Concept explainers
Statement of cash flows: This 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.
To Prepare: The Statement of cash flow for Company A, using the T-Accounts.
Explanation of Solution
T-account: T-account is the form of the ledger account, where the
The components of the T-account are as follows:
a) The title of the account
b) The left or debit side
c) The right or credit side
The T-accounts for Company A, for various accounts are shown below:
Cash Account:
Cash (Statement of Cash Flows) (Amount in millions) | |||
(13) $86 | Cash Balance | ||
Operating activities: | |||
From customers | (1) $414 | (4) $200 | To suppliers of goods |
From investment revenue | (2) $3 | (5) $78 | To employees |
From sale of cash equivalents | (3) $2 | (8) $3 | For insurance |
(9) $21 | For bond interest | ||
(11) $35 | For income taxes | ||
Investing activities: | |||
Sale of machine components | (10) $17 | (13) $25 | Purchase of Long Term Investment |
(14) $23 | Purchase of land | ||
Financing activities: | |||
Sale of |
(18) $75 | (15) $7 | Payment on lease liability |
(16) $60 | Retirement of bonds payable | ||
(19) $22 | Payment of cash dividends | ||
(20) $9 | Purchase of |
Table (1)
Long Term investment (Amount in millions) | |||
Increase in Long Term investment | $31 | ||
Opening Balance | $125 | $156 | Closing Balance |
Land (Amount in millions) | |||
Increase in investment revenue receivable | $46 | ||
Opening Balance | $150 | $196 | Closing Balance |
Patent (Amount in millions) | |||
$2 | Decrease in patent | ||
Opening Balance | $32 | $30 | Closing Balance |
Buildings and Equipment (Amount in millions) | |||
Increase in buildings and equipment | $12 | ||
Opening Balance | $400 | $412 | Closing Balance |
|
|||
Decrease in accumulated depreciation | $23 | ||
Opening Balance | $120 | $97 | Closing Balance |
Accounts payable (Amount in millions) | |||
Decrease in accounts payable | $15 | ||
Opening Balance | $65 | $50 | Closing Balance |
Salaries Payable (Amount in millions) | |||
Decrease in salaries payable | $5 | ||
Opening Balance | $11 | $6 | Closing Balance |
Notes Payable (Amount in millions) | |||
$23 | Increase in Notes Payable | ||
Opening Balance | $0 | $23 | Closing Balance |
Bonds Payable (Amount in millions) | |||
Decrease in Bonds Payable | $60 | ||
Opening Balance | $275 | $215 | Closing Balance |
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|||
$15 | Increase in Retained earnings | ||
Opening Balance | $227 | $242 | Net Income |
Bond Interest Payable (Amount in millions) | |||
$4 | Increase in Bond Interest Payable | ||
Opening Balance | $4 | $8 | Closing Balance |
Income tax payable (Amount in millions) | |||
Decrease in Income tax payable | $2 | ||
Opening Balance | $14 | $12 | Closing Balance |
|
|||
$3 | Increase in Deferred tax liability | ||
Opening Balance | $8 | $11 | Closing Balance |
Lease liability (Amount in millions) | |||
$75 | Increase in Lease liability | ||
Opening Balance | $8 | $75 | Closing Balance |
Discount on Bonds (Amount in millions) | |||
$3 | Increase in Discount on Bonds | ||
Opening Balance | $0 | $3 | Closing Balance |
Common Stock (Amount in millions) | |||
$20 | Increase in Common Stock | ||
Opening Balance | $410 | $430 | Closing Balance |
Paid-in capital (Amount in millions) | |||
$10 | Increase in Paid-in capital | ||
Opening Balance | $85 | $95 | Closing Balance |
Preferred stock (Amount in millions) | |||
$75 | Increase in Preferred stock | ||
Opening Balance | $0 | $75 | Closing Balance |
Treasury Stock (Amount in millions) | |||
Increase in Treasury Stock | $9 | ||
Opening Balance | $0 | $9 | Closing Balance |
Sales revenue (Amount in millions) | |||
$410 | Increase in Sales revenue | ||
Opening Balance | $0 | $410 | Closing Balance |
Investment revenue (Amount in millions) | |||
$11 | Increase in Investment revenue | ||
Opening Balance | $0 | $11 | Closing Balance |
Gain on sale of treasury bills (Amount in millions) | |||
$2 | Gain on sale of treasury bills | ||
Opening Balance | $0 | $2 | Closing Balance |
Cost of goods sold (Amount in millions) | |||
Cost of goods sold | $180 | ||
Opening Balance | $0 | $180 | Closing Balance |
Salaries expense (Amount in millions) | |||
Salaries expense | $73 | ||
Opening Balance | $0 | $73 | Closing Balance |
Depreciation expense (Amount in millions) | |||
Depreciation expense | $12 | ||
Opening Balance | $0 | $12 | Closing Balance |
Patent amortization expense (Amount in millions) | |||
Patent amortization expense | $2 | ||
Opening Balance | $0 | $2 | Closing Balance |
Insurance expense (Amount in millions) | |||
Insurance expense | $7 | ||
Opening Balance | $0 | $7 | Closing Balance |
Bond interest expense (Amount in millions) | |||
Bond interest expense | $28 | ||
Opening Balance | $0 | $28 | Closing Balance |
Loss on machine damage (Amount in millions) | |||
Loss on machine damage | $18 | ||
Opening Balance | $0 | $18 | Closing Balance |
Income tax expense (Amount in millions) | |||
Income tax expense | $36 | ||
Opening Balance | $0 | $36 | Closing Balance |
Net income (Amount in millions) | |||
Net income | $67 | ||
Opening Balance | $0 | $67 | Closing Balance |
The Statement of cash flow of Company A is as follows.
Company A | ||
Statement of Cash Flows | ||
For year ended December 31, 2018 | ||
Amount in Millions | ||
Particulars | Amount ($) | Amount ($) |
Operating activities: | ||
From customers | $414 | |
From investment revenue | $3 | |
From sale of cash equivalents | $2 | |
To suppliers of goods | ($200) | |
To employees | ($78) | |
For insurance | ($3) | |
For bond interest | ($21) | |
For income taxes | ($35) | |
Net cash flows from operating activities | $82 | |
Investing activities: | ||
Sale of machine components | $17 | |
Purchase of Long Term investment | ($25) | |
Purchase of land | ($23) | |
Net cash flows from investing activities | ($31) | |
Financing activities: | ||
Payment on lease liability | ($7) | |
Retirement of bonds payable | ($60) | |
Sale of preferred stock | $75 | |
Payment of cash dividends | ($22) | |
Purchase of treasury stock | ($9) | |
Net cash flows from financing activities | ($23) | |
Net decrease in cash | $28 | |
Cash balance, January 1, 2018 | $81 | |
Cash balance, December 31, 2018 | $109 |
Table (2)
The statement of cash flows of Company A, shows opening balance of cash flows for the reporting year 2018 as $81 million and the closing balance of cash as $109 million.
Note:
Non Cash investing activity and financing activity:
- Company A acquired a building on 15 year lease for $82 million.
- Company A acquired a land for $46 million, by:
- Paying Cash of $23 million;
- Issuing 4-year note for $23 million.
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