ACC 305 Lecture Notes - Lecture 45: Cash Flow, Income Statement, Financial Statement
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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 ____________
P4 - 1 3
Positioning of items within cash flow statementâIFRS vs. U.S. GAAP (LO 4-9)
Lend Corp. has a primary business model of borrowing funds at low interest rates and lending
them out at higher interest rates. The balances in Lend Corporationâs balance sheet accounts at
December 31, 2017 are as follows:
Assets | Liabilities | ||
cash | 300,000 | 40,000 | |
land | 300,000 | 800,000 | |
building | 800,000 | ||
Accum depr: Building | 160,000 | Owner's Equity | |
A/R | 20,000 | Retained Earnings | 320,000 |
Notes Rec | 900,000 | Contributed capital | 1,000,000 |
During 2018, Lend Corp. has the following transactions:
â Received $45,000 in cash interest on notes receivable.
â Paid $16,000 of cash interest on notes payable.
â Collected $10,000 cash from accounts receivable.
â Paid $40,000 cash to reduce accounts payable.
â Owes $3,000 at the end of the year to administrative employees for work performed.
â Building depreciation is an additional $20,000.
Required:
1. Compute Lend Corpâs 2018 net income.
2. Show Lend Corpâs 12/31/2018 balance sheet.
3. Report Lend Corpâs 12/31/2018 statement of cash flows using the indirect method under
U.S. GAAP.
4. Report Lend Corpâs 12/31/2018 statement of cash flows using the indirect method under IFRS.
Record cash flows from interest received in the cash flows from investing section. Record cash
flows from interest paid in the cash flows from financing section.
5. Compare your net cash flows from operations computed from requirement 3 vs. require- ment 4.
Which do you think better reflects Lend Corpâs fundamental operating cash flows?