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
§ Loss on sale of machinery: $500
To be added to NI The loss on the sale of machinery is not a cash outflow so it is also added back to calculate CFO.
Cash paid to supplier
CFO
Decrease in Account payable
Subtracted
Cash operating expenses
CFO (to be Substracted)
Dividends paid
CFF
Increase in Wage a payable
Added to NI
Increase in deferred taxes $5
Increases in accounts payable and deferred taxes are sources of operating cash that are not included in net income and must be added
Repayment of loan to the bank
CFF
Depreciation 2
Added Back to NI in Indirect Method
Acquired 40% of the common stock of an affiliate for $2.7 million cash which was borrowed from a bank
CFF Inflow and CFI Outflow
Increase in accounts receivable: $55
− A/R $55
Change in Accounts Payable +1
plus increase in accounts payable,
Increase in Accounts Receivable
Less:
Cash paid to suppliers for purchase of merchandise
CFO
Wages Paid
CFO
Dividends paid: $75
Dividends paid would be a financing activity and would not be included in the CFO.
Proceeds from Sale of Treasury Stock
CFF
Change in Inventory +5
Less increase in inventory,
In using the indirect method, each item on the income statement is converted to its cash equivalent T/F
False .The direct method of cash flow calculation converts the income statement items to their cash equivalents, not the indirect method.
Interest Paid :- US GAAP
CFO
Cash From Customers
CFO
Interest Paid :- IFRS
CFO or CFF
What adjustment needs to be made for “Sale of preferred stock wort $25” in the CFO to be calculated with indirect method ?
No adjustment needs to be made for “Sale of Preferred Stock (CFF) “,it is not included in net income.
When using the indirect method for computing cash flow from operating activities, a change in accounts payable will require which of the following?
decrease in accounts payable represents an outflow. Hence, a negative adjustment will be required. Conversely, an increase represents an inflow and a positive adjustment.
Interest Paid :- US GAAP
CFO
What adjustment needs to be made for “Purchase of land worth $15” in the CFO to be calculated with indirect method ?
No adjustment needs to be made for Purchase of land (CFI) because it is not included in net income.
Purchase of new equipment: $65
The purchase of new equipment would be an investing activity and, therefore, would not be included in the CFO.
Income taxes paid were $50,000.
Note that interest and income taxes paid are expenses shown on the income statement and will already be factored into net income.
Increase in account receivable
To be subtracted to NI
Depreciation on fixed assets $1,500,000
Add Back to NI
Repayment of Loan to the bank
CFF
Change in Accounts Receivable +4
less increase in accounts receivable
Dividends Paid
CFF
Net Income
Add:
Decrease in Inventory
Add:
§ Net Income: $12,000
CFO ( Strating Point of Indirect Method)
Repayment of Bonds: $3,000
Repayment of Bonds is a financing activity and would not be included with operating activities
Increase in Accounts Payable
Add:
Dividends paid
CFF
Increase in deferred taxes $5
CFO
Depreciation Expense
NCT
Decrease in inventory: $33
+ Inventory $33
Preferred stock dividends of $10,000 were paid.
CFF
Depreciation
Added to NI in Indirect Method
Increase in inventory of $20.
and increase in inventory is a use of cash from operations
Increase in accounts payable 300,000
Add Back to NI
Cash received from customers
CFO
Depreciation expense of $100.
Depreciation expense is a non-cash expense added back in computing cash from operations (+100),
Increase in receivables
CFO ( to be Subtracted )
Proceeds from Sale of Equipment
CFI
Depreciation expense was $200,000.
Cash flow from operations (CFO) using the indirect method is computed by taking net income plus non-cash expenses (i.e. depreciation) less gains from the equipment sale.
Cash payment of dividends $30
CFF
How would a stock spilt be reported on the statement of cash flows ?
