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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Erroneous Statement of Cash Flows Ryan Company’s bookkeeper prepared the following 2019 statement of cash flows:

Chapter 21, Problem 11P, Erroneous Statement of Cash Flows Ryan Companys bookkeeper prepared the following 2019 statement of

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:

Next Level Prepare a corrected 2019 statement of cash flows for Ryan.

To determine

Prepare rectified cash flow statement of R Company for the year ended 31st December 2019.

Explanation

Statement of cash flows: Cash flow statement reports all the cash transactions which are responsible for inflow and outflow of cash, and result of these transactions is reported as ending balance of cash at the end of reported period. Statement of cash flows includes the changes in cash balance due to operating, investing, and financing activities.

Indirect method: Under indirect method, net income is reported first, then non-cash expenses, losses from fixed assets, and changes in opening balances and ending balances of current assets are adjusted to reconcile the net income balance.

Operating activities: Operating activities include cash inflows and outflows from business operations.

Investing activities: Investing activities includes cash inflows and cash outflows from purchase and sale of land or equipment, or investments. Format for investing activities section are given below.

Financing activities: Financing activities includes cash inflows and outflows from issuance of common stock and debt, payment of debt and dividends.

Format for cash flow statement under indirect method are given below.

Statement of Cash Flows
For the year Ended ….
ParticularsAmount ($)($)
Cash flows from operating activities:  
Net incomeXXX

Adjustments to reconcile net income to

 net cash provided by operating activities:

Depreciation expenseXXX
Loss on disposal of plant assetsXXX
Increase in accounts receivableXXX
Increase in inventoriesXXX
Increase in prepaid expensesXXX
Increase in accounts payableXXX
Decrease in accrued expense payableXXX 
Net cash provided by operating activities XXX
Cash flows from investing activities:  
Sale of landXXX
Purchase of equipmentXXX 
Net cash used for investing activities XXX
Cash flows from financing activities:  
Issuance of common stockXXX
Redemption of bonds payableXXX
Payment of cash dividendsXXX
Net cash provided by financing activities XXX
Net increase (decrease) in cash XXX
Cash balance (Beginning) XXX
Cash balance (closing) XXX

Table (1)

Prepare rectified cash flow statement:

In the given information they classified the items incorrectly...

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