Exam 10: Statement of Cash Flows

What criterion is required for a "cash equivalent"?

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. An increase in allowance for bad debts by $18,000. 2. A principal payment of $35,000 on a lease liability subsequent to the commencement date of the lease.

Provide a summary of presentation and disclosure requirements relating to the statement of cash flows. Summary of presentation and disclosure requirements relating to the statement of cash flows. Presentation: Disclosure:

Discuss how the cash flow statement helps evaluate a company's quality of earnings.

Suzanne Inc.'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, 2021 included the following: • Interest revenue for the period was $12,000. The interest receivable account decreased $3,000. • Sold an Investment at FVOCI for $10,000. The original cost was $5,000. Using the indirect method, how much would be presented as cash flow from operating activities?

To provide information useful to decision makers, IAS 1 requires companies to report cash inflows and outflows using standardized categories. Which one of the following is not one of these standardized categories?

Financial information for Fesone Inc.'s balance sheet for fiscal 2020 and 2021 follows: 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. They are reported at amortized cost. 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 investments at amortized cost. 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 investment at FVPL is held to meet short-term cash commitments. Required: a. Prepare a statement of cash flows for the year ended December 31, 2021 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.

Which category is used on the cash flow statement?

Mamie K. Ltd.'s policy is to report all cash flows arising from interest and dividends in the operating section. Mamie's activities for the year ended December 31, 2021 included the following: • Income tax expense for the year was $36,000. • Sales for the year were $730,000. • Accounts payable decreased $20,000 in 2021. • Selling and administration expenses for the year totaled $140,000. • Accounts receivable increased $6,000 in 2021. • Mamie's cost of goods sold in 2021 was $315,000. • Mamie's inventory decreased $13,000 during the year. • Interest expense for the period was $17,000. The interest payable account increased $5,000. • Dividends were not declared during the year; however, the dividends payable account decreased $2,000. • Sold an Investment at FVOCI for $45,000. The original cost of the investment 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.

Crete Ltd.'s policy is to report all cash flows arising from interest and dividends in the operating section. Crete's activities for the year ended December 31, 2021 included the following: • Income tax expense for the year was $30,000. • Sold an investment at FVOCI for $45,000. The original cost of the investment was $52,000. • Depreciation expense for the year was $19,000. • Sales for the year were $1,030,000. • Selling and administration expenses for the year totaled $240,000. • Mamie's cost of goods sold in 2021 was $315,000. • Interest expense for the period was $12,000. The interest payable account increased $5,000. • Accounts payable increased $20,000 in 2021. • Accounts receivable decreased $36,000 in 2021. • Mamie's inventory increased $13,000 during the year. • Dividends were not declared during the year; however, the dividends payable account decreased $5,000. 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.

Explain the options for recording interest and dividends received and interest and dividends paid on the cash flow statement according to IAS 7.

Recon Cile Ltd.'s policy is to report all cash flows arising from interest and dividends in the operating section. Recon Cile's activities for the year ended December 31, 2021 included the following: • Sold a investment at FVPL for $16,000. The book value of this investment, which was held for trading purposes was $13,000. • Purchased an investment at FVOCI for $20,000. • Borrowed $25,000 from the bank for investment purposes. • Sold equipment for $21,000 that originally cost $45,000. The net book value of this item at time of sale was $25,000. • Purchased inventory costing $4,000 for cash. • Received $6,000 in interest and $2,500 in dividends on sundry investments. • Acquired the right to use a forklift costing $22,000 under lease agreement. • Acquired land and buildings valued at $400,000 by issuing ordinary shares. • Bought $300,000 in bonds at a discount, paying $285,000 cash. The investment was classified at amortized cost. 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.

Jamie Bleay 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. Jamie Bleay Law's activities for the year ended December 31, 2019 included the following: • Sold a 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 $14,000. The book value and original cost of the investment was $14,000. • Borrowed $120,000 from the bank for investment purposes. • Sold equipment for $26,000 that originally cost $20,000. The net book value of this item at time of sale was $14,000. • Received $9,000 in interest and $7,000 in dividends on sundry investments. • Paid $4,000 interest on the investment loan. • Acquired land and buildings valued at $700,000 by paying $200,000 cash and issuing ordinary shares for the balance. • Bought $550,000 in bonds at a premium, paying $560,000 cash. The investment was classified at amortized cost. 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.

Describe the options available for reporting investments at FVPL regarding their impact on the statement of cash flows.

Investing involves buying and selling debt and equity securities. What two categories of investing do not appear in the investing section of the cash flow statement?