Statement of cash flows

Question 1

How are T Bills treated on the statement of cash flows?

Answer 1

U.S. Treasury bills are not considered to be a cash equivalent item so purchasing the T-bill merely changes the form of cash held, it does not change the cash poisition of the entity.

This, the purchase is not reported on the statement of cash flows.

Question 2

What are the required disclosures under the direct method under U.S. GAAP?

Answer 2

• The major classes of gross cash receipts and gross cash payments.
• The amount of income taxes paid.
• A reconciliation of net income to net cash flows from operations.

The reconcilation of retained earnings to net cash flows is NOT required.

Question 3

Cash flows from operating activities

(CFO)

Answer 3

• Selling products/collecting receivables
• Purchasing inventory/paying vendors
• Purchsing supplies and services/paying vendors
• Paying taxes
• Purchasing/selling trading secuirites
• Collecting interest on an investment
• Collecing dividends on an investment
• Paying interest on debt

Question 4

Cash flows from Investing activities

(CFI)

Answer 4

• Purchasing long-term assets or long-term investments for cash
• Selling long-term assets or investments (noncash equivalents and non-trading securities) - cash proceeds

Question 5

Cash flow from financing activities

(CFF)

Answer 5

• Borrowing funds (i.e, bank loans, issuing debt)
• Paying principal on debt
• Issuing common or preferred stock
• Paying dividends on common or preferred stock (not declared)
• Repurchsing stock

Question 7

Which shold be disclosed as **supplemental information **in the statement of cash flows?

Cash flow per share?

Conversion of debt to equity?

Answer 7

Cash flow per share- NO

Conversion of debt to equity- YES

Question 8

Disclosures using indirect method

Answer 8

Financial statements should not report an amount of cash flow per share.

​Things that should

• Interest paid, net of amounts capitalized
• Income taxes paid
• Dividends paid on preferred stock

Question 9

Redemption of bonds payable formula

Answer 9

Beginning balance (end of year 1)

Add: Issuance of bonds for whatever

Subtotal

less: (redemption of bonds payable) plug

Ending balance (end of year 2)

Question 10

Operating activities (indirect method)

Current asset increase?

Current asset decrease?

Current liabilities increase?

Current liabilities decrease?

Answer 10

• Current asset increase: subtract
• Current asset decrease: add
• Current liabilities increase: add
• Current Liablities decrease: subtract

Question 11

Operating activities summary

Answer 11

1. Cash received from customers
2. Cash paid to suppliers and employees
3. Interest receiced and interest paid
4. Dividends received
5. Purchases and sales of trading securities (if appropirate)
6. Income taxes paid
7. All other cash transactions

Question 12

Operating activities (indirect method)

Answer 12

1. Record net income
2. Adjust net income for noncash items such as deprecation and the impairment of goodwill
3. Reverse the income statement gain or loss shown on the sale of any asset
4. Adjust for changes in current assets and current liablities except for cash accounts andn accounts treated elsewhere in the statement

Question 13

Financing activities (direct and indirect methods)

Answer 13

1. All sums borrowed and/or repaid (principal amount only)
2. Issuance and/or repurchse of own company stock
3. Dividends paid (not received)

Question 14

Investing activities (direct and indriect methods)

Answer 14

1. All sums lent and/or repaid (principal only).
2. Purchase and/or sale of noncurrent assets (including fixed assets, intangible assets, and marketable securities).

Question 15

Cash payments made to reduce debt prinicpal are properly reported as a financing activitiy.

Question 16

Cash inflows and outflows should be seperated.

Answer 16

If a gain is made and then subesequently a purchase is made, you would split them up as a cash inflow and a cash outlfow.

Question 17

When asking for net income, and it gives you:

Cash provided from operating activities

Deprecation of equipment

Impariment of goodwill

Dividends paid on common stock

What do you do?

Answer 17

Cash provided from operating activities

(Deprecation on equipment) expense

(Imapirment of goodwill) expense

Net income

Dividends effects retained earnings.

Question 18

Cash provided by operating activities. Where do you start?

Answer 18

Net income

then any adjustments in the operating section

Question 19

Where is unamoritized bond discount located?

Answer 19

In the operating activities section

Question 20

What is the only marketable security included in the operating section?

Answer 20

Trading

Available for sale and marketable are in investing.

Question 21

Where are income taxes paid and net interst payments reported on the statement of cash flows?

Answer 21

The supplemental disclosures.

Question 22

Under IFRS interest received during a period is reported on the statement of cash flows where?

Answer 22

in the Operating and investing section

Question 23

Under IFRS, interest paid during a period is reported where?

Answer 23

In the operating or financing section

Question 24

Where is payment of interest located on the statement of cash flows?

Answer 24

In the operating section.

Principal is located in the financing section

Question 25

When doing these illogical cash flow quesitons, ignore stupid things like "cash paid to suppliers for inventory purchases."

Answer 25

So if it gives you an inrcrease in a current asset (inventory) and a decrease in a current liablity (A/P), just treat it as your adjustments to current assets/liabilities.

Question 26

If equipment is sold at a gain, what cash inflow is showed and where?

Answer 26

Carrying amount of the equipment + The gain

Question 27

When something like new equiment is bought, what is showed as a cash outflow

Answer 27

The Cash paid for the new equipment. Remember, this is the statment of cash flows, so we are not worrying about the note payable, it is not a CASH outflow.

Question 28

You have to think opposite when looking for net income on the statement of cash flows.

Answer 28

Instead of starting with net income and adding things like deprecation expense and impairment of goodwill, you have to start at operating activities and subtract these things to get net income.

Question 29

Income related acitivites are all automatically what kind of cash flow?

Question 30

When unarmotized bond discount is decreased $xxx by the year, what the fuck does that mean dumbass?

Answer 30

It means it was amortized at the end of the year. Use your fucking head.

Question 31

The operating activities section includes what itmes?

Answer 31

* Current assets and current liabilities * Other income statement items. Under the indirect method, net income is adjusted by obvious things to get to net cash.

Question 32

**Indirect method**, how are the follwing accounts treated in the operating section? Increase in taxes payable Dividends received

Answer 32

Increase in taxes payable- subtract Dividends received- NOT INCLUDED IN INDIRECT METHOD Remember indirect method is income statment items plus changes in current assets and liablities.

Question 33

When figuring out **operating expense** when they give you the accounts that increase in decrease, you have to think of it differently.

Answer 33

Example. * **Increase in prepaid expenses- **Expenses which have been paid but not yet used, therefore it must be added. * **Increase in accured liabilities- **Operating expenseswhich have been incurred or used but not paid, therefore they must be subtracted.

Question 34

Financing section- What does the borrowings under a line of credit mean?

Answer 34

It represents an **increase** in cash flows

Question 35

Tax related to the gain is located where?

Answer 35

In the operating section of cash flows.

Question 36

Cash paid to supplies forumula ## Footnote **DIRECT METHOD**

Answer 36

COGS Add: Increase in inventory less: (Decrease in inventory) less: (increase in accounts payable) _Add: Decrease in accounts payable_ Cash paid to suppliers