Exam 19: Statement of Cash Flows

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

Which statement is true?

How are cash flows from discontinued operations shown in the 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. Using the direct method,how much would be presented as cash flow from operations for the "held for trading" investment?

Which statement is correct?

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 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?

Complete the following: a.List the three primary sources of information required to prepare a statement of cash flows. b.A company may report its accounts receivable at the gross amount less an allowance for bad debts.Contrast the direct and indirect methods of adjusting for accounts receivable reported at the gross amount. c.Briefly discuss how cash flows arising from the purchase and sale of treasury shares are reported on the statement of cash flows. d.Briefly discuss how other comprehensive income is reported on the statement of cash flows. e.Briefly discuss how cash flows arising from investments in associates are reported on the statement of cash flows. f.Briefly discuss the alternatives for reporting discontinued operations in the statement of cash flows.

On January 1,2017,Adara acquired equipment under a finance lease.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 1,2017 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.

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.

Which of the following is a financing activity?

Green Leaf's activities for the year ended December 31,2018 included the following: ∙ Comprehensive income totaled $538,000 including $88,000 in other comprehensive income. ∙ Paid a cash dividend of $80,000 that was declared in 2017. ∙ Interest expense for the year was $29,000;the opening and closing balances in the interest payable account were $26,000 and $17,000,respectively. ∙ Accounts receivable increased $33,000 and accounts payable decreased $24,000 during the year. ∙ The company paid $56,000 cash for equipment. ∙ The company sold held-to-maturity investments for $26,000.The book value of the investment was $27,000. ∙ Depreciation expense for the year totaled $19,000. ∙ Suffered an impairment loss on patents of $10,000. ∙ Declared and issued a 2-for-l stock split.There were 400,000 ordinary shares outstanding before the split with a collective market value of $100,000,000. Required: Prepare the cash flows from operating activities section of the statement of cash flows using the indirect method assuming that the company's policy is to report interest received and paid and dividends paid as an operations activity

Rusabh Ltd.'s policy is to report all cash flows arising from interest and dividends in the operating section.Rusabh's activities for the year ended December 31,2018 included the following: ∙ Sold a held-for-trading investment for $16,000.The book value of this investment,which was not designated as a cash equivalent,was $13,000. ∙ Purchased an available-for-sale investment for $51,000. ∙ Borrowed $100,000 from the bank for investment purposes. ∙ Sold equipment for $23,000 that originally cost $55,000.The net book value of this item at time of sale was $35,000. ∙ Purchased inventory costing $84,000 for cash. ∙ Received $8,000 in interest and 5,500 in dividends on sundry investments. ∙ Acquired a forklift costing $32,000 under a finance lease. ∙ Acquired land and buildings valued at $100,000 by issuing ordinary shares. ∙ Bought $400,000 in bonds at a discount,paying $375,000 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.

What is included in "cash and cash equivalents"?

Financial information for Fesone Inc.'s balance sheet for fiscal 2018 and 2017 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 $600,000;they pay a coupon rate of 6% per annum.The effective interest rate of interest is 7% per annum. 3.Net income was $205,000. 4.There was an ordinary stock dividend valued at $13,000 and cash dividends were also paid. 5.Interest expense for the year was $115,000.Income tax expense was $61,500. 6.Fesone arranged for a $425,000 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 = 2,000,000;cost of goods sold = 300,000;and,sales and administration expenses = 1,043,500 Required: a.Prepare the cash flows from operating activities section of the statement of cash flows using the direct method. b.Explain the difference between the direct method and the indirect method.

What is cash management?

What criterion is required for a "cash equivalent"?

Select transactions of SimBis Accounting Inc.(SAI)are listed below.SAI uses the indirect method to determine cash flows from operating activities. 1.SAI purchases a $200,000,45-day treasury bill held-for-trading investment. 2.SAI amortizes $32,000 of the discount on bonds payable. 3.At year-end SAI increases its allowance for bad debts by $10,000. 4.SAI's income tax expense totaled $40,000.Its income tax payable account increased $5,000,while its deferred income tax liability account decreased $8,000. 5.SAI acquires equipment valued at $80,000 under a finance lease. 6.SAI makes payments of $15,000 on an operating lease. 7.SAI declares and distributes a stock dividend valued at $33,000. 8.SAI declares a cash dividend of $30,000.The dividends payable account increases $15,000. 9.SAI's comprehensive income for the year totaled $200,000 consisting of $150,000 net income and $50,000 other comprehensive income. 10.SAI sells a held-to-maturity investment for $22,000.The investment's amortized cost 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.

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 31,2016 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 $14,000.The book value 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. 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.

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 payments of $25,000 on an operating lease. 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 held-to-maturity investment for $28,000.The investment's amortized cost 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.

Briefly describe non-cash transactions and how they are reported on the statement of cash flows.