Exam 5: The Statement of Cash Flows

When a Statement of Cash Flows is prepared using the indirect method, a decrease in the balance of a prepaid expense during the reporting period is an "add back" adjustment to net income to convert it to cash from operating activities.

JCB, Inc. has completed the Dec. 31, 2012 income statement, balance sheet, and retained earnings statement. The spreadsheet for the Statement of Cash Flows (direct method) has been started below. Complete the spreadsheet. Additional data: 1. Purchased capital asset for $80 cash. 2. Sold capital asset for $150 cash (cost- $200; Acc. Depr.- $70). 3. Issued 10 common shares (MV - $15/share) to retire L-T notes payable. 4. Issued L-T notes payable for $100 cash. 5. Declared and paid cash dividends of $60. Operating Activities: Investing Activities: Financing Activities: Noncash Exchanges: Incr. (Decr) in cash

The indirect method of computing operating cash flows effectively converts accrual accounting income to cash basis income as its starting point.

A Statement of Cash Flows using the direct method and one using the indirect method will each produce the same amount of net cash flow from operating activities.

Assume cash paid to suppliers for 2011 is $350,000; merchandise inventory increased by $5,000 during the year, and accounts payable decreased by $10,000 during the year. What was cost of goods sold for 2011?

Under IFRS, dividends received may be classified as operating or financing activities.

A firm purchased $20,000 worth of investments classified as securities available for sale. At the end of the year, the investments were worth $23,000. What is the correct disclosure of these events in the direct method Statement of Cash Flows?

ARI Inc. began 2013 with the following: Accounts receivable \ 10,000 Allowance tor doubtful accounts (800) Net accounts receivable \ 9,200 During 2013 the following events occurred: Accounts written off \ 1,200 Sales on accounts 30,000 Bad debt expense recognized 2,000 At the end of 2013, ARI showed a balance in gross accounts receivable (before the allowance for doubtful accounts) of $16,800. In the direct method Statement of Cash Flows, what amount would be shown as an operating cash inflow?

The sale of $3,000 worth of cash equivalents costing $2,500 has what effect on the indirect method Statement of Cash Flows.

ABC Company has just completed the December 31, 2001, financial statements except for the Statement of Cash Flows. Information on changes in accounts appears in tabular format below. Additional information for 2001: a. Net income, $16,000. b. Depreciation expense, $5,000. c. Cash dividend declared and paid, $4,000. d. Declared and issued a $10,000 stock dividend, recorded at par. e. December 30, 2001, purchased a machine (a capital asset) for $10,000; paid half cash and issued a one year, 18%, interest-bearing note of $5,000 for the balance. f. Sold 20 shares of unissued shares at $26 per share, collected cash in full. g. Repurchased 10 shares of their ABC shares at $25 per share (assume the single-transaction method is used for common stock), paid cash in full. h. Purchased a tract of land and paid for it in full by exchanging for it all of the investment in X Corporation shares. The shares were quoted on the market at $12,000 (any gain or loss is included in income as an "ordinary" item). i. Sold an idle plant for $6,000 cash. j. Extraordinary gain of $2,000 (net of income tax) due to an earthquake (infrequent and unusual), which caused the loss of capital assets that originally cost $12,000 when they were two-thirds, depreciated; received $6,000 cash settlement from the insurance company. Debits Balance Balance Debit Credit Cash \ 31,000 \ 58,770 Accounts receivable (net) 14,000 12,000 Inventory 40,000 43,000 LT investment, stock of X Corp. (at cost) 12,000 0 Capital assets (cost) 70,000 68,000 Idle plant (at cost) 85,000 0 Land 12,000 Common stock (at cost) 250 Total \ 252,000 \ 194,020

Reported net income for ABC for 2013 was $20,000. Additional information is as follows: (a) Expenditures for capital assets \ 6,000 (b) Depreciation of capital assets 2,000 (c) Cash dividends declared and paid on common shares 900 (d) Net increase in accounts payable 400 (e) Net decrease in inventory 200 (f) Amortization of goodwill 70 (g) Decrease in accrued wages payable 30 (h) Loss on sale of capital asset (book value \ 2,500) 500 (i) Increase in accounts receivable 3,000 (j) Increase in prepaid insurance 130 The Statement of Cash Flows, indirect method, would report cash flow from operations of $_______________________.

XYZ has the following assets: Assets Amount Treasury bills (Acquired with less than 3 month maturity dates) \ 80,000 Treasury bills (Acquired with greater than 12 month maturity' dates 20,000 Commercial paper 40,000 Inestment in marketable equity sec urities 100,000 What would be the total cash equivalents at year-end for XYZ?

VJC received the following cash inflows during 2012: Dividends received \ 10,000 Sale of capital assets 50,000 Proceeds of issuing VJC common shares 60,000 Collection of non-operating notes recewable 15,000 Proceeds trom mortgaging a building What would be VJC's cash inflow from investing and financing activities, respectively, for 2011 under IFRS? Note: Under IFRS, dividends received may also be classified as operating cash flows.

Writing off an uncollectible account against the allowance would increase cash from customers.

Examples of cash equivalents are treasury bills, money market funds, and commercial paper.

Sale of an asset for less than its book value results in an inflow of cash.

Complete the following Statement of Cash Flows schedule to determine cash inflow (outflow) from operations: Statement of Cash Flows Operating Activities: Net income......................$100,000 Adjustments to convert net income to cash from operating activities: (a) Inventory increase, $3,000 (b) Accounts payable decrease, $7,000 (c) Depreciation expense, $12,000 (d) Gain on sale of land, $4,000 (e) Accounts receivable decrease, $5,000 (f) Amortization of discount on bonds payable, $1,000 (g) Loss on sale of investments in SAS, $2,000 (h) Correction of prior years' errors, loss, $11,000 Cash inflow (outflow) from operating activities...

WXY reported sales revenue of $40,000, and expenses of $35,000 during the period ended December 31, 2011. During the year, accounts receivable increased by $1,500; merchandise inventory increased by $1,000; accounts payable increased by $500; dividends payable decreased by $700; and depreciation expense of $2,500 was recorded. Calculate the amount of net cash flow from operating activities.

Cash outflows from investing activities would include payments for all of the following except:

RJB made inventory purchases amounting to $200,000 during 2014. During the year, its accounts payable (all of which arose from inventory purchases) increased by $20,000. The company had sales of $1,000,000 and is subject to a gross profit percentage of 90%. How much cash did RJB pay to its inventory suppliers during 2014?