Reference no: EM13583655

The Statement of Cash Flow (put an article link after your answer to support it)

The income statement and the operating section of the cash flow statement present a company's results in very different formats.

In your opinion, which statement is more important to shareholders? to company management? to creditors?

Explain your responses.

Problem 1

To compare statement of cash flow reporting under the direct and indirect methods, enter a check mark to indicate which items are used with each method.

 

Cash Flows				Statement of Cash Flows Method
(and related changes)				Direct	Indirect
	1.		Salaries payable increase or decrease
	2.		Payments to employees
	3.		Cash collections from customers
	4.		Prepaid rent increase or decrease
	5.		Payments to suppliers
	6.		Inventory increase or decrease
	7.		Utilities payable, increase or decrease
	8.		Depreciation expense
	9.		Net income
	10.		Cash flows from operating activities
	11.		Cash flows from investing activities
	12.		Cash flows from financing activities
	13.		Net increase or decrease in cash during the period

 

Problem 2

A company completed its income statement and balance sheet for the year and provided the following information:

 

                                                                Income Statement

 

                                Service Revenue                                                 $55,000

                                Expenses:

                                                Salaries                                                   42,500

                                                Rent                                                          7,200

                                                Depreciation                                              6,800

                                                Amortization of copyrights                         1,000

                                Total Expenses                                                          57,500

                                Net loss                                                                     $(2,500)

 

                                                                Partial Balance Sheet

                                                                                                                Current Year      Prior Year

                                Accounts receivable                                                     $ 7,000                  $16,000

                                Salaries Payable                                                          14,000                      7,200

                                Prepaid rent                                                                  2,200                      8,400

 

In addition, the company bought a small piece of equipment costing $6,500.

 

Required:

1. Prepare the operating activities section of the statement of cash flows using the indirect method.
2. Explain why the company was able to report positive operating cash flow despite having a net loss for the year.

 

Problem 3

For the most recent accounting year, a company reported the following operating and cash activities:

 

Investments in other companies	(8,628)
Increase in inventories	(2,685)
Depreciation and amortization	35,254
Long-term debt repayment	(165,243)
Net income	28,961
Proceeds from issuance of common stock	13,485
Proceeds from sale of property and equipment	3,590
Payment of dividends	(6,255)
Proceeds from long-term debt issuance	61,785
Purchases of property and equipment	(25,400)
Decrease in accounts receivable	5,291
Decrease in accounts payable	(8,466)

 

Requirements:

1. Prepare the operating, investing and financing sections of the cash flow statement.
2. Explain the major sources and uses of cash for the year.

 

Problem 4

The balance sheet and income statement for a company are provided below, along with selected additional financial information.

 

	Current Year	Prior Year
Balance Sheet
Cash	79,250	73,840
Accounts Receivable	18,820	24,185
Merchandise Inventory	15,354	6,976
Property and equipment	285,735	175,000
Accumulated Depreciation	(89,000)	(72,630)
Total Assets	310,159	207,371
Accounts Payable	8,500	18,200
Wages Payable	3,208	2,194
Notes payable, long-term	72,840	86,100
Contributed capital	84,255	65,980
Retained earnings	141,356	34,897
Total Liabilities and Stockholders' Equity	310,159	207,371
Income Statement
Sales	284,955
Cost of goods sold	91,357
Wages	32,187
Depreciation expense	16,370
Other Expense	22,358
Net income	122,683

 

Additional data:

a)      Purchased equipment for cash $100,735

b)      Paid $13,260 on a long-term loan

c)       Issued new shares of stock for $18,275 cash

d)      Dividends of $16,224 were declared and paid.

 

Required:

Prepare a statement of cash flows for the year using the indirect method.

Question 7:

A company acquired some land (independently appraised at $12,000) and paid for it by issuing 1,000 shares of its common stock (par $10 per share; no market price was quoted). How should this be reported on the statement of cash flows?

A. Report $12,000 as inflow and outflow of cash.

B. Report $12,000 as an inflow of cash.

C. Should not be reported on the statement of cash flows.

D. Report in the schedule of significant noncash transactions.

Question 8

Use the following information to prepare a statement of cash flows for Hanson Inc. for the year ended December 31, 2009 using the indirect method. Prepare a schedule for any non-cash items for disclosure, if appropriate. A. Net income $10,000 (depreciation expense, 5,000; inventory decrease, $1,000; no changes in accounts receivable or accounts payable) B. Issued capital stock for $4,000 of equipment. C. Sold equipment for $8,000, book value $8,000. D. Paid cash dividend, $3,000 (declared in prior year). E. Paid long-term debt principal, $8,000 and short-term debt principal, $2,000. F. Purchased equipment for $12,000 in exchange for a note payable due in two years. The cash balance on January 1, 2009 was $10,000.