ACC 310F Lecture Notes - Lecture 12: Accrual, Cash Flow, Net Income

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whitewildebeest151

7 Sep 2018

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In this unit, we added the third main financial statement, the statement of cash flows, to the previous two statements we had discussed, the balance sheet and the income statement. Statement of cash flows is to report all of the reasons that the cash balance changed during the year. The statement is organized into three sections, operating, investing and financing, usually in that order. Beginning at the bottom, the financing section reports how much cash was generated by borrowing from creditors or by selling stock to investors. The financing section also reports how much cash was used to repay creditors or to return money to investors either by paying dividends or by buying back the company"s stock. The investing section reports how much cash was spent on new plant and equipment, intangible assets, financial investments or in the acquisition of other companies. This section also reports how much cash was generated from the sale of any of these items.

Related Questions

1. List the three sections of the Statement of Cash Flows and briefly explain what activities are included in each section.

2. What can creditors, investors, and other users learn from the analysis of the cash flow statements?

3. Explain why depreciation expense, depletion expense, and amortization expense are added to net income in the operating activities section of the statement of cash flows when using the indirect method.

4. Leather Shop earned net income of $57,000 after deducting depreciation of $5,000 and all other expenses, Current assets decreased by $4,000, and current liabilities increased by $8,000. How much was Leather Shop's cash provided by operating activities (indirect method)?

5. How does the direct method differ from the indirect method?

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 Stockholdersâ 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 parâcommon stock	416,600.00	279,400.00
17	Retained earnings	1,301,250.00	1,198,920.00
18	Total liabilities and stockholdersâ 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.

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

scarletkoala290

1. A creditor is reviewing Hoffman Electronicsâ statements ofretained earnings for the last 3 years. The creditor is trying todetermine whether a substantial loan should be given to HoffmanElectronics. Which question will most likely be answered byreviewing the statement of retained earnings?

a. Does Hoffman Electronics make risky investments that impedethe cash flow of the firm?

b. What was the ending permanent account balance for HoffmanElectronics last quarter?

c. What assets owned by Hoffman Electronics are valuable enoughto cover debt repayment?

d. Does Hoffman Electronics have enough earnings to pay bothdividends and debts?

2. True or false. By reviewing a companyâs statement of retainedearnings over multiple reporting periods, an investor can evaluatethe companyâs future growth potential based on net incomechanges.

3. A creditor would most likely be interested in reviewing afirmâs statement of retained earnings to determine if the firm

a. exhibits liquidity.

b.can repay its debt obligations.

c.makes risky investments.

d.has sufficient receivables.

4. On statement of cash flow, the repayment of loans iscategorized as a cash flow from ____activities.

a. operating

b. financing

5."Fill in the blank" question: select the correct answer.

In a statement of cash flows, cash inflows that result fromproviding goods to customers are included in the section calledâcash flows from_______ activities.

a. investing

b. operating

c. sales

d. investing

6. Creditors want to know whether Photon, Inc. uses itsavailable cash to purchase new equipment. Which section of thestatement of cash flows would provide this information?

a.Cash flows from operating activities

b.Cash flows from sales activities

c.Cash flows from financing activities

d.Cash flows from investing activities

7. Creditors are examining the statement of cash flows forPhoton, Inc. Which of the following questions can be answered byreviewing the statement of cash flows?

a. What is the average net income of Photon?

b.What type of assets does Photon possess?

c.Does Photon reset its temporary accounts?

d.Does Photon pay its bills when they are due?

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ACC 310F Lecture Notes - Lecture 12: Accrual, Cash Flow, Net Income

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