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Flashcards in Statement of Cash Flows Deck (29)
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1
Q

When must a statement of cash flows included in a set of F/S?

A

a statement of cash flows must be presented for every year in which an income statement is shown

2
Q

In a statement of cash flows what cash equivalents are reported in the same manner as cash?

A

investments with 3 or less months to maturity are generally considered to be a cash equivalent and given the same treatment as cash on the CF stmt

3
Q

What are the 3 main classifications on the stmt of CF?

A

investing activities

financing activities

operating activities

4
Q

On a stmt of CF what are the transactions disclosed in the investing activities section?

A

investing activities reflect transaction involving assets that do not normally change in the regular course of business from daily operations. examples purchase of land, selling a building, selling a patent, buying equipment

5
Q

On a stmt of CF what are the transactions disclosed in the financing activities section?

A

financing activities are all transactions that involve either stockholders’ equity or liabilities that do not occur as a normal part of daily operations examples paying a note payable with cash, paying cash dividends, issuance of common stock for cash, issuing bonds for cash

6
Q

On a stmt of CF what are the transactions disclosed in the operating activities section?

A

operating activities include all transactions happening in the regular course of daily operations. examples paying A/P, buying inventory, receiving interest revenue, paying interest exp, collecting from the sale of inventory or services provided

7
Q

Indicate how each of the following transactions will be shown on the CF stmt

  1. Bought truck for $9,000 cash and note of $30,000
  2. Sold inventory for $3,000 cash
  3. Paid $15,000 on a note, $12,000 principal and $3,000 int
  4. Declared a $6,000 cash dividend
  5. Paid the above dividend
  6. sold treasury stock for $32,000
A
  1. $9,000 outflow in investing activities
  2. $3,000 cash inflow in operating activities
  3. $12,000 principal outflow in financing, $3,000 interest is cash outflow in operating
  4. no change, no reporting required
  5. $6,000 cash outflow in financing
  6. $32,000 cash inflow in financing
8
Q

What are some transactions that would not be reported on a stmt of CF?

A

examples, a non-monetary exchange, stock dividend or stock split, issuance of stock for an asset

9
Q

An entity spends $10,000 in cash to buy an investment that comes due in 60 days. How is this transaction reported on the stmt of CF?

A

not reported on stmt of CF. the investment is a cash equivalent because it was bought within 3 mos. of maturity. thus the entity exchanged cash for a cash equivalent so no overall change in the cash balance took place.

10
Q

What are the 2 different methods that can be used to report cash flows from operating activities?

Which of these methods is preferred by the FASB?

A

1) direct method 2) indirect method

FASB has indicated a preference for the direct method

11
Q

An entity is going to report its CF from operating by means of the direct method. How does this approach work?

A

in the direct method, each separate figure reported on the entities income statement is converted to the amount of cash collected or paid in connection with daily operations.

12
Q

What 3 changes are made to convert the I/S to a CF from operating activities stmt?

A

1) gains and losses are eliminated because they do not pertain to daily operations
2) non-cash revenues and expenses are eliminated because they do not affect cash
3) changes in any operational assets and liabilities are also removed to convert from accrual to cash

13
Q

What are the operational assets and liabilities?

A
A/R
inventory
PP expenses
A/P
Accrued liabilities
income tax payable
14
Q

What operational assets and liabilities are associated with the following I/S accounts?

1) Sales
2) COGS
3) Insurance exp
4) Salary exp
5) Income tax exp

A

1) A/R
2) Inventory, A/P
3) PP exp, Insurance payable
4) Salaries payable
5) income tax payable and deferred income taxes

15
Q

An entity reports sales of $200,000 for the year, while A/R went up by $15,000. Using the direct approach, how much cash was actually collected from customers?

A

Credit Sales - Change in A/R = Cash collected from customers

$200,000 - $15,000 = $185,000

16
Q

An entity reports COGS of $100,000 for the year, while inventory went down by $9,000 and A/P went down by $2,000. using the direct approach, how much cash was actually paid for the inventory?

