1、Week 12 Assignment Chapter 5Cash Flow Statement Statement of Cash Flows 5.1 The statement of cash flows provides information to help investors,creditors,and others assess the following:1.The entitys ability to generate future cash flows.2.The entitys ability to pay dividends and meet obligations.3.T
2、he reasons for the difference between net income and net cash flow from operating activities.4.The cash and noncash investing and financing transactions during the period.Usefulness of the Statement of Cash Flows5.1 By reading the statement of cash flows,the reader might find answers to the followin
3、g questions:Why did cash decrease for Home Depot when it reported net income for the period?How much did Southwest Airlines spend on property,plant,and equipment last year?Did dividends paid by Campbells Soup increase?How much money did Coca-Cola borrow last year?How much cash did Hewlett-Packard us
4、e to repurchase its common stock?5.1 short-term,highly liquid investments that are both(a)readily convertible to known amounts of cash,and(b)so near their maturity that they present insignificant risk of changes in interest rates.Generally,only investments with original maturities of three months or
5、 less qualify under this definition.Examples of cash equivalents are Treasury bills,commercial paper,and money market funds purchased with cash that is in excess of immediate needs.Cash equivalents5.2 four parts 1.Operating Activities 2.Investing Activities 3.Financing Activities 4.SupplementalClass
6、ification of Typical Cash Inflows and Outflowsgeneral guidelines about the classification of cash flows-11.Operating activities involve income statement items.2.Investing activities involve cash flows resulting from changes in investments and long-term asset items.3.Financing activities involve cash
7、 flows resulting from changes in long-term liability and stockholders equity items.general guidelines about the classification of cash flows-2Companies classify some cash flows relating to investing or financing activities as operating activities.For example,companies classify receipts of investment
8、 income(interest and dividends)and payments of interest to lenders as operating activities.Why are these considered operating activities?Companies report these items in the income statement,where the results of operations are shown.general guidelines about the classification of cash flows-3companies
9、 classify some cash flows relating to operating activities as investing or financing activities.For example,a company classifies the cash receivedfrom the sale of property,plant,and equipment at a gain,although reported in the income statement,as an investing activity.It excludes the effects of the
10、related gain in net cash flow from operating activities.Likewise,a gain or loss on the payment(extinguishment)of debt is generally part of the cash outflow related to the repayment of the amount borrowed.It therefore is a financing activity.5.3 format-1 P90format-2Steps in Preparation-1three sources
11、1.Comparative balance sheets2.Current income statement3.Selected transaction dataAssetsCashMarketable SecAccts RecInventoryPrepaid ExpYear-End 2008$30,00010,000170,000160,00030,000Year-End 2009$35,50010,000200,000180,00020,000AssetsCashAccounts receivableTotalLiabilities and Stockholders EquityAccou
12、nts payableCommon stockRetained earningsTotalDec.31,200349,00036,000$85,000$5,000$60,000$20,000$85,000Jan.1,2003$-0-0-$-0-$-0-$-0-$-0-$-0-Step 1.Determine the change in cash.Step 2.Determine the net cash flow from operating activities.Step 3.Determine net cash flows from investing and financing acti
13、vities.Steps in Preparation-2changes in balances of in Current Assets(other than cash)and Current Liabilitieschanges in balances of Long-term Assetschanges in balances of Long-term LiabilitiesStockholders EquityComparative balance sheets1.Depreciation Expense2.Proceeds from the sale of equipment use
14、d in the business3.The Loss on the Sale of Equipment in Question#2.4.Declaration and payment of dividends on companys stock 5.Gain on the Sale of Automobile formerly used in the business6.The proceeds from the sale of the automobile in Item#5.7.An increase in the balance in a retailers Merchandise I
