Case 2. Kevin Sailors, the CEO of Candle Corporation, was discussing the financial statements with the company accountant. Weak cash flows had resulted in the company borrowing a lot of money. Kevin wanted to know why the money borrowed was included as
Why would Kevin want the interest paid to be included in the financing activities section? Why would the accountant state that interest paid should not be included in the financing activities section? Can the statement of cash flows be omitted? What ethical issues are involved? Do you have any additional thoughts?
Want to see the full answer?
Check out a sample textbook solutionChapter 11 Solutions
Financial Accounting, Student Value Edition (5th Edition)
- Which of the following sentences regarding the statement of cash flows is false? The statement of cash flows describes the companys cash receipts and cash payments for a period of time. The statement of cash flows reconciles the beginning and ending cash balances shown on the balance sheet. The statement of cash flows reports cash flows in three categories: cash flows from business activities, cash flows from investing activities, and cash flows from financing activities. The statement of cash flows may be used by creditors to asses the creditworthiness of a company.arrow_forwardWhen a company borrows money from the bank, what is the impact on the accounting equation? Group of answer choices Assets decrease and labilities increase Assets increase and liabilities increase Assets decrease and liabilities decrease Assets increase and liabilities decreasearrow_forward5. The president of Laporte Inc., Tanya Turcotte, was provided with a copy of the operating activities section of the statement of cash flows that you prepared in (1.), and made the following comment: “This report is supposed to show operating cash inflows and outflows during the year, but I don’t see how much cash Laporte Inc. received from customers and how much it paid to trade suppliers and for income taxes. Please ask whoever prepared this statement to provide me with these numbers.” Based on Tanya’s comment, compute the following amounts for 2020: (Enter your answers in millions.) a. Cash collected from customers b. Cash paid to trade suppliers c. Cash paid for income taxesarrow_forward
- identify which of the following transactions fall under operating,investing, and financing activities 1. Cash received from customers2. Cash paid to suppliers3. Cash paid to employees4. Cash paid to purchase equipment (the company does not sell equipment)5. Cash received from the sale of furniture (company’s main line of business is not related to furniture)6. Depreciation expense7. Sale of goods on credit8. Purchase of goods on credit9. Cash received from getting a loan from a bankarrow_forwardNo handwriting. Kindly show all working so when I work it out on my own, I would know how we both arrived at the answers we did if any of the answer differ. Requirements 1. Answer the following questions for the directors: A. True or false, does the statement of cash flows explains the difference between net income and the change in the cash balance? B. True or false, investors and management use the statement of cash flows to evaluate a firm's profitability? C. True or false, the financing activities section of the statement of cash flows includes paying dividends and paying off loans? D. True or false, the financing activities section of the statement of cash flows reflects the cash flows that affect current assets and liabilities? E. True or false, buying property, plant and equipment would be considered a cash outflow from financing? F. True or false, the financing section of the statement of cash flows reflects transactions in the equity accounts and the long-term liability…arrow_forwardSee images below and answer these questions according to the financial information given Requirements 1. Answer the following questions for the directors: A. True or false, does the statement of cash flows explains the difference between net income and the change in the cash balance? B. True or false, investors and management use the statement of cash flows to evaluate a firm's profitability? c. True or false, the financing activities section of the statement of cash flows includes paying dividends and paying off loans? D. True or false, the financing activities section of the statement of cash flows reflects the cash flows that affect current assets and liabilities? E. True or false, buying property, plant and equipment would be considered a cash outflow from financing? F. True or false, the financing section of the statement of cash flows reflects transactions in the equity accounts and the long-term liability accounts? c. True or false, suppose Auga Company Ltd just started…arrow_forward
- 1. How are the various asset, liability, and stockholders’ equity accounts on a typical corporate balance sheet measured and classified? 2. How do successive balance sheets and the income statements determine cash inflows and outflows for a period? 3. How does the information provided in the cash flow statement explain changes in noncash accounts on the balance sheet? 4. What are the distinctions between operating, investing, and financing sources and uses of cash?arrow_forwardWhich of the following is not a question that can be answered with the cash flow statement?A. How much cash did the business spend or receive in investing activities for the accounting period?B. How much inventory does the business have on hand at the end of the accounting period after cash purchases?C. What was the cash movement for the accounting period? D. How much cash was provided or used by the business’s operating activities for the accounting period?arrow_forwardA new manager of a retail company suggests that the company should prepare its Statement of Profit or Loss on the basis of cash receipts and cash expenditures (except for the acquisition of fixed assets, such as plant and equipment). He argues that managers, investors, creditors, and others are more interested in cash receipts and disbursements than in accrual-based accounting. Do you think he is correct? Explain.arrow_forward
- 1. What is the primary objective of financial accounting? 2. Define net operating cash flows. Briefly explain why periodic net operating cash flows may not be a good indicator of future operating cash flows. 3. What is meant by GAAP? why should all companies follow GAAP in reporting to external users? 4. Explain the roles of the SEC and the FASB in the sitting of accounting standards.arrow_forwardAssume you are the controller of a large corporation and the ceo has requested that you explain to them why the net income that you are reporting for the year is so low when the cell owes for a fact that cash accounts are much higher at the end of the year than they were at the beginning of the year write a memo to the ceo to offer some possible explanations for the disparity between financial statement net income and the change in cash during the yeararrow_forwardWhich of the following statements are correct?I. A company's choice of accounting principles for financial reporting purposes affects net cash flow for the accounting period.II. A company's choice of accounting principles for financial reporting purposes does not affect operating cash flow.III. If a company sells its receivables, this will increase operating cash flow.IV. If a company sells its receivables, this will increase financing cash flow Select one: A. I and III B. I,II and III C. II and IV D. I and IVarrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningAuditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage LearningPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College