A

COGS + Change in inventory + change in A/P = cash paid for inventory

$100,000 + ($9,000) + $2,000 = $93,000

17
Q

An entity reports insurance expense of $21,000 for the year while PP insurance went down by $3,000. Using the direct approach, how much cash was actually paid for the insurance?

A

Insurance expense + change in PP insurance = cash paid for insurance

$21,000 + ($3,000) = $18,000

18
Q

An entity reports its total operational expenses an $90,000 for they year, while accrued liabilities went up by $8,000. Within the total expense figure was $13,000 depreciation. Using the direct approach, how much cash was actually paid for expenses?

A

Total expenses + change in accrued liabilities - non cash expenses = Total cash paid for expenses

$90,000 + ($8,000) - $13,000 = $69,000

19
Q

An entity is determining its cash flows from operating activities by means of the direct method. On its I/S for the year, the entity reports an $8,000 loss on the sale of equipment. How does the impact of CF from operating activities computation become impacted?

A

sale of equipment is an investing activity therefore it is eliminated in the operating activities section of the CF stmt

20
Q

How does the indirect method work when determining CF from operating activities?

A

start with NI

1) non cash revenues and expenses eliminated
2) all gains and losses eliminated
3) changes occurring in operational assets and liabilities must be eliminated

21
Q

An entity reports net income of $200,000. Within NI the entity reports a depreciation expense of $30,000 and a gain on sale of equipment of $11,000.

What are the cash flows from operating activities if the indirect method is applied?

A

NI + non cash expense - gain on sale of equipment = CF from operating activities

$200,000 + $30,000 - $11,000 = $219,000

22
Q

An entity reports NI of $300,000. Within NI the entity reports amortization exp of $14,000 and a loss on the sale of land $17,000.

What are the CF from operating activities if the indirect method is applied?

A

NI + non cash exp + loss on sale of land = CF from operating activities

$300,000 + $14,000 + $17,000 = $331,000

23
Q

An entity reports NI of $400,000. The entities inventory went up by $9,000 and A/R went down by $22,000.

What are the CF from operating activities if the indirect method is applied?

A

NI + change in A/R + change in inventory = CF from operating activities

$400,000 + $22,000 + ($9,000) = $413,000

24
Q

An entity reports NI of $400,000. The entities A/P went up by $13,000 and salaries payable went down by $4,000.

What are the CF from operating activities if the indirect method is applied?

A

NI + Change in A/P + Change in salaries payable = CF from operating activities

$400,000 + $13,000 + ($4,000) = $409,000

25
Q

An entity sells equipment with a cost of $200,000 and accumulated depreciation of $80,000 for a gain of $16,000.

If the indirect method is applied, how does this transaction impact a stmt of CF?

A

The gain is eliminated to CF from operations

the cash received is added to CF from investing

26
Q

An entity has a building with a cost of $300,000 and accumulated depreciation of $110,000. The building is sold for $172,000. The indirect method is applied.

How is this transaction reported on a stmt of CF?

A

The loss of $18,000 is eliminated from the CF from operations.

The cash of $172,000 is added to CF from investing.

27
Q

What is the cash basis of accounting?

A

the cash basis reports revenues when cash is received and expenses when cash is paid.

therefore there is no need for accrual accounts such as A/R, A/P and accrued assets or liabilities

28
Q

An entity is using the cash basis of accounting but wants to convert to the accrual basis. What 2 steps are carried out to make this conversion?

A

1) accounts as of the first day of the year that have been left off are placed on the books through a J/E with RE as the plug
2) the beginning balances are adjusted to the ending balances for the period with the plug either increasing or decreasing NI

29
Q

An entity uses the cash basis of accounting and reports NI of $200,000 for year 1. The entity has gathered the following comparative B/S info.

A/R $16,000 1/1 $27,000 12/31
AP $13,000 1/1 $11,000 12/31
Salaries Payable $2,000 1/1 $8,000 12/31

under accrual accounting what net income figure would be reported?

A

to record the 1/1 balances

A/R 16,000
A/P 13,000
Salary Payable 2,000
RE 1,000

To adjust these accounts to 12/31

A/R 11,000
A/P 2,000
Salaries payable 6,000
NI 7,000

the NI has been increased from $200,000 to $207,000 in accrual accounting