INTERMEDIATE ACCOUNTING
INTERMEDIATE ACCOUNTING
8th Edition
ISBN: 9780078025839
Author: J. David Spiceland
Publisher: McGraw-Hill Education
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Chapter 21, Problem 21.27E
To determine

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: The direct method uses the cash basis of accounting for the preparation of the statement of cash flows. It takes into account those revenues and expenses for which cash is either received or paid.

Cash flows from operating activities: Cash flows from operating activity represent the net cash flows from the general operation of the business by comparing the cash receipt and cash payments.

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

Table (1)

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.

The below table shows the way of calculation of cash flows from investing activities:

Cash flows from investing activities
 
Add: Proceeds from sale of fixed assets
         Sale of marketable securities / investments
 
Deduct: Purchase of fixed assets/long-lived assets
              Purchase of marketable securities
Net cash provided from or used by investing activities

Table (2)

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.

The below table shows the way of calculation of cash flows from financing activities:

Cash flows from financing activities
 
Add: Issuance of common stock
          Proceeds from borrowings
          Proceeds from issuance of debt
          Issuance of bonds payable
 
Deduct: Payment of dividend
              Repayment of debt
              Interest paid
              Redemption of debt
              Repurchase of stock
Net cash provided from or used by financing activities

Table (3)

To Prepare: The statement of cash flows of Company R.

Expert Solution & Answer
Check Mark

Answer to Problem 21.27E

Company R
Spreadsheet for the Statement of Cash Flows
Amount in Millions
Particulars December 31,2015 Amount ($) Changes December 31,2016 Amount ($)
Debit ($) Credit ($)
Assets
 Current Assets      
 Cash $110   (11)  $86 $24
 Accounts receivable $132 (1)  $46   $178
 Prepaid Insurance $3 (4)  $4   $7
 Inventory $175 (2)  $110   $285
 Buildings and equipment $350 (6)  $230 (7) $180 $400
 Land ($240) (7)  $171 (3)  $50 -$119
 Total current assets $530     $775
Liabilities and Stockholders’ Equity
 Liabilities        
 Accounts payable $100 (2) $13   $87
 Accrued expenses payable $11 (4) $5   $6
 Notes payable $0   (8)  $50 $50
 Bonds payable $0   (10)  $160 $160
 Stockholders’ equity 
 Common Stock $400     $400
 Retained Earnings $19 (6)  $50 (7) $103 $72
 Total liabilities and stockholders’ equity $530     $775
Income Statement
Revenues        
     Sales revenue     (1) $2,000 $2,000
Expenses        
     Cost of goods sold   (2) $1,400   $1,400
     Depreciation expense   (3)  $50   $50
     Operating expenses   (4)  $447   $447
Net income   (5)  $103   $103
Statement of Cash Flows
Operating activities:        
Cash Inflows:        
     From customers   (1) $1,954    
Cash Outflows:        
 To suppliers of goods     (2) $1,523  
     For operating expenses     (4) $456  
Net cash flows       ($25)
Investing activities:        
     Sale of equipment   (7)  $9    
 Purchase of equipment     (6)  $230  
Net cash flows       ($221)
Financing activities:        
     Issuance of note payable   (8)  $50    
     Issuance of bonds payable   (10)  $160    
 Payment of cash dividends     (9)  $50  
Net cash flows       $160
Net decrease in cash   (11)  $86   ($86)
Total   $4,888 $4,888  

Table (4)

The spreadsheet of Company R shows the analysis of cash flows in the reporting year 2016.

Company R
Statement of Cash Flows
Amount in Millions
Particulars Amount ($) Amount ($)
Operating activities:    
Cash Inflows:    
     From customers $1,954  
Cash Outflows:    
 To suppliers of goods ($1,523)  
     For operating expenses ($456)  
Net cash used from operating activities   ($25)
Investing activities:    
     Sale of equipment ($230)  
 Purchase of equipment $9  
Net cash used from investing activities   ($221)
Financing activities:    
     Issuance of note payable $50  
     Issuance of bonds payable $160  
 Payment of cash dividends ($50)  
Net cash provided by financing activities   $160
Net decrease in cash   ($86)
Cash balance, January 1, 2016   $110
Cash balance, December 31, 2016   $24

Table (5)

Explanation of Solution

Working notes:

Calculate the amount of received from customer:

CashreceiptsfromCustomers]=Salesrevenue (+Decrease in Accounts ReceivableORIncrease in Accounts Receivable)=Sales revenue Increase in accounts receivables=$2,000$46=$1,954

Calculate the amount of cash paid to suppliers of goods:

(Cashpaid to Suppliers)=Cost of Goods Sold (+Decrease in Accounts Payable/Increase in InventoryORIncrease in Accounts Payable /Decrease in Inventory)=(Cost of goods sold + Decrease in accounts payable + Increase in inventory)=$1,400+$13+$110=$1,523

Calculate the amount of cash paid for operating expenses:

(Cash paid for Operating  expenses)=Operating expenses(+Increase in prepaid of insurance+Decrease in other accrued liabilities)=Operating expense +(Increase in prepaid insurance+Decrease in accrued expense payable)=$447+$4+5=$447+$4+$5=$456

Calculate the amount of  proceeds  from sale of equipment:

Sale of equipment = (Purchase of equipment95%depreciationofthatequipment)=$180$171=$9

Conclusion

The statement of cash flows of Company R shows opening balance of cash flows in the reporting year 2016 as $110 million and the closing balance of cash as $24 million.

