Exam 17: Statement of Cash Flows

Cash flows arising from the purchase or sale of productive assets are cash flows from operating activities.

The FASB decided that the allocation of income taxes paid to operating,financing,and investing activities would be complex and arbitrary,and relied on which one of the following justifications for its decision?

A significant difference between income from operations and net cash flows from operating activities is a signal that reported income might have been distorted.

Autumn Company uses IFRS to prepare its external financial reporting.During 2015,Autumn Company had the following information related to cash flows: Dividends paid 16,000 Interest paid 20,000 Interest received 42,000 With regard to the above information,which of the following is acceptable as part of preparation of the statement of cash flows? $\begin{array}{lr}&\text { Cash from operating activities } & \text { Cash from/(used by) investing activities } \\\hline a.&\$ 0 & (\$ 42,000) \\b.&\$ 26,000 & (\$ 20,000) \\c.&\$(20,000) & \$ 26,000 \\d.&\$ 0 & (\$ 46,000)\end{array}$

The method of preparing the statement of cash flows used by the majority of firms is the

Which of the following transactions would be reported within the investing activities section of the cash flow statement?

For nonfinancial firms using IFRS which of the following is true?

Under International Financial Reporting Standards,interest paid can be classified either as an operating or financing cash flow.

If Firm A and Firm B are identical in every sense except that Firm A has a capital lease and Firm B an operating lease,the operating cash flows for Firm A will be greater than those for Firm B.

Firms using the indirect method must separately disclose the amount of income taxes paid and interest paid.

Cash flows that arise from transactions of a firm related to the production and delivery of goods and services to customers are cash flows from

The cash flow statement of the United Company is in process for 2015. The United Company is reporting the following balances: 12/31/14 12/31/15 Equipment \ 100,000 \ 170,000 Loss on sale of equipment 0 10,000 Accumulated depreciation-equipment 75,000 95,000 During 2015, United sold equipment costing $30,000 for $12,000 and made several purchases of new equipment for cash. -Depreciation expense for 2015 is

Issuing common stock in exchange for land will create a cash outflow in the investing activities section of the cash flow statement.

Under IFRS rules,nonfinancial firms are permitted to report interest and dividends received either as operating or investing activities and interest paid as either an operating or financing activity.

The following information and financial statements excerpts pertain to Liquidity Inc. a.All short term investments (securities available for sale)were purchased on 12/31/14 and sold during 2015. b.The company entered a lease agreement on 12/31/15. c.Fixed assets with a net book value of $15 were sold during the year. d.The company repaid the current portion of long-term debt during the year. e.Dividend was declared and partially paid. Assets Cash 54 45 Short term investments 95 0 Accounts receivable 45 85 Inventory 52 75 Prepaid general expenses 11 15 Fixed assets under capital lease, net 0 50 Fixed assets, net 422 498 Liabilities and stockowners' equity Accounts payable 38 48 Wages payable 12 6 Tax payable 3 5 Dividend payable 0 4 Current portion of long term debt 10 12 Obligations under capital leases 0 50 Long term debt 183 180 Common stock 150 163 Retained earnings 422 498 Required: 1.Prepare the statement of cash flows for the year 2015 using the direct method. 2.Reconcile net income and net cash flows from operating activities for the year 2015.

Under IFRS firms are encouraged to use the direct method.The result is that firms that follow IFRS rarely use the indirect method of presenting cash flows from operating activities.

The following information was obtained from the Warrior Corporation's financial statements for the year ending December 31,2015: • Bonds with a maturity value of $600,000 were issued for cash. • The premium on bonds payable account increased $12,500 during the year. • Bond interest expense was $30,500. • There was $500 of amortization of premium on newly issued bonds payable. • Retained earnings increased $119,300 during the year. • A 5% common stock dividend resulted in 5,000 shares of $5 par value common stock being issued at a time when the market price per share was $17. • Common stock was sold in exchange for cash. • The common stock account increased $70,000 during the year. • The additional paid-in capital account increased $210,000 during the year. • Net income for the year was $217,400. Required: Determine the cash flow from financing activities for the year ending December 31,2015.

The indirect method for cash flow from operating activities begins with accrual-basis operating income.

The Capitals Company has provided you the following information pertaining to the year ending December 31,2015: January 1,2015 December 31,2015 Equipment \ 575,000 \ 729,000 Accumulated depreciation \ 165,000 \ 120,500 • Equipment costing $25,000 was acquired in exchange for common stock. • Equipment with an original cost of $57,500 and a book value of $5,000 was scrapped. • Equipment was purchased in exchange for cash. • Equipment with a book value of $39,000 was sold resulting in a $14,000 gain.The accumulated depreciation at the time of the sale was $67,000. Required: 1.Determine the cash paid for equipment purchases during 2015. 2.Determine the depreciation expense for 2015.

Under IFRS firms are encouraged to use the direct method and are required to provide a reconciliation of net income to cash flows from operating activities.