Exam 10: Statement of Cash Flows

What are investing activities?

Select transactions of June Bowen Inc. (JBI)are listed below. JBI uses the indirect method to determine cash flows from operating activities. 1. JBI amortizes $12,000 of the discount on bonds payable. 2. At year-end JBI increases its allowance for bad debts by $18,000. 3. JBI's income tax expense totaled $50,000. Its income tax payable account increased $5,000, while its deferred income tax liability account decreased $8,000. 4. JBI makes a principal payment of $25,000 on a lease liability subsequent to the commencement date. 5. JBI declares and distributes a stock dividend valued at $33,000. 6. JBI declares a cash dividend of $30,000. The dividends payable account increases $10,000. 7. JBI sells a n investment at amortized cost for $28,000. The investment's book value is $20,000. Required: Discuss how the activities listed above would be reported in the statement of cash flows. For items with multiple reporting options, identify all available options. For items not reported on the statement of cash flows, indicate the disclosure requirements, if any.

Which statement is true?

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, 2019 included the following: • Sold an investment at FVPL for $11,000. The book value of this investment, which was held to meet short-term cash commitments, was $11,000. • Sold an investment at FVOCI for $27,000. The cost 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.

Which statement is correct?

Which is a correct statement?

On January 1, 2020, Adara acquired the right to use equipment under a lease agreement. The lease calls for fifteen annual payments of $10,000 due at the beginning of the year. Adara must return the equipment to the lessor at the end of the lease. The January 1, 2020 payment was made as agreed. The implicit rate in the lease is 7%; the present value of the lease payments is $97,455. Required: a. Prepare the underlying journal entries to record the foregoing transactions and record events stemming from the transactions (e.g., depreciation and 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.

The Company's activities for the year ended December 31, 2021 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 2021. • Selling and administration expenses for the year totaled $200,000. • Accounts receivable increased $20,000 in 2021. • The Company's cost of goods sold in 2021 was $325,000. • The Company's inventory increased $15,000 during the year. • Depreciation expense for the year was $13,000. What is the net cash payments to suppliers under the direct method?

Explain how the following transactions should be reported in the statement of cash flows, assuming the indirect method is used to determine cash flows from operating activities. Identify all available options. If not reported on the statement of cash flows, indicate the disclosure requirements, if any. 1. The purchase of a $100,000, 45-day Treasury bill classified at FVPL. 2. Amortization of the discount on bonds payable in the amount of $20,000.

What are operating activities?

Boboto Inc.'s policy is to report all cash flows arising from interest and dividends in the operating section. Boboto's activities for the year ended December 31, 2021 included the following: • Declared and issued a stock dividend valued at $50,000. • Paid $46,000 to repurchase ordinary shares and cancelled them. The book value was $33,000. • Accounts payable decreased $23,000 during the year. • Issued $1,500,000 in bonds. The cash proceeds were $1,410,000. • Interest expense for the period was $10,000. The interest payable account decreased $4,000. • Made a $75,000 principal payment on a bank loan. • Declared a $15,000 cash dividend payable on January 15, 2022. Required: a. Prepare the cash flows from financing activities section of the statement of cash flows. b. Identify how the activities listed above that are not financing activities would be reported in the statement of cash flows assuming that the statement is prepared using the indirect method.

Which statement about "cash and cash equivalents" is correct?

Sherya Inc.'s policy is to report all cash flows arising from interest and dividends in the operating section. Sherya's activities for the year ended December 31, 2021 included the following: • Interest expense for the period was $10,000. The interest payable account decreased $4,000. • Made a $110,000 principal payment on a bank loan. • Declared a $15,000 cash dividend payable on January 15, 2022. • Declared and issued a stock dividend valued at $50,000. • Paid $55,000 to repurchase ordinary shares and cancelled them. The book value was $40,000. • Accounts payable increased $23,000 during the year. • Issued $1,500,000 in bonds. The cash proceeds were $1,380,000. Required: a. Prepare the cash flows from financing activities section of the statement of cash flows. b. Identify how the activities listed above that are not financing activities would be reported in the statement of cash flows assuming that the statement is prepared using the indirect method.

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, 2021 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 2021. • Selling and administration expenses for the year totaled $240,000. • Accounts receivable decreased $36,000 in 2021. • Mamie's cost of goods sold in 2021 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 investment at FVOCI for $45,000. The original cost was $52,000. • Depreciation expense for the year was $19,000. Required: 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.

What guidance does IFRS provide with respect to reporting bank overdrafts on the statement of cash flows?

How are cash flows from discontinued operations shown in the statement of cash flows?

How do companies account for allowance for doubtful accounts on the cash flow statement?

The opening balance in the land account for Adara Corp for fiscal 2020 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 gain or loss on exchange of land for loan, etc.). 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?

Define cash and cash equivalents.

List three reasons why the statement of cash flows is a useful component of an enterprise's financial statements.