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Chapter 21 Solutions

INTERMEDIATE ACCOUNTING

Ch. 21 - Perhaps the most noteworthy item reported on an...Ch. 21 - Prob. 21.12QCh. 21 - Given sales revenue of 200,000, how can it be...Ch. 21 - Prob. 21.14QCh. 21 - When determining the amount of cash paid for...Ch. 21 - Prob. 21.16QCh. 21 - When using the indirect method of determining net...Ch. 21 - Prob. 21.18QCh. 21 - Prob. 21.19QCh. 21 - Where can we find authoritative guidance for the...Ch. 21 - U.S. GAAP designates cash outflows for interest...Ch. 21 - Prob. 21.1BECh. 21 - Prob. 21.2BECh. 21 - Prob. 21.3BECh. 21 - Prob. 21.4BECh. 21 - Prob. 21.5BECh. 21 - Prob. 21.6BECh. 21 - BE 21–7 Installment note LO21–3, LO21–6 On...Ch. 21 - BE 21–8 Sale of land LO21–3, LO21–4, LO21–5 On...Ch. 21 - Investing activities LO215 Carter Containers sold...Ch. 21 - Financing activities LO216 Refer to the situation...Ch. 21 - Prob. 21.11BECh. 21 - Prob. 21.12BECh. 21 - Classification of cash flows LO213 through LO216...Ch. 21 - Determine cash paid to suppliers of merchandise ...Ch. 21 - Determine cash received from customers LO213...Ch. 21 - Prob. 21.4ECh. 21 - Prob. 21.5ECh. 21 - Prob. 21.6ECh. 21 - Determine cash paid for bond interest LO213...Ch. 21 - Determine cash paid for bond interest LO213 For...Ch. 21 - Determine cash paid for income taxes LO213...Ch. 21 - Prob. 21.10ECh. 21 - E21–11 Bonds; statement of cash flow...Ch. 21 - E21–12 Installment note: statement of cash flow...Ch. 21 - Prob. 21.13ECh. 21 - E 21–14 Identifying cash flows from investing...Ch. 21 - E 21–15 Lease; lessee; statement of cash flows...Ch. 21 - Prob. 21.16ECh. 21 - Indirect method; reconciliation of net income to...Ch. 21 - Prob. 21.18ECh. 21 - Prob. 21.19ECh. 21 - Prob. 21.20ECh. 21 - Prob. 21.21ECh. 21 - Indirect method; reconciliation of net income to...Ch. 21 - Prob. 21.23ECh. 21 - Prob. 21.24ECh. 21 - Prob. 21.25ECh. 21 - Prob. 21.26ECh. 21 - Prob. 21.27ECh. 21 - Prob. 21.28ECh. 21 - Prob. 21.29ECh. 21 - Prob. 21.30ECh. 21 - Prob. 21.31ECh. 21 - Prob. 21.32ECh. 21 - Prob. 1CPACh. 21 - Prob. 2CPACh. 21 - Prob. 3CPACh. 21 - Prob. 4CPACh. 21 - Prob. 5CPACh. 21 - Prob. 6CPACh. 21 - Prob. 7CPACh. 21 - Prob. 8CPACh. 21 - Prob. 9CPACh. 21 - Prob. 1CMACh. 21 - Prob. 2CMACh. 21 - Prob. 3CMACh. 21 - Prob. 21.1PCh. 21 - Prob. 21.2PCh. 21 - Prob. 21.3PCh. 21 - Prob. 21.4PCh. 21 - Prob. 21.5PCh. 21 - Prob. 21.6PCh. 21 - Prob. 21.7PCh. 21 - Prob. 21.8PCh. 21 - Prob. 21.9PCh. 21 - Prob. 21.10PCh. 21 - Prob. 21.11PCh. 21 - Prob. 21.12PCh. 21 - Prob. 21.13PCh. 21 - Prob. 21.14PCh. 21 - Prob. 21.15PCh. 21 - Prob. 21.16PCh. 21 - Prob. 21.17PCh. 21 - Prob. 21.18PCh. 21 - Prob. 21.19PCh. 21 - Prob. 21.20PCh. 21 - Prob. 21.21PCh. 21 - Prob. 21.1BYPCh. 21 - Prob. 21.2BYPCh. 21 - Prob. 21.3BYPCh. 21 - Prob. 21.5BYPCh. 21 - Prob. 21.6BYPCh. 21 - Prob. 21.7BYPCh. 21 - Prob. 21.8BYPCh. 21 - Prob. 21.10BYPCh. 21 - Research Case 219 FASB codification; locate and...Ch. 21 - IFRS Case 2110 Statement of cash flows...
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