AFM101 Chapter Notes - Chapter 5: Cash Flow, Current Liability, Income Statement

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amberkangaroo617

8 Oct 2013

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM101

Professor

Donna Psutka

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AFM101 Full Course Notes

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Cash inflows and outflows that directly relate to revenues and expenses reported on the income statement. Not affected by accruals, deferrals and allocations that result from the timing of revenue and expense recognition. Includes current assets (other than short term investments: investing activities), current liabilities (other than amounts owing to investors: financing activities), and retained earnings because it increases by the amount of profit. Two methods of presenting it: direct method. Reports components of cash flows from operating activities listed as gross receipts and gross payments. Purchased of goods for resale and services. Starts with profit (net income) and then eliminates non-cash items to arrive at net cash inflow/outflow. Related to the purchase and disposal of capital assets and investments. Includes exchanges of cash with external sources to finance the enterprise and its operations. Relationship to the statement of financial position & income statement. Cash inflow: decrease in non-cash assets and increase in liabilities and shareholder"s equity.

Related Questions

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The comparative balance sheets of Posner Company, for Years 1 and 2 ended December 31, appear below in condensed form.

1		Year 2	Year 1
2	Cash	$53,000.00	$50,000.00
3	Accounts Receivable (net)	37,000.00	48,000.00
4	Inventories	108,500.00	100,000.00
5	Investments		70,000.00
6	Equipment	573,200.00	450,000.00
7	Accumulated Depreciation-Equipment	(142,000.00)	(176,000.00)
8		$629,700.00	$542,000.00
9	Accounts Payable	$62,500.00	$43,800.00
10	Bonds Payable, Due Year 2		100,000.00
11	Common Stock, $10 par	325,000.00	285,000.00
12	Paid-In Capital in Excess of ParâCommon Stock	80,000.00	55,000.00
13	Retained Earnings	162,200.00	58,200.00
14		$629,700.00	$542,000.00

The income statement for the current year is as follows:

1	Sales		$625,700.00
2	Cost of merchandise sold		340,000.00
3	Gross profit		$285,700.00
4	Operating expenses:
5	Depreciation expense	$26,000.00
6	Other operating expenses	68,000.00	94,000.00
7	Income from operations		$191,700.00
8	Other revenue and expense:
9	Gain on sale of investment	$4,000.00
10	Interest expense	(6,000.00)	(2,000.00)
11	Income before income tax		$189,700.00
12	Income tax		60,700.00
13	Net income		$129,000.00

Additional data for the current year are as follows:

(a)	Fully depreciated equipment costing $60,000 was scrapped, no salvage, and new equipment was purchased for $183,200.
(b)	Bonds payable for $100,000 were retired by payment at their face amount.
(c)	5,000 shares of common stock were issued at $13 for cash.
(d)	Cash dividends declared and paid, $25,000.

Required:

Prepare a statement of cash flows using the indirect method of reporting cash flows from operating activities. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries. Be sure to complete the heading of the statement. Use the minus sign to indicate cash outflows, cash payments, decreases in cash, or any negative adjustments.

Labels and Amount Descriptions

Labels
For the Year Ended December 31, Year 2
Amount Descriptions
Cash from sale of common stock
Cash from sale of investments
Cash paid for dividends
Cash paid for purchase of equipment
Cash paid to retire bonds payable
Decrease in accounts payable
Decrease in accounts receivable
Decrease in cash
Decrease in inventories
Depreciation
Gain on sale of investment
Increase in accounts payable
Increase in accounts receivable
Increase in cash
Increase in inventories
Loss on sale of investment
Net cash flow from financing activities
Net cash flow from investing activities
Net cash flow from operating activities
Net cash flow used for financing activities
Net cash flow used for investing activities
Net cash flow used for operating activities
Net income
Net loss

Statement of Cash Flows

Posner Company

Statement of Cash Flows

1	Cash flows from operating activities:
2
3	Adjustments to reconcile net income to net cash flow from operating activities:
4
5
6	Changes in current operating assets and liabilities:
7
8
9
10
11	Cash flows from investing activities:
12
13
14
15	Cash flows from financing activities:
16
17
18
19
20
21	Cash at the beginning of the year
22	Cash at the end of the year

violetclam852

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

Statement of Cash Flows Using a Work SheetâIndirect Method (Appendix)

Peoria Corp. just completed another successful year, as indicated by the following income statement:

	For the Year Ended December 31, 2017

Sales revenue	$1,250,000
Cost of goods sold	700,000
Gross profit	$550,000
Operating expenses	150,000
Income before interest and taxes	$400,000
Interest expense	25,000
Income before taxes	$375,000
Income tax expense	150,000
Net income	$225,000

Presented here are comparative balance sheets:

	December 31
	2017	2016

Cash	$52,000	$90,000
Accounts receivable	180,000	130,000
Inventory	230,000	200,000
Prepayments	15,000	25,000
Total current assets	$477,000	$445,000
Land	$750,000	$600,000
Plant and equipment	700,000	500,000
Accumulated depreciation	(250,000)	(200,000)
Total long-term assets	$1,200,000	$900,000
Total assets	$1,677,000	$1,345,000
Accounts payable	$130,000	$148,000
Other accrued liabilities	68,000	63,000
Income taxes payable	90,000	110,000
Total current liabilities	$288,000	$321,000
Long-term bank loan payable	$350,000	$300,000
Common stock	$550,000	$400,000
Retained earnings	489,000	324,000
Total stockholders' equity	$1,039,000	$724,000
Total liabilities and stockholders' equity	$1,677,000	$1,345,000

Other information is as follows:

Dividends of $60,000 were declared and paid during the year.

Operating expenses include $50,000 of depreciation.

Land and plant and equipment were acquired for cash, and additional stock was issued for cash. Cash also was received from additional bank loans.

The president has asked you some questions about the year's results. She is very impressed with the profit margin of 18% (net income divided by sales revenue). She is bothered, however, by the decline in the company's cash balance during the year. One of the conditions of the existing bank loan is that the company maintain a minimum cash balance of $50,000.

Required:

1. Using the format in the chapter's appendix, prepare a statement of cash flows work sheet. If an amount box does not require an entry, leave it blank. Use the minus sign to indicate cash payments, cash outflows, or decreases in cash.

	Balances			Cash Inflows (Outflows)
Accounts	12/31/17	12/31/16	Changes	Operating	Investing	Financing
Cash	$	$	$	$	$	$
Accounts Receivable
Inventory
Prepayments
Land
Plant and Equipment
Accumulated Depreciation
Accounts Payable
Other Accrued Liabilities
Income Taxes Payable
Long-Term Bank Loan Payable
Common Stock
Retained Earnings
Net Income
Totals	$	$	$	$	$	$
Net increase (decrease) in cash				$

2. Prepare a statement of cash flows for 2017 using the indirect method in the Operating Activities section. Use the minus sign to indicate cash payments, cash outflows, or decreases in cash.

Peoria Corp.
Statement of Cash Flows
For the Year Ended December 31, 2017
Cash Flows from Operating Activities
	$
Adjustments to reconcile net income to net cash provided by operating activities:







	$
Cash Flows from Investing Activities
	$

	$
Cash Flows from Financing Activities
	$


	$
	$
Cash balance, December 31, 2016
Cash balance, December 31, 2017	$

3. During the year Peoria experienced a decrease in cash at the end of the year due to

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AFM101 Chapter Notes - Chapter 5: Cash Flow, Current Liability, Income Statement

AFM101 Full Course Notes

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