Chat with AIExam 9: Statement of Cash Flows
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Exam 2: Non-Current Financial Liabilities109 Questions
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Exam 9: Statement of Cash Flows87 Questions
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What are the options for recording interest and dividends received and interest and dividends paid on the cash flow statement according to Accounting Standards for Private Enterprises (ASPE)?
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VerifiedASPE does not provide options.Rather,the receipt of interest and dividends and the payment of interest are operating activities; the payment of dividends is a financing activity.
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.
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(80) Correct Answer:Verified
Verifieda.The three primary sources of information required to prepare a statement of cash flows are the company's comparative balance sheet,its income statement for the period,and select transaction data.
b.The indirect method ignores the component parts and reports the change in the net receivables as an adjustment to net income in the cash flow from operating activities section.The direct method of presentation deals with the two elements separately.Cash from sales is adjusted for the change in the gross amount of the receivables and the operating component of the cash paid to suppliers and employees is adjusted for the change in the allowance account.
c.Cash flows from the purchase and sale of treasury shares are reported as a financing activity.
d.Other comprehensive income (OCI)is not normally reported on the statement of cash flows as OCI does not affect cash since it records only unrealized gains and losses on select items.The exception to this is that under the indirect method companies can use comprehensive income as a starting point,with the components of other comprehensive income being recorded as reversing items in the cash flows arising from operating activities section.
e.Investments in associates are typically accounted for using the equity method.The statement of cash flows is concerned only with the cash received or advanced,rather than investment income.The required adjustment for the indirect method of presentation entails deducting income from investments in the operating section and recording dividends received in either the operating or investing section.
f.Cash flows from discontinued operating activities are shown separately in the operating,investing,and financing activities of the statement of cash flows according to their nature.Alternatively,this information may be disclosed in the notes to the financial statements.
What guidance does IFRS provide with respect to reporting bank overdrafts on the statement of cash flows?
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(68) Correct Answer:Verified
VerifiedBank borrowings,including those by way of overdraft,are generally classified as financing activities.Bank overdrafts are included as a component of cash and cash equivalents,the change in which must be explained.
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 31,2018 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 $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 a forklift costing $22,000 under a finance lease.
• Acquired land and buildings valued at $400,000 by issuing ordinary shares.
• Bought $300,000 in bonds at a discount,paying $285,000 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.
(Essay)
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(83) Describe the options available for reporting held-for-trading investments regarding their impact on the statement of cash flows.
(Essay)
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(77) 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?
(Multiple Choice)
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(87) 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?
(Multiple Choice)
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(96) 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 31,2018 included the following: • Interest revenue for the period was $12,000.The interest receivable account decreased $3,000.
• Sold an available-for-sale investment for $10,000.The book value was $5,000.
Using the indirect method,how much would be presented as cash flow from operating activities?
(Multiple Choice)
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(95) 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 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?
(Essay)
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(81) Explain the options for recording interest and dividends received and interest and dividends paid on the cash flow statement according to IAS 7.
(Essay)
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(89) 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 31,2018 included the following:
• Income tax expense for the year was $30,000.
• Sold an available-for-sale investment for $45,000.The book value 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 2018 was $315,000.
• Interest expense for the period was $12,000.The interest payable account increased $5,000.
• Accounts payable increased $20,000 in 2018.
• Accounts receivable decreased $36,000 in 2018.
• 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.
(Essay)
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(77) Briefly describe non-cash transactions and how they are reported on the statement of cash flows.
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(75) Discuss how the cash flow statement helps evaluate a company's quality of earnings.
(Essay)
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(75) 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.
Required:
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.
(Essay)
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(86) Reuse It Inc.'s activities for the year ended December 31,2016 included the following:
• Comprehensive income totaled $468,000 including $88,000 in other comprehensive income.
• Paid a cash dividend of $30,000 that was declared in 2015.
• Interest expense for the year was $14,000; the opening and closing balances in the interest payable account were $28,000 and $19,000,respectively.
• Accounts receivable increased $63,000 and accounts payable decreased $19,000 during the year.
• RII paid $51,000 cash for equipment.
• RII sold held-to-maturity investments for $36,000.The book value of the investment was $39,000.
• Depreciation expense for the year totaled $9,000.
• Suffered an impairment loss on patents of $1 0,000.
• Declared and issued a 2-for-l stock split.There were 20,000 ordinary shares outstanding before the split with a collective market value of $3,000,000.
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 and dividends received as an investing activity,and interest and dividends paid as a financing activity.
(Essay)
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(85) Financial information for Fesone Inc.'s balance sheet for fiscal 2017 and 2018 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.
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.
Required:
a.Prepare a statement of cash flows for the year ended December 31,2018 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.
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.
Required:
a.Prepare a statement of cash flows for the year ended December 31,2018 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. (Essay)
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