15、nventory8.An increase in the balance in Accounts PayableA9.Retirement of long-term Bonds Payable10.Purchase of Treasury Stock(companys own stock)11.The purchase of a new delivery truck to be used in the business12.A decrease in the balance of Accounts Receivable13.An increase in Bonds Payable(a long
16、-term liability)14.A decrease in the current asset account Prepaid Insurance15.A decrease in the current liability Income Taxes Payable16.The proceeds from issuing additional Common StockB17.The amortization of the cost of an intangible asset18.The exchange/conversion of long-term bonds into common
17、stock19.An increase in the balance of Prepaid Insurance20.A decrease in Supplies on hand21.The proceeds from the sale of equipment formerly used in the business22.The Loss on the Sale of Equipment in the previous question23.An increase in the current liability Income Taxes Payable24.A decrease in Ac
18、counts PayableC25.An increase in Accounts Receivable26.An increase in the current liability Warranty Liability27.Dividends declared and paid28.Proceeds from the issuance of Preferred Stock29.The Gain on the Sale of Equipment formerly used in the business30.An increase in the long-term asset Investme
19、nt in Another CompanyD5.4 methodcash flow from operating activities:direct method-P91indirect methodEarned revenuesIncurred expensesNet incomeEliminate noncash revenuesEliminate noncash expensesNet cash flow from operating activitiesTax Consultants Inc.Comparative Balance SheetsTax Consultants Inc.I
20、ncome StatementFor the year ended December 31,2013Additional information:A dividend of$14,000 was declared and paid during the year.Indirect Method(reconciliation method):Tax Consultants Inc.Cash flow statement For the year ended December 31,2013Tax Consultants Inc.Comparative Balance SheetsAs of De
21、cember 31Tax Consultants Inc.Income StatementFor the year ended December 31,2014 Indirect Method(reconciliation method):Tax Consultants Inc.Cash flow statement For the year ended December 31,2014Tax Consultants Inc.Comparative Balance SheetsAs of December 31Tax Consultants Inc.Income StatementFor th
22、e year ended December 31,2015Additional Information(a)Operating expenses include depreciation expense of$33,000 and expiration of prepaid expenses of$2,000.(b)Land was sold at its book value for cash.(c)Cash dividends of$55,000 were declared and paid.(d)Interest expense of$12,000 was paid in cash.(e
23、)Equipment with a cost of$166,000 was purchased for cash.Equipment with a cost of$41,000 and abook value of$36,000 was sold for$34,000 cash.(f)Bonds were redeemed at their book value for cash.(g)Common stock($1 par)was issued for cash.Indirect Method(reconciliation method):Tax Consultants Inc.Cash f
24、low statement For the year ended December 31,2015In this example,we will assume that net income is$110,500,depreciation is$50,000,and the firm pays out dividends in the amount of$65,000.XYZ Company Comparative Balance SheetsPractice 1:XYZ companyAssetsCashMarketable SecAccts RecInventoryPrepaid ExpY
25、ear-End 2008$30,00010,000170,000160,00030,000Year-End 2009$35,50010,000200,000180,00020,000InvestmentsPlant&EquipmentLess Acc DepreciationNet Plant&EquipmentTotal Assets20,0001,000,000550,000450,000870,00050,0001,100,000600,000500,000995,500Liabilities and Owners CapitalAccts PayableST Bank LoansAcc
26、rued ExpLT Bank LoansOwners CapitalTotal Liabilities and Capital45,000100,00035,00040,000650,000870,00080,000100,00030,00090,000695,500995,500Net IncomeDepreciationInc in Accts RecInc in InventoryDec in Prepaid ExpInc in Accts PayableDec in AccrualsNet Cash Flows from operating activities$110,50050,
27、000(30,000)(20,000)10,00035,000(5,000)$150,500XYZ Company Statement of Cash FlowsInc in InvestmentsInc in Plant&EquipmentNet Cash Flows from investing activitiesInc in LT Bank LoansDividends PaidNet Cash Flows from financing activitiesNet increase in cash flows(30,000(100,000)(130,000)50,000(65,000)(15,000)$5,500
