ACCT20100 Chapter Notes - Chapter 12: Internal Revenue Code, Cash Flow, Income Statement

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fuchsiahound508

9 Dec 2016

School

Department

Accountancy

Course

ACCT20100

Professor

Schmuhl

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Document Summary

Reconciliation of net income to cash flow from operations (for direct method) So why do the direct method in the first place because you end up doing the indirect method anyway: 2. If a company uses the indirect method for computing cash flow from operations, it must disclose cash paid for income taxes and interest disclosures are normally listed at the bottom of the statement. There is a big difference between what is shown on the income statement and what the company actually pays to the government in taxes which is calculated according to the internal revenue code: 3. Important transactions, but do not have any cash flow effects. Supplemental disclosure of these transactions is required, in either narrative or schedule form. Example= purchase a building with a mortgage. Using the direct method: direct method: presents a summary of all operating transactions that result in either a debit or a credit to cash prepared by adjusting each item on the.

Related Questions

The income statement and a schedule reconciling cash flowsfrom operating activities to net income are provided below forMacrosoft Corporation.

MACROSOFT CORPORATION

Income Statement

For the Year Ended December 31, 2016

($ in millions)

Revenues and gains:

Sales $ 318.00

Gain on sale of cash equivalents 2.40

Gain on sale of investments 24.40 $ 344.80

Expenses and loss:

Cost of goods sold $ 124.00

Salaries 40.40

Interest expense 12.40

Insurance 20.40

Depreciation 10.40

Patent amortization 4.40

Loss on sale of land 6.40 218.40

Income before tax 126.40

Income tax expense 63.20

Net income $ 63.20

Reconciliation of Net Income

to Net Cash Flows

from Operating Activities

($ in millions)

Net income $ 63.20

Adjustments for noncash effects:

Depreciation expense 10.40

Patent amortization expense 4.40

Loss on sale of land 6.40

Gain on sale of investment (24.40 )

Decrease in accounts receivable 6.40

Increase in inventory (12.40 )

Increase in accounts payable 18.40

Decrease in bond discount 1.40

Increase in salaries payable 6.40

Decrease in prepaid insurance 4.40

Increase in income tax payable 10.40

Net cash flows from operating activities $ 95.00

Required:

Prepare the cash flows from operating activities section ofthe statement of cash flows (direct method). (Enter your answers inmillions rounded to 2 decimal places (i.e., 5,500,000 should beentered as 5.50). Amounts to be deducted should be indicated with aminus sign.)

ReferenceseBook & Resources

WorksheetLearning Objective: 21-03 Determine cash flows fromoperating activities by the direct method.

Difficulty: 3 HardLearning Objective: 21-04 Determine cashflows from operating activities by the indirect method.

Check my work

mauveelephant894

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.

To compare statement of cash flows reporting under the direct andindirect methods, select "Direct", "Indirect" or "Both" indicatingthe method in which the line items are reported on the statement ofcash flows.

Cash Flows (and Related Changes) Statement of Cash FlowsMethod
1. Net income
2. Receipts from customers
3. Accounts receivable increase or decrease
4. Payments to suppliers
5. Inventory increase or decrease
6. Accounts payable increase or decrease
7. Payments to employees
8. Wages payable, increase or decrease
9. Depreciation expense
10. Cash flows from operating activities
11. Cash flows from investing activities
12. Cash flows from financing activities
13. Net increase or decrease in cash during the period

* you are going to get statement of cash flows method(choose one ofdirect, indirect, both)

peachalligator40

ACCT20100 Chapter Notes - Chapter 12: Internal Revenue Code, Cash Flow, Income Statement

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