ACCO 310 Chapter Notes - Chapter 22: Historical Cost, Cashis, Gross Profit

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1 Dec 2016

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Acco 310 notes - chapter 22- statement of cash flows. The purpose of a cash flow statement is to determine a company"s sources and uses of cash and cash equivalents. Cash equivalents refers to near-cash items that are convertible to cash on short notice (say 90 days) such as t-bills, gics, and other low-risk guaranteed short-term investments readily convertible to cash. A statement of cash flows has 3 parts: Cash flows from operating activities (relate to current assets & liabilities) Cash flows from investing activities (relate to non-current assets) Cash flows from financing activities (relate to non-current liabilities and equity items (such as share issue, retirement & dividends). N. b: interest expense may be an operating or financing item, but most examples treat this as an operating item. The direct method and indirect method differ only with respect to the presentation of operating. The amount of the operating cash flows is the same.

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Natalie Daniels has completed the basic format to be used inpreparing the statement of cash flows (indirect method) for CPUHardware Designers. All amounts are in thousands (000s).

CPU HARDWARE DESIGNERS Statement of Cash Flows For the year ended December 31, 2015
Cash Flows fromOperating Activities
Netincome
Adjustments for noncash effects:
Changesin current assets and current liabilities:
Net cash flows from operatingactivities
Cash Flows fromInvesting Activities
Netcash flows from investing activities
Cash Flows fromFinancing Activities
Net cash flows from financingactivities
Net increase(decrease) in cash	$	(28,000)
Cash at thebeginning of the period		90,000

Cash at the end ofthe period	$	62,000

Below, in random order, are line items to be included in thestatement of cash flows.


Cash received fromthe sale of land	$ 4,000
Issuance of commonstock	300,000
Depreciationexpense	30,000
Increase in accountsreceivable	70,000
Increase in accountspayable	11,000
Loss on sale ofland	8,000
Purchase ofequipment	230,000
Increase ininventory	40,000
Increase in prepaidrent	11,000
Payment ofdividends	50,000
Net income	80,000
Repayment of notespayable	60,000

Required:

Prepare the statement of cash flows for CPU Hardware Designersusing the indirect method. (List cash outflows and any decrease in cashas negative amounts. Enter your answers inthousands.)

CPU HARDWARE DESIGNERS
Statement of Cash Flows
For the Year Ended December 31, 2015
Cash Flows from Operating Activities:

Adjustments to reconcile net income to net cash flows fromoperating activities








Net cash flows from operating activities		$0
Cash Flows from Investing Activities:




Net cash flows from investing activities		0
Cash Flows from Financing Activities:





Net cash flows from financing activities		0

Cash at the beginning of the period
Cash at the end of the period		$0

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PROBLEM 14-9 Understanding a Statement of Cash Flows (L014-1, L014-2] Brock Company is a merchandiser that prepared the statement of cash flows and income statement provided below: Brock Company Statement of Cash Flows-Indirect Method $ 275 Operating Activities Net income ... Adjustments to convert net income to a cash basis: Depreciation ........ Increase in accounts receivable.... Decrease in inventory ........ Decrease in accounts payable .......... Decrease in accrued liabilities ........ Increase in income taxes payable ................ Gain on sale of equipment... Net cash provided by operating activities ........... boa Investing Activities Additions to property, plant, and equipment ......... Proceeds from sale of equipment .... Net cash used in investing activities .............. long & nô Financing Activities Issuance of bonds payable ..... Issuance of common stock ............ Cash dividends paid ......... Net cash provided by financing activities ........... Net increase in cash and cash equivalents .......... Beginning cash and cash equivalents ............ Ending cash and cash equivalents ............ 34 Brock Company Income Statement Net sales .......... Cost of goods sold ............. .............. Gross margin ................ ............ Selling and administrative expenses ............. Net operating income ........... Nonoperating items: Gain on sale of equipment .... Income before taxes ... Income taxes . . . . . . . . $5,200 2,980 2,220 1,801 419 423 Net income .......................... $ 275 Required: Assume that you have been asked to teach a workshop to the employees within Brock Compa- ny's Marketing Department. The purpose of your workshop is to explain how the statement of cash flows differs from the income statement. Your audience is expecting you to explain the logic underlying each number included in the statement of cash flows. Prepare a memo that explains the format of the statement of cash flows and the rationale for each number included in Brock's state- ment of cash flows.

The Murdock Corporation reported the following balance sheet data for 2016 and 2015:

	2016			2015
Cash	$	84,035		$	26,555
Available-for-sale securities (not cash equivalents)		18,500			91,000
Accounts receivable		86,000			73,650
Inventory		171,000			150,400
Prepaid insurance		2,040			2,600
Land, buildings, and equipment		1,262,000			1,131,000
Accumulated depreciation		(616,000	)		(578,000	)

Total assets	$	1,007,575		$	897,205

Accounts payable	$	81,740		$	154,670
Salaries payable		22,400			27,500
Notes payable (current)		30,400			81,000
Bonds payable		206,000			0
Common stock		300,000			300,000
Retained earnings		367,035			334,035

Total liabilities and shareholders' equity	$	1,007,575		$	897,205

Additional information for 2016:

Sold available-for-sale securities costing $72,500 for $77,600.

Equipment costing $20,000 with a book value of $5,600 was sold for $6,900.

Issued 6% bonds payable at face value, $206,000.

Purchased new equipment for $151,000 cash.

Paid cash dividends of $23,000.

Net income was $56,000.

Required:

Prepare a statement of cash flows for 2016 in good form using the indirect method for cash flows from operating activities. (Amounts to be deducted should be indicated with a minus sign.)

MURDOCK COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2016
Cash flows from operating activities:

Adjustments for noncash effects:









Net cash flows from operating activities
Cash flows from investing activities:




Net cash flows from investing activities
Cash flows from financing activities:




Net cash flows from financing activities

Cash balance, January 1
Cash balance, December 31

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ACCO 310 Chapter Notes - Chapter 22: Historical Cost, Cashis, Gross Profit

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