AFM121 Chapter Notes - Chapter 5: Cash Flow, Deferred Income, Income Statement

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erinplatypus481

13 Jul 2018

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM121

Professor

Andrew Ecclestone

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Document Summary

Afm 101: week four - chapter 5 (reporting and interpreting cash flow statements: classify cash flow items into cash flows from operating, investing, and financing activities, 235. Sale of productive assets (investments in securities of other companies) External financing of enterprise (owners and creditors) Items not affecting cash: (cid:3254) depreciation (cid:3254) deferred income taxes (-) (cid:3254) changes in non-cash operating work capital items related to operations: Borrowing on notes, mortgages, bonds, from creditors. Decrease in accrued liabilities (-) (cid:3253) net cash in/outflow = increase or decrease in cash/cash equivalents (highly liquid; maturity less than three months) Direct method: reports components of cash flows from operating activities as gross receipts and gross payments. Cash = liabilities + shareholders" equity - non-cash assets. Net cash flows from operating activities = profit +/- non-cash elements: complete income statement: cash flow from operating activities, additional details, report and interpret cash flows from operating activities by using the indirect method.

Related Questions

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 ____________

ivorymallard438

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

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

AFM121 Chapter Notes - Chapter 5: Cash Flow, Deferred Income, Income Statement

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