A stock split would not be reported on the statement of cash flows because it is a non cash event
Depreciation: $65
+ Depreciation $65
An analyst has gathered the following information about a company: Income Statement for the Year Sales $1,500 Expenses COGS $1,300 Depreciation 20 Goodwill 10 Int. Expenses 40 Total expenses 1,370 Income from cont. op. 130 Gain on sale 30 Income before tax 160 Income tax 64 Net Income $96 Additional Information: Dividends paid $30 Common stock sold 20 Equipment purchased 50 Bonds issued 80 Fixed asset sold for (original cost of $100 with accumulated depreciation of $70) 60 Accounts receivable decreased by 30 Inventory decreased by 20 Accounts payable increased by 20 Wages payable decreased by 10 What is the cash flow from financing?
A) $70. B) $110. C) $130. Dividends paid -$30 Sale of stock 20 Bonds issued 80 72 CFF $70 A
The increase in short-term notes payable is a
Financing activity.
Cash Received from Customers
CFO
Sale of preferred stock $25
CFF
Dividend Paid :- IFRS
CFO or CFF
Purchase of Bonds
CFI
Convereted Bonds Payable with a book value of $5million to 50000 shares of common stock with affair value of $6million
NCT
Increase in accounts payable $20
CFO
Taxes paid
CFO
Interest expense on debt 5
CFO ( Substracted)
Gain on sale of real estate +4
less gain on sale of real estate.
Net income $25
CFO
Amortization of Bond Discount
No Idea
Purchase a patient fir $3.3 million cash
CFI
Cash Collection
CFO (Revenue - Expenses)
Increase in receivables
CFO (to be Substracted)
Common stock was sold for $100,000.
CFF
Net Income 27
Using the indirect method, cash flow from operations is net income
Preferred stock (eight percent annual dividend) was sold at par value of $125,000.
CFF
Paid dividends of $10 to shareholders.
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.
Cash Received from issuance of preferred stock
CFF
§ Increase in Income taxes payable: $500
To be added back
Cash flow from financing (CFF) is higher over the life of a bond if a firm issues the bond at a premium, compared to issuing the bond at par. True /False
True .When a company issues bonds at a premium, the proceeds raised at issuance (CFF inflow) are greater than the par value repaid at maturity (CFF outflow). For bonds issued at par, the CFF inflow at issuance is equal to the CFF outflow at maturity.
Increase in accounts payable of $25.
Using the indirect method, the increase in accounts payable is a source of cash from operations (+25),
§ Increase in Accounts Receivable: $2,000
To be substracted from NI
Interest and Dividend Received :- US GAAP
CFO
Common stock dividends of $25,000 were paid.
CFF
Interest on Bank line of Credit
CFO
Gain on Sale of Equipment
NCT
Decrease in inventory
CFO ( To be added )
Principal payments received from loans made to others.
CFI
Increase in wages payable: $15
+ Wages Payable $15
An increase in accounts receivable 20
CFO (To be Subtracted)
Profit on sale of equipment $15
Profit on sale of equipment is a CFI item that must be removed from net income.
Dividends declared and paid +4
CFF
Repayment of debt 10
CFF
Purchase of plant and equipment used in the manufacturing process with financing provided by the seller.
The purchase of plant and equipment with financing provided by the seller is a non-cash transaction. Non-cash transactions are disclosed separately in a note or supplementary schedule to the cash flow statement.
Purchase of land $15
CFI
A company that finances through common stock issues may have the same cash flow from financing (CFF) as a firm that issues debt. T/F
True. A company that issues common stock is not required to pay dividends (which would reduce cash flow from financing). Thus, it may have the same CFF as a firm that issues debt since interest paid on debt is a component of CFO
A firm has net sales of $3,500, earnings after taxes (EAT) of $1,000, depreciation expense of $500, cost of goods sold (COGS) of $1,500, and cash taxes of $500. Also, inventory decreased by $100, and accounts receivable increased by $300. What is the firm’s cash flow from operations
Indirect Method EAT +1,000 Depreciation +500 Change in Inv. + 100 a source Change in Accts. Rec. (300) a use CFO 1,300 Direct Method Net Sales +3,500 Change in Accts. Rec. (300) a use COGS (1,500) Cash Taxes (500) Change in Inv. +100 a source CFO 1,300
Interest Paid :- IFRS
CFO or CFF
