Cash Flow Statement Flashcards
Increase in Accounts Receivable: $2,000
Accounts receivable is subtracted when there is an increase as this increases net income but does not affect cash.
A pr company that uses LIFO to account for inventory will have higher total cash flow than a nonprofitable company that uses FIFO during a period of rising prices. True /False Check this question Properly
False.Because of the impact of income taxes, a profitable company that accounts for inventory using LIFO will have higher total cash flow than a profitable company that uses FIFO. The company that uses LIFO will have higher cost of goods sold, resulting in lower net income and thus lower taxes.
Cash salaries paid of $17000
CFO
Increase in accounts payable $20
Increases in accounts payable and deferred taxes are sources of operating cash that are not included in net income and must be added
Loss on sale of machinery: $500
The loss on the sale of machinery is not a cash outflow so it is also added back to calculate CFO.
Interest Received From Short term Investments
CFO
Equipment with a book value of $50,000 was sold for $100,000.
CFI Note that cash flow from operations must be adjusted downward for the amount of the gain on the sale of the equipment.( − $50,000)
Cash paid for purchase of equipment
CFI
Interest paid was $100,000.
Note that interest and income taxes paid are expenses shown on the income statement and will already be factored into net income.
Retired long term debenture bonds with a face amount of $10 million by issuing 500,000 shares of common stock to the bondholders
Retiring bonds by issuing common stock to the bondholders is a non cash transaction and is disclosed separately in a note or supplementary schedule to the cash flow statement rather than a financing cash flow.
Sold one share of stock for $15.
The sale of stock and the dividends paid are financing cash flows that are not included in net income, so they do not require adjustment when calculating CFO.
A stock split would:
not be reported on the statement of cash flows because it is a non-cash event.
§ Repayment of Bonds: $3,000
Repayment of Bonds is a financing activity and would not be included with operating activities. Accounts receivable is subtracted when there is an increase as this increases net income but does not affect cash.
Decrease in deferred taxes: $10
− Deferred taxes $10
An analyst contemplates using the indirect method to create the projected statement of cash flows. She decides to research the differences between the direct and indirect methods. Which of the following is least likely a component of the statement of cash flows under the direct method? 1) Net Income 2) PP&E 3) Payment of Dividends
A) Net income. B) Payment of dividends. C) Property, Plant, & Equipment. Property, Plant, & Equipment and payment of dividends are components of the statement of cash flows under both the direct and indirect methods. Net income is the first figure under the indirect method, but it is not a part of the statement of cash flows under the direct method. The correct response is net income.
Cash Received from Issuance of Preferred Stock
CFF
Cash paid for purchase of equipment
CFI
Dividends paid on preferred stock 400,000
CFF
Interest and Dividend Received :- IFRS
CFO or CFI
Depreciation expense
CFO (to be added to NI)
Net Sales An increase in accounts receivable 20 A decrease in accounts payable 40 An increase in inventory 30 Sale of common stock 100 Repayment of debt 10 Depreciation 2 Net Income 100 Interest expense on debt 5 Calculate CFF ?
Sale of common stock $100 Repayment of debt (10) Financing cash flows A $ 90
Net income: $225
+Net Income $225
Sale of common stock 100
CFF
Juniper declared and paid a $100,000 cash dividend.
The only item involving cash flow from financing (CFF) was the payment of a cash dividend by Juniper.
Exchange equipment with a book value of $1.7 million for equipment valued at $2.1 million .The exchange was an even trade
NCT
Depreciation Expense: $1,000
To be added back to NI in Indirect method Depreciation is not a cash flow activity and is therefore always added back to net income to calculate CFO.
Cash from sale of truck of $7000
CFI
Gain from Sale of Equip.
Less:
A parcel of land was purchased for $100,000 worth of Juniper common stock.
The purchase of land has no effect on cash, and itr is a NCT.
ABC company paid Juniper preferred dividends of $40,000. What is the impact on Juniper’s Cash Flow From Operations. ?
Preferred dividends received are cash flow from operations.
When recognizing a gain on the sale of fixed assets
the amount is a deduction to operating cash flows. This is because the gain would be double counted in the investing section and in net income. Therefore, the gain must be removed from net income.
Dividend Paid :- US GAAP
CFF
Decrease in payables
CFO (to be Substraceted )
Gain from cash sales of land 200,000
Substract from NI
Decrease in inventory
To be added to NI
Decrease in Accounts Payable: $1,500
Accounts payable is subtracted when there is an decrease as this decreases the cash by paying it to the suppliers.
Decrease in accounts payable: $25
− A/P $25
Increase in Income taxes payable: $500
Income taxes are added back when the income tax payable increases ( + Income taxes payable $500 )
An increase in inventory 30
CFO (To be Subtracted)
Other cash expenses including rent
CFO
Sale of equipment $25
CFI
Cash from Sale of Land
CFI
Change in Retained Earnings +21
No Effect
A decrease in accounts payable 40
CFO (To be Substracted)
The actual coupon payment on a bond is reported on the statement of cash flow as:
The coupon payment is recorded on the statement of cash flows as an operating cash outflow because cash flow from operations includes a deduction for interest expense.
Sale of equipment $25
Only the profit on sale of equipment, not the full proceeds from sale, is included in net income
Depreciation Expense
Add:
Loss on sale of equipment -8
plus loss on sale of equipment,
Wages Paid
CFO
Depreciation Expense: $1,000
Depreciation is not a cash flow activity and is therefore always added back to net income to calculate CFO.
Cash paid to suppliers
CFO (– $40,000 COGS + $2,500 decrease in inventory – $1,000 decrease in payables)
§ Decrease in Accounts Payable: $1,500
To be Substracted
What is the impact on accounts receivable if sales exceed cash collections and what is the impact on accounts payable if cash paid to suppliers exceeds purchases?
If a firm sells more than it collects, accounts receivable will increase. If a firm pays suppliers more than it purchases, accounts payable will decrease.
Financial information for Jefferson Corp. for the year ended December 31 , was as follows: 1)Sales :- $3,000,000 2)Purchases:- 1,800,000 3)Inventory at Beginning:-500,000 4)Inventory at Ending:-800,000 5)Accounts Receivable at Beginning:-300,000 6)Accounts Receivable at Ending:-200,000 7)Accounts Payable at Beginning:-100,000 8)Accounts Payable at Ending:-100,000 9)Other Operating Expenses Paid: -400,000 Based upon this data and using the direct method, what was Jefferson Corp.’s cash flow from operations (CFO) for the year ended December 31st?
A) $1,200,000. B) $900,000. C) $800,000.
Juniper’s equipment with a book value of $55,000 was sold for $85,000 cash.
The sale of equipment affects cash flow from investing (CFI),
Sale of held-to-maturity securities for cash.
CFI
Cash from sale of land
CFI
Tax expense
CFO(to be subtracted )
Net income was $850,000.
Cash flow from operations is ($850,000 + $200,000 – ($100,000 − $50,000)) = $1,000,000.
Interest received on short term investments
CFO
What adjustment needs to be made for “Cash payment of dividends worth $30” in the CFO to be calculated with indirect method ?
No adjustment needs to be made for cash payment of dividends (CFF), because it is not included in net income.
Issued 5000 shares of preferred stock for land with a fair value of 8.4 million
NCT
Borrowed $5 million from a bank and used the proceeds to purchase equipment used in the manufacturing process
The cash borrowed for the equipment purchase is a financing inflow and cash cost of the equipment is reported as an investing cash flow in the cash flow statement . Had a bond been issued to the seller of the equipment it would be treated as a non cash transaction and reported only in the notes to the cash flow statement
