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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Partial Statement of Cash Flows

Service Company had net income during the current year of $65,800. The following information was obtained from Service’s balance sheet:

Accounts receivable $26,540 increase

Inventory 32,180 increase

Accounts payable 9,300 decrease

Interest payable 2,120 increase

Accumulated depreciation (Building) 14,590 increase

Accumulated depreciation (Equipment) 32,350 increase

Additional Information:

1. Equipment with accumulated depreciation of $18,000 was sold during the year.

2. Cash dividends of $29,625 were paid during the year.

Required:

1. Prepare the net cash flows from operating activities using the indirect method.

2. CONCEPTUAL CONNECTION How would the cash proceeds from the sale of equipment he reported on the statement of cash flows?

3. CONCEPTUAL CONNECTION How would the cash dividends be reported on the statement of cash flows?

4. CONCEPTUAL CONNECTION What could the difference between net income and cash flow from operating activities signal to financial statement users?

To determine

(a)

Introduction:

The Cash flow statement shows the inflow and outflow of cash along with appropriate reasons. It is categorized into three activities i.e. Operating, Investing and Financing Activities.

To calculate:

Net Cash Flow from Operating Activities under indirect method of cash flow.

Explanation
Particulars $
Net Income 65,800
(-) Increase in Accounts Receivable ($26,540)
(-) Increase...
To determine

(b)

Introduction:

The Cash flow statement shows the inflow and outflow of cash along with appropriate reasons. It is categorized into three activities i.e. Operating, Investing and Financing Activities.

To explain:

Representation of cash flow from sale of equipment on Cash Flow Statement.

To determine

(c)

Introduction:

The Cash flow statement shows the inflow and outflow of cash along with appropriate reasons. It is categorized into three activities i.e. Operating, Investing and Financing Activities.

To explain:

Treatment of Cash Dividends on Cash Flow Statement.

To determine

(d)

Introduction:

Investment in debt security (available for sale securities and trading securities) as well as equity securities is recorded using Fair Value Method.

To indicate:

The probable difference in Net Income and Cash Flow from Operating Activities.

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