Exam 9: Statement of Cash Flows

Which statement is correct?

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 item will be presented on the "investing section" of the cash flow statement?

Which category is used on the cash flow statement?

A company's activities for the year ended December 31,2018 included the following: • Declared and issued a stock dividend valued at $50,000. • Paid $975,000 to repurchase bonds.The book value of the bonds was $1,000,000. • Made a $20,000 principal payment on a bank loan. How much will be presented as cash flow from financing activities?

If a company has gaps between the change in cash and the net income for the year:

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 31,2018 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 15,2019. • 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.

Financial information for Flagstone 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 recorded increase in the bonds payable account was due to the amortization of the discount. 3.Net income was $318,000. 4.There was a common stock dividend valued at $20,000 and cash dividends were also paid. 5.Interest expense for the year was $95,000.Income tax expense was $57,000. 6.Flagstone arranged for a $500,000 bank loan to finance the purchase of the equipment. 7.Flagstone 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 = 1,900,000; cost of goods sold = 450,000; and,sales and administration expenses = 980,000 (includes depreciation expense) Required: a.Prepare the cash flows from operating activities section of the statement of cash flows using the direct method. b.Prepare the cash flows from operating activities section of the statement of cash flows using the indirect method. c.Compare and contrast the cash flows from operating activities using the direct method (a)and the indirect method (b).Which statement provides investors and other users of the financial statements with more useful information? Why?

Prepare the Statement of Cash Flows for Renoir Art Gallery Ltd for the year ended December 31,2018 using the indirect method from the following income statement,comparative balance sheets and supplemental information: Renoir Art Gallery Ltd. Income Statement For the Year Ended December 31,2018 Renoir Art Gallery Ltd. Comparative Balance Sheet As at December 31,2018 Supplemental information: - The decrease in bonds payable is due entirely to the amortization of the related premium. - Renoir's policy is to report interest and dividends paid as a cash outflow from operating activities. - The held-for-trading investments do not meet the criteria for cash equivalents. - $10,000 of held-for-trading investments were purchased during the year; none were sold. • Property,plant,and equipment costing $670,000 was sold for $422,000. • 100,000 ordinary shares (valued at $550,000)were exchanged as part of the acquisition cost of new property,plant,and equipment.The balance was paid in cash. • The $212,000 cost of successfully suing a competitor for patent infringement was capitalized during the year. • "Other Expenses" includes gains and losses on asset sales,holding losses,and patent amortization. • Cash was received or paid for all revenues and expenses other than those relating to inventories,sales,depreciation,and amortization. • Income from discontinued operations represents the operating profits of a plant that is in the process of being decommissioned.The recorded profit was received in cash. Required: 1.Prepare Renoir's statement of cash flows for the year ended December 31,2015 using the indirect method,including disclosure of non-cash activities.

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 payment of $35,000 on an operating lease.

Which of the following is an operating activity?

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 31,2018 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 15,2019. 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.

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

What are operating activities?

Angela's Angels Corp.'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.Angela's activities for the year ended December 31,2016 included the following: • Declared and issued a stock dividend valued at $15,000. • Issued $300,000 in ordinary shares. • Accounts payable decreased $38,000 during the year. • Paid $910,000 to repurchase bonds.The book value of the bonds was $1,000,000. • Made a $25,000 principal payment on a bank loan. • Interest expense for the period was $12,000.The interest payable account increased $2,000. • Declared a $12,000 cash dividend payable on January 15,2017. • Acquired an automobile costing $30,000 under a finance lease. 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.

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.Income tax expense of $30,000.The income tax payable account increased $7,000,while the deferred income tax liability account decreased $9,000. 2.Cash dividend of $40,000 declared.The dividends payable account increases $25,000.

Financial information for Flagstone 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.Bonds payable - the coupon rate on the bonds is 6% per year,payable on June 30 and December 31.Flagstone sold the $500,000 three year bonds on January 1,2017,for $486,679. 3.There was a common stock dividend valued at $20,000 and cash dividends were also paid. 4.Income tax expense was $57,000. 5.Flagstone arranged for a $500,000 bank loan to finance the purchase of the equipment in 2018.Interest paid and interest expense due to the bank loan were $60,566 in 2018. 6.Flagstone has adopted a policy of reporting cash flows arising from the payment of interest and dividends as operating and financing activities,respectively. 7.Investments - both investments were made on the last day of the year.The held-for-trading investments are reported as operating activity. 8.Sales = 1,900,000; cost of goods sold = 450,000; and,sales and administration expenses = 980,000 (includes depreciation expense). Required: a.Determine the 2018 year-end balance of the bonds payable,interest expense,and interest paid. b.Prepare Flagstone's income statement for 2018. c.Prepare a statement of cash flows for the year ended December 31,2018 using the indirect method.

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

Financial information for Flagstone 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 recorded increase in the bonds payable account was due to the amortization of the discount. 3.Net income was $318,000. 4.There was a common stock dividend valued at $20,000 and cash dividends were also paid. 5.Interest expense for the year was $95,000.Income tax expense was $57,000. 6.Flagstone arranged for a $500,000 bank loan to finance the purchase of the equipment. 7.Flagstone 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 = 1,900,000; cost of goods sold = 450,000; and,sales and administration expenses = 980,000 (includes depreciation expense) Required: Prepare a statement of cash flows for the year ended December 31,2018 using the direct method.

The opening balance in the computer account for Adara Corp for fiscal 2017 was $100,000; the closing balance was $107,000.The corresponding balances in the accumulated depreciation accounts were $63,000 and $67,500.During the year Adara scrapped a computer originally costing $13,000 having a remaining net book value of $3,500 and purchased a replacement machine for cash. Required: a.Prepare the underlying journal entries to record the foregoing transactions and record events stemming from the transactions. 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.