ACTG 2010 Lecture Notes - Lecture 1: Cash Flow, Cash Flow Statement
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Statement of Cash Flows
The following is a list of the items to be included in thepreparation of Warrick Company's 2016 statement of cash flows:
Net income, $59,200
Payment for purchase of building, $98,000
Increase in accounts receivable, $7,400
Proceeds from issuance of common stock, $37,100
Increase in accounts payable, $4,500
Proceeds from sale of land, $7,000
Depreciation expense, $12,600
Payment of dividends, $36,000
Gain on sale of land, $5,300
Decrease in inventory, $3,700
Payment for purchase of long-term investments, $9,600
Amortization of discount on bonds payable, $1,900
Proceeds from issuance of note, $18,000
Increase in deferred taxes payable, $5,000
Equipment acquired by capital lease, $19,500
Decrease in salaries payable, $2,300
Beginning cash balance, $20,300
Required
1. Prepare the statement of cash flows.
WARRICK COMPANY | ||
Statement of Cash Flows | ||
For Year Ended December 31, 2016 | ||
Operating Activities: | ||
Net income | $ | |
Adjustment for noncash income items: | ||
Add: Depreciation expense | ||
Add: Amortization of discount on bonds payable | ||
Add: Accumulated depreciation | ||
Less: Gain on sale of land | ||
Adjustments for cash flow effects from working capital items: | ||
Increase in accounts receivable | ||
Decrease in inventory | ||
Increase in accounts payable | ||
Decrease in salaries payable | ||
Net cash provided by operating activities | $ | |
Investing Activities: | ||
Payment for purchase of building | $ | |
Proceeds from sale of land | ||
Payment for purchase of long-term investments | ||
Net cash used for investing activities | ||
Financing Activities: | ||
Proceeds from issuance of common stock | $ | |
Payment of accounts payable | ||
Proceeds from issuance of note | ||
Net cash provided by financing activities | ||
Net Decrease in Cash | $ | |
Cash, January 1, 2016 | ||
Cash, December 31, 2016 | $ | |
Investing and Financing Activities Not Affecting Cash | ||
Investing Activities: | ||
Acquisition of equipment under capital lease | $ | |
Financing Activities: | ||
Incurrence of capital lease obligation for equipment |
NFORMATION
NUWARE LIMITED
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2019 R |
|
Cash flows from operating activities |
2 540 000 |
Profit before interest and tax |
7 700 000 |
Non-cash flow adjustments |
700 000 |
Add: Depreciation |
700 000 |
Profit before working capital changes Working capital changes |
8 400 000 690 000 |
Decrease in inventory Decrease in receivables Increase in payables |
180 000 310 000 200 000 |
Cash generated from operations |
9 090 000 |
Interest paid |
(150 000) |
Dividends paid |
(4 900 000) |
Company tax paid |
(1 500 000) |
Cash flow from investing activities |
(4 200 000) |
Land, buildings and equipment purchased |
(4 200 000) |
Cash flow from financing activities |
1 100 000 |
Increase in long-term borrowings |
1 100 000 |
Net decrease in cash and cash equivalents |
? |
Cash and cash equivalents at beginning of year |
? |
Cash and cash equivalents at end of year |
? |
- Why was depreciation included in computing the cash flow from operating activities? (2 marks)
- Calculate the cash balance on 31 December 2019 if there was a bank overdraft of R460 000 on 31 December 2020. (2 marks)
- Based on the cash flow information above, how does the company appear to be performing? Explain by referring to at least five items in the cash flow statement. (10 marks)
- Long term loans were increased during 2020. Was this the most appropriate way of financing the purchase of assets? (3 marks)
1.5 What cash receipts increase cash but not profits? (3 marks)
Erroneous Statement of Cash Flows
Ryan Company's bookkeeper prepared the following 2016 statement of cash flows:
Flows of Cash Statement December 31, 2016 | |||
Sources (Inflows) of Cash | |||
Net Source from Operations | |||
Net income | $47,800 | ||
Add: Cash receipt from sale of land | 6,500 | ||
Inflow from issuing 10% bonds payable | 25,000 | ||
Depreciation expense | 13,200 | ||
Reduction in inventory | 1,900 | ||
Less: Outflow to buy equipment | (16,400) | ||
Increase in prepaid expenses | (700) | ||
Cash (principal) paid on long-term note | (9,500) | ||
ordinary gain | (2,000) | ||
Total source from operations | $65,800 | ||
Other Sources (Inflows) of Cash | |||
Loss on sale of land | $2,300 | ||
Increase in accounts payable | 1,000 | ||
Cash from issuing preferred stock | 38,700 | ||
Patent amortization expense | 2,100 | ||
Total other sources of cash | 44,100 | ||
Sources (Financing) Not Affecting Cash | |||
Issuance of common stock for patent | 11,000 | ||
Total inflows of cash | $120,900 | ||
Uses (Outflows) of Cash | |||
To purchase building | $(62,000) | ||
Increase in accounts receivable | (7,800) | ||
For acquiring marketable securities | (7,100) | ||
Decrease in income taxes payable | (1,400) | ||
Total uses of cash | (78,300) | ||
Uses (Investing) Not Affecting Cash | |||
Acquisition of patent by issuing common stock | (11,000) | ||
Net inflow before dividends | $ 31,600 | ||
Less: Cash dividends | (24,000) | ||
Net increase in cash | $7,600 | ||
Cash, January 1, 2016 | 15,300 | ||
Cash, December 31, 2016 | $22,900 |
After a thorough investigation, you have determined that the amounts of the items listed on the statement are correct. However, you notice several items that are incorrectly classified and reported.
Required
Prepare a corrected 2016 statement of cash flows for the Ryan Company. Use the minus sign to indicate cash outflows, a decrease in cash or cash payments.
Operating Activities
________________ __________
Adjustment for non cash income items:
________________ __________
________________ __________
________________ __________
________________ __________
Adjustments for cash flow effects from working capital items:
________________ __________
________________ __________
________________ __________
________________ __________
________________ __________
Net cash provided by operating activities ____________
Investing Activities:
________________ __________
________________ __________
________________ __________
________________ __________
Net cash used for investing activities _________
Financing Activities:
________________ __________
________________ __________
________________ __________
________________ __________
Net cash provided by financing activies _________
Net increase in cash _________
Cash, january 1, 2016 _________
Cash, december 31, 2016 _________
Investing and Financing Activities not Affecting Cash
Investing Activities:
Acquistion of patent by issuing commons stock ______________
Financing Activities:
Issuance of common stock for patent ____________