1.1.6 Statement of Cash Flows

Question 1

Indirect Method of Cash flow from Operating Activities, What are the Non-Cash Expenses and nonoperating item that DECREASE net income?

Answer 1

1. Depreciation
2. Amortization expense (eg. bond discount, patents
3. Losses from sales of assets

Question 2

Indirect Method of Cash flow from Operating Activities, what are the non-cash revenue and nonoperating items that INCREASE net income?

Answer 2

1. equity in earnings from investee
2. Amortization of bond premium
3. Gains from sales of assets

Question 3

Indirect Method of Cash flow from Operating Activities, with respect to changes in current assets what is the proper way to handle said changes?

Answer 3

Inverse relationship!
(+) if there is a Decrease in the current asset add cash in
(-) if there is an increase in a current asset decrease cash because you are using cash

Question 4

Indirect Method of Cash flow from Operating Activities, with respect to changes in current liabilities is the proper way to handle said changes?

Answer 4

One to one relationship!
(+) if there is an increase in current liabilities add cash in
(-) if there is a decrease in current liabilities decrease cash because you are using cash to pay liabilities

Question 5

For Investment Activities , what is the acronym to use for remembering the content

Answer 5

L.I.P

Question 6

What does the “L” stand for in the L.I.P acronym ?

Answer 6

(L) Loans made to others or principal collections. (note : interest and dividends received are operating )

Question 7

What does the “I” stand for in the L.I.P acronym ?

Answer 7

[Investing] Acquisition or disposal of available-for-sale or held-to -maturity (I) investments (note: Trading securities are operating)

Question 8

What does the “P” stand for in the L.I.P acronym ?

Answer 8

[PPE] Acquisition or disposal of (p) property, plant, equipment and intangibles including cash paid for capital repairs.

Question 9

What are Financing Activities ( with respect to cash flow) ?

Answer 9

Cash flows from issuing debt or equity and typically include transactions involving long term liabilities and stockholders equity .

Question 10

In Financing Activities, what is Related to debt ?

Answer 10

1. Proceeds from issuance of bonds or retiring bonds
   2.Proceeds from other borrowings (e.g a loan)
2. Principal repayment on borrowings
   (note: related interest is operating)

Question 11

In Financing Activities, what is Related to equity ?

Answer 11

1. Issuance of stock or requisition/reissuance of treasury stock
2. Cash dividends (not property or stock) PAID! (not declared)
   (note: dividends received is operating )