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AFM123 Lecture 1: AFM+123+Statement+of+Cash+Flows

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marooncaribou68
28 May 2016
School
University of Waterloo
Department
Accounting & Financial Management
Course
AFM123
Professor
Peter Blake

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Document Summary

: understand what caused cash to change during the year. Cash appears on the balance sheet as the first item in current assets. Readers of the financial statements want to know why. To understand a business, a f/s user must know what is happening to cash from each perspectives operating, investing and financing. Accountants must therefore prepare the cash flow statement that way. Accountants have devised 2 different ways of presenting the cash flow from operating activities. The indirect method highlights how well the company has been managing its working capital by presenting changes in the various working capital accounts. The direct method shows exactly how much cash came in from each individual operating activity. The indirect method is the more popular method, simply because in the united. So any canadian company that has to prepare u. s. f/s, must use the indirect method. Cash flow = cash for the year (c = cash) A = l + se.

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Related Questions

1 )

The following events occurred last year at Dorder Corporation:

Purchase of plant and equipment $26,000
Sale of long-term investment $11,000
Dividends received on long-term investments $7,000
Paid off bonds payable $14,500
Depreciation expense $13,000

Based on the above information, the cash provided (used) by investing activities for the year on the statement of cash flows would net to:
$(15,000)
$(13,000)
$(14,500)
$(35,500)
2)

Last year Burch Corporation's cash account decreased by $33,000. Net cash provided by investing activities was $8,800. Net cash used in financing activities was $29,500. On the statement of cash flows, the net cash flow provided by (used in) operating activities was:
$(12,300)
$(33,000)
$20,700
$(53,700)
3)

McCorey Corporation recorded the following events last year:

Repurchase by the company of its own common stock $27,000
Sale of long-term investment $46,000
Interest paid to lenders $8,500
Dividends paid to the company's shareholders $56,000
Collection by McCorey of a loan made to another company $32,000
Payment of taxes to governmental bodies $18,500

On the statement of cash flows, some of these events are classified as operating activities, some are classified as investing activities, and some are classified as financing activities.

Based solely on the information above, the net cash provided by (used in) investing activities on the statement of cash flows would be:
$22,000
$(13,500)
$78,000
$(15,500)

Statement of Cash Flows—Indirect Method

The comparative balance sheet of Amelia Enterprises, Inc. atDecember 31, 2014 and 2013, is as follows:

Dec. 31, 2014 Dec. 31, 2013
Assets
Cash $72,150 $88,890
Accounts receivable (net) 110,870 119,830
Merchandise inventory 158,400 148,510
Prepaid expenses 6,450 4,500
Equipment 322,640 266,100
Accumulated depreciation-equipment (83,890) (65,260)
Total $586,620 $562,570
Liabilities and Stockholders'Equity
Accounts payable (merchandise creditors) $123,190 $117,580
Mortgage note payable 0 168,770
Common stock, $1 par 19,000 12,000
Paid-in capital in excess of par-common stock 278,000 159,000
Retained earnings 166,430 105,220
Total $586,620 $562,570

Additional data obtained from the income statement and from anexamination of the accounts in the ledger for 2014 are asfollows:

Net income, $156,700.

Depreciation reported on the income statement, $40,720.

Equipment was purchased at a cost of $78,630, and fullydepreciated equipment costing $22,090 was discarded, with nosalvage realized.

The mortgage note payable was not due until 2016, but the termspermitted earlier payment without penalty.

7,000 shares of common stock were issued at $18 for cash.

Cash dividends declared and paid, $95,490.

Required:

Hide

Prepare a statement of cash flows, using the indirect method ofpresenting cash flows from operating activities. Use the minus signto indicate cash out flows, cash payments, decreases in cash andfor any adjustments, if required.

Amelia Enterprises, Inc.

Statement of Cash Flows

For the Year Ended December 31, 2014

Cash flows from operating activities:

Common stock

Depreciation

Inventory

Net income

Prepaid expenses

Retained earnings

Correct 5
$

Correct 6

Adjustments to reconcile net income to net cash flow fromoperating activities:

Cash paid for dividends

Decrease in accounts receivable

Depreciation

Increase in accounts receivable

Net income

Retained earnings

Correct 8

Correct 9

Changes in current operating assets and liabilities:

Decrease in accounts payable

Decrease in accounts receivable

Decrease in inventory

Depreciation

Increase in accounts receivable

Correct 11

Correct 12

Decrease in accounts payable

Decrease in merchandise inventory

Decrease in prepaid expenses

Depreciation

Increase in accounts receivable

Increase in merchandise inventory

Correct 13

Correct 14

Decrease in accounts payable

Decrease in inventory

Decrease in prepaid expenses

Increase in prepaid expenses

Correct 15

Correct 16

Decrease in accounts payable

Decrease in prepaid expenses

Depreciation

Increase in accounts payable

Net income

Retained earnings

Correct 17

Correct 18

Net cash flow from operating activities
$

Correct 20

Cash flows from investing activities:

Cash paid for common stock

Cash paid for equipment

Cash paid for dividends

Cash paid for merchandise inventory

Cash paid for prepaid expenses

Cash paid to retire mortgage note

Correct 22
$

Correct 23

Net cash flow used for investing activities

Correct 25

Cash flows from financing activities:

Cash received from customers

Cash received from depreciation

Cash received from dividends

Cash received from net income

Cash received from retained earnings

Cash received from sale of common stock

Correct 27
$

Correct 28

Less cash paid for accounts payable

Less cash paid for common stock

Less cash paid for dividends

Less cash paid for equipment

Less cash paid for inventory

Less cash paid for prepaid expenses

Correct 29
$

Correct 30

Less cash paid for accounts payable

Less cash paid for accumulated depreciation

Less cash paid for common stock

Less cash paid for depreciation

Less cash paid for inventories

Less cash paid to retire mortgage note payable

Correct 31

Correct 32

Correct 33

Net cash flow used in financing activities

Correct 35

Decrease in cash

Increase in cash

Correct 36
$

Correct 37

Cash at beginning of the year

Correct 39

Cash at end of the year
$

Correct 41

The comparative balance sheet of Cromme Inc. for December 31,2016 and 2015, is shown as follows:

Question not attempted.

1

Dec. 31, 2016

Dec. 31, 2015

2

Assets

3

Cash

$626,640.00

$585,760.00

4

Accounts receivable (net)

226,900.00

208,390.00

5

Inventories

641,350.00

616,130.00

6

Investments

0.00

239,300.00

7

Land

328,730.00

0.00

8

Equipment

705,940.00

553,530.00

9

Accumulated depreciation-equipment

(166,970.00)

(148,000.00)

10

Total assets

$2,362,590.00

$2,055,110.00

11

Liabilities and Stockholders’ Equity

12

Accounts payable (merchandise creditors)

$425,140.00

$404,540.00

13

Accrued expenses payable (operating expenses)

42,020.00

52,750.00

14

Dividends payable

23,580.00

19,500.00

15

Common stock, $4 par

154,000.00

100,000.00

16

Paid-in capital: Excess of issue price over par—common stock

416,600.00

279,400.00

17

Retained earnings

1,301,250.00

1,198,920.00

18

Total liabilities and stockholders’ equity

$2,362,590.00

$2,055,110.00

Additional data obtained from an examination of the accounts inthe ledger for 2016 are as follows:

A. The investments were sold for $279,880 cash.
B. Equipment and land were acquired for cash.
C. There were no disposals of equipment during the year.
D. The common stock was issued for cash.
E. There was a $198,010 credit to Retained Earnings for netincome.
F. There was a $95,680 debit to Retained Earnings for cashdividends declared.

Prepare a statement of cash flows, using the indirect method ofpresenting cash flows from operating activities

The section of the statement of cash flows that reports the cashtransactions affecting the determination of net income.

. Refer to the Labels and Amount Descriptions list provided forthe exact wording of the answer choices for text entries. Be sureto complete the heading of the statement. In the operatingactivities section, use the minus sign to indicate cash outflows,decreases in cash and a net cash outflow, if required. In theinvesting and financing activities section, use a minus sign onlyto indicate a NET cash outflow for the section.

Labels

In CengageNOW, a Label is a text entry that does not have anamount associated with it.

and Amount Descriptions

In CengageNOW, an Amount Description is a text entry other thanan Account that has an amount associated with it.
Cash paid for dividends
Cash paid for merchandise
Cash paid for purchase of equipment
Cash paid for purchase of land
Cash received from customers
Cash received from sale of common stock
Cash received from sale of investments
December 31, 2016
Decrease in accounts payable
Decrease in accounts receivable
Decrease in accrued expenses payable
Decrease in inventories
Decrease in cash
Depreciation
For the Year Ended December 31, 2016
Gain on sale of investments
Increase in accounts payable
Increase in accounts receivable
Increase in accrued expenses payable
Increase in cash
Increase in inventories
Loss on sale of investments
Net cash flow from operating activities
Net cash flow used for operating activities
Net cash flow from investing activities
Net cash flow used for investing activities
Net cash flow from financing activities
Net cash flow used for financing activities

Net income

Prepare a statement of cash flows, using the indirect method ofpresenting cash flows from operating activities

The section of the statement of cash flows that reports the cashtransactions affecting the determination of net income.

. Refer to the Labels and Amount Descriptions list provided forthe exact wording of the answer choices for text entries. Be sureto complete the heading of the statement. In the operatingactivities section, use the minus sign to indicate cash outflows,decreases in cash and a net cash outflow, if required. In theinvesting and financing activities section, use a minus sign onlyto indicate a NET cash outflow for the section.

Question not attempted.

Cromme Inc.

Statement of Cash Flows

1

Cash flows from operating activities:

2

3

Adjustments to reconcile net income to net cash flow fromoperating activities:

4

5

6

Changes in current operating assets and liabilities:

7

8

9

10

11

12

13

Cash flows from investing activities:

14

15

16

17

18

19

Cash flows from financing activities:

20

21

22

23

24

Cash at the beginning of the year

25

Cash at the end of the year