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Requirement 1:
Statement of cash flows: It is one of the financial statement that shows the cash and cash equivalents of a company for a particular period. It determines the net changes in cash through reporting the sources and uses of cash due to the operating, investing, and financing activities of a company.
Direct method: This method uses the basis of cash for preparing the cash flows statement.
Cash flows from operating activities: In this direct method, cash flow from operating activities is computed by using all cash receipts and cash payments during the year.
Cash Receipts: It encompasses all the cash receipts from sale of goods and on account receivable.
Cash Payments: It encompasses all the cash payments that are made to suppliers of goods and all expenses that are paid.
The below table shows the way of calculation of cash flows from operating activities:
Cash flows from operating activities (Direct method) |
Add: Cash receipts. |
Cash receipt from customer |
Less: Cash payments: |
To supplier |
For operating expenses |
Income tax expenses |
Net cash provided from or used by operating activities |
Cash flows from investing activities: Cash provided by or used in investing activities is a section of statement of cash flows. It includes the purchase or sale of equipment or land, or marketable securities, which is used for business operations.
Cash flows from investing activities |
Add: Proceeds from sale of fixed assets |
Sale of marketable securities / investments |
Interest received |
Dividend received |
Deduct: Purchase of fixed assets/long-lived assets |
Purchase of marketable securities |
Net cash provided from or used by investing activities |
Cash flows from financing activities: Cash provided by or used in financing activities is a section of statement of cash flows. It includes raising cash from long-term debt or payment of long-term debt, which is used for business operations.
Cash flows from financing activities |
Add: Issuance of common stock |
Proceeds from borrowings |
Proceeds from issuance of debt |
Deduct: Payment of dividend |
Repayment of debt |
Interest paid |
Redemption of debt |
Net cash provided from or used by financing activities |
To Prepare: Statement of cash flows under direct method.
Requirement 2:
To Analyze: The statement of cash flows to get help for evaluating an investment.
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Chapter 14 Solutions
Horngren's Financial & Managerial Accounting, Student Value Edition (5th Edition)
- Title How will what you learned in this problem help you evaluate an investment? Description Preparing the statement of cash flows—direct method Use the Rolling Hills data from Problem 14-27A. Requirements 1. Prepare the 2012 statement of cash flows by the direct method. 2. How will what you learned in this problem help you evaluate an investment?arrow_forwardHow to solve in this statement problem of cash flow? Show the the solution Plsss help meee to solve this. Thankyouarrow_forwardPlease answer the following question. In this method, the company compares the amount spent on the investment with the discounted expected future cash inflows. a.Payback b.NRV c.Investment d.IRRarrow_forward
- Prepare a cash flow statement (indirect method) from the given information. Show your solutionsarrow_forwardPresent its feasibility using 1. Rate or Return Method 2. Annual Worth Method 3. Present Worth Method 4. Future Worth Method 5. Payback Method All method should be presented with the cash flow diagramarrow_forwarduse the net present value calculator in presenting the cash flow. complete the data.arrow_forward
- Solve using present worth method with cash flow diagram.arrow_forwardHow to do Cash Flow Projection when investing? give a example.arrow_forwardPlease answer the following questions 1. _________________ is the discounted net future cash inflows divided by the initial cash outlay. a.Payback b.NRV c.Profitability Index d.IRR 2. __________________________ serves as a framework for measuring performance. a.NRV b.Payback c.Profitability Index d.Balanced Scorecard 3. Which of the following is a performance measures of the balanced scorecard: a.internal Business perspective b.all of the answers are correct c.financial Perspective d.customer perspectivearrow_forward
- Could you create the full cash flow statement?arrow_forwardhow to create the statement of cash flow from the given? show the solution.arrow_forwardYou have studied the theory and want to put what you have learnt into practice. i. Describe to Paulo Jr. what the cash flow statement shows?arrow_forward
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
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