also paid. 5.Interest expense for the year was $130,000.Income tax expense was $116,000. 6.Fesone arranged for a $200,000 bank loan to finance the purchase of the held-to-maturity investments. 7.Fesone has adopted a policy of reporting cash flows arising from the payment of interest and dividends as operating and financing activities,respectively. 8.The held-for-trading investments are not cash equivalents. Requirements: a.Prepare a statement of cash flows for the year ended December 31,2014 using the indirect method. b.Discuss how the transaction(s)above that are not reported on the statement of cash flows are reported in the financial statements.

Katie Ltd.'s policy is to report all cash flows arising from interest and dividends in the operating section.Katie's activities for the year ended December 31,2018 included the following: • Income tax expense for the year was $30,000. • Sales for the year were $1,030,000. • Accounts payable decreased $20,000 in 2018. • Selling and administration expenses for the year totaled $240,000. • Accounts receivable decreased $36,000 in 2018. • Mamie's cost of goods sold in 2018 was $315,000. • Mamie's inventory increased $13,000 during the year. • Interest expense for the period was $12,000.The interest payable account increased $5,000. • Dividends were not declared during the year; however,the dividends payable account increased $5,000. • Sold an available-for-sale investment for $45,000.The book value was $52,000. • Depreciation expense for the year was $19,000. Requirements: a.Prepare the cash flows from operating activities section of the statement of cash flows using the direct method. b.Identify how the activities listed above that are not operating activities would be reported in the statement of cash flows.

Which statement is correct?

ABC Inc.'s policy is to report all cash flows arising from interest and dividends in the operating activities section.Tub Time's activities for the year ended December 31,2017 included the following: • Net income after taxes totaled $400,000. • The company recorded a $4000 goodwill impairment loss during the year. • Depreciation expense for the year was $24,000. • Declared and issued a stock dividend valued at $10,000. • Accounts receivable increased $33,000 in the year. • Sold a held-for-trading investment for $23,000.The book value was $18,000.(Assume this held-for-trading investment was not designated as a cash equivalent.) • Interest revenue for the period was $6,000.The interest receivable account decreased $4,000. • Declared a $10,000 dividend payable.The dividends payable account decreased $19,000 in the year. • Sold an available-for-sale investment for $19,000.The book value was $14,000. Requirements: a.Prepare the cash flows from operating activities section of the statement of cash flows using the indirect method. b.Identify how the activities listed above that are not operating activities would be required in the statement of cash flows.

The opening balance in the land account for Adara Corp for fiscal 2017 was $500,000; the closing balance was $610,000.During the year land costing $130,000 was given to a creditor in full settlement of a $152,000 loan.The fair value of the land at the time of the exchange was $152,000.The company also purchased a separate parcel of land for cash during the year. Required: a.Prepare the underlying journal entries to record the foregoing transactions and record events stemming from the transactions (e.g.,the accrual of interest at year-end). b.For each entry identify the cash flow effects,if any,under both the direct and indirect methods of presentation and classify the cash flow according to its nature. c.Why does the IASB require that companies classify cash flows as arising from operations,investing,or financing activities?

Larry Corp.'s policy is to report all cash flows arising from interest and dividends in the operating activities section.The activities for the year ended December 31,2018 included the following: • Sold a held-for-trading investment for $14,000.The book value was $15,000. • Sold an available-for-sale investment for $10,000.The book value was $5,000. How much would be presented as cash flow from investing activities?

Which is not a cash management activity?

Soorya Law Ltd.'s policy is to report all cash inflows from interest and dividends in the investing section and cash outflows arising from interest and dividends in the financing section.Soorya Law's activities for the year ended December 31,2016 included the following: • Sold a held-for-trading investment for $11,000.The book value of this investment,which was designated as a cash equivalent,was $11,000. • Sold an available-for-sale investment for $27,000.The book value of the investment was $27,000. • Borrowed $120,000 from the bank for investment purposes. • Sold equipment for $63,000 that originally cost $80,000.The net book value of this item at time of sale was $54,000. • Received $5,000 in interest and $5,000 in dividends on sundry investments. • Paid $4,000 interest on the investment loan. • Acquired land and buildings valued at $450,000 by paying $150,000 cash and issuing ordinary shares for the balance. • Bought $350,000 in bonds at a premium,paying $305,000 cash. Required: a.Prepare the cash flows from investing activities section of the statement of cash flows. b.Identify how the activities listed above that are not investing activities would be reported in the statement of cash flows assuming that the statement is prepared using the indirect method.

Financial information for Fesone Inc.'s balance sheet for fiscal 2013 and 2014 follows: 2014 2013 Cash 204,800 550,000 Accounts receivable 1,150,000 1,300,000 Inventory 410,000 250,000 Investments - held for trading 400,000 Investments - held to maturity 150,000 Property plant and equipment 3,400,000 3,400,000 Accumulated depreciation (1,860,000) (1,570,000) Total Accounts payable 260,000 80,000 Bank loan 2,226,000 2,850,000 Bonds payable 187,800 185,000 Preferred shares 0 15,000 Common shares 597,000 450,000 Retained earnings 584,000 350,000 Total Additional information: 1.Preferred shares were converted to common shares during the year at their book value. 2.The face value of the bonds is $200,000; they pay a coupon rate of 6% per annum.The effective interest rate of interest is 8% per annum. 3.Net income was $290,000. 4.There was an ordinary stock dividend valued at $12,000 and cash dividends were also paid. 5.Interest expense for the year was $130,000.Income tax expense was $116,000. 6.Fesone arranged for a $200,000 bank loan to finance the purchase of the held-to-maturity investments. 7.Fesone has adopted a policy of reporting cash flows arising from the payment of interest and dividends as operating and financing activities,respectively. 8.The held-for-trading investments are not cash equivalents. 9.Sales = 1,600,000; cost of goods sold = 600,000; and,sales and administration expenses = 525,000 Requirements: a.Prepare the cash flows from operating activities section of the statement of cash flows using the direct method. b.Compare and contrast the cash flows from operating activities prepared under the indirect method versus the direct method.Which statement do you feel provides investors and other users of the financial statements with more useful information? Why?

What is cash management?

Identify if the following investments meet the requirements to be classified as cash and cash equivalents. Cash and cash equivalents (Yes/No) Readily convertible to cash? (Yes No) Risk of change in cash value? (High/Med Low) Chequing account in US dollars. Investment in long-term government bonds. Cash in a sinking fund account for a future re-purchase of common shares. Investment in a mutual fund that invests in common shares of public corporations. Term deposit maturing 100 days after the year-end.

What is included in "cash and cash equivalents"?

The Company's activities for the year ended December 31,2018 included the following: • Income tax expense for the year was $30,000. • Sales for the year were $650,000. • Accounts payable decreased $10,000 in 2018. • Selling and administration expenses for the year totaled $200,000. • Accounts receivable increased $20,000 in 2018. • The Company's cost of goods sold in 2018 was $325,000. • The Company's inventory decreased $15,000 during the year. What is the cash receipts from customers under the direct method?

Answer the following: a.What are the similarities and differences between the direct and indirect methods of preparing the statement of cash flows? b.In practice,which method of preparation is used for the statement of cash flows and why? c.Is the indirect method of presenting the statement of cash flows required by the IASB? d.Briefly discuss how unrealized gains and losses arising from held-for-trading investments that are not designated as cash equivalents are reported on the statement of cash flows.