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Accounting 3332 > Chapter 23: Statement of Cash Flows > Flashcards

Chapter 23: Statement of Cash Flows Flashcards

1
Q

The statement of Cash Flows is required for…

A

GAAP

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2
Q
  • presents information about cash flows that the other statements only provide indirecty
  • converts “accrual basis” net income to “cash basis”
A

Statement of cash flows

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3
Q

What are the GAAP requirements?

A
  • explains the change in cash and cash equivalents
  • cash equivalents: highly liquid investments that can be converted to cash in less than 3 month
  • transactions between cash and cash equivalents are not reported
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4
Q

What are the major components of the statement of cash flows?

A
  • operating activities (OA)
  • investing activities (IA)
  • financing activities (FA)
  • Noncash investing and financing activities
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5
Q

Cash flows from ongoing operatiions.

A

operating activities (OA)

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6
Q

Purchase and disposal of operational assets, investments, and non-trade receivables.

A

investing activities (IA)

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7
Q

All debt and equity financing transactions.

A

financing activities (FA)

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8
Q
  • reported as a supplement either narrative or schedule form

- noncash transactions that do not affect assets or liabilities (i.e. stock dividend) are not reported

A

noncash investing and financing activities

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9
Q

What are two examples of noncash investing and financing activities?

A
  • conversion of debt to equity

- acquiring an asset through a capital lease

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10
Q

What are the two preparation methods for the statement of cash flows?

A

direct and indirect methods

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11
Q

Statement of Cash Flow Method?

  • reports components of cash flows from OA as gross receipts (i.e. customers) and gross payments (i.e. suppliers)
  • requires a reconciliation of net income to cash flows from OA
  • FASB preferred method; however, it is not commonly used
A

direct method

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12
Q

Statement of Cash Flow Method?

  • reports components of cash flows from OA as gross receipts (i.e. customers) and gross payments (i.e. suppliers)
  • requires a reconciliation of net income to cash flows from OA
  • FASB preferred method; however, it is not commonly used
A

direct method

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13
Q

Statement of Cash Flow Method?

  • adjusts “accrual basis” net income to “cash basis” cash flows from operating activities
  • Goal: reconcile earnings effect to operating cash flow effect
A

indirect method

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14
Q

Cash flows from what type of activities are the same under both the indirect and direct method?

A
  • investing activities

- financial activities

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15
Q

In the indirect method, the items needed to prepare the statement are…

A
  • comparative balance sheet
  • income statement
  • selected transaction data
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16
Q
  • net income

- adjustments to reconcile net income to net cash provided

A

cash flows from operating activities

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17
Q

In the operating activities, depreciation, amortization of intangibles and bond discounts, and bad debt expense are all types of….

A

non-cash expenses

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18
Q

Non-cash expenses are ___ in the operating activities section in the statement of cash flow.

A

added

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19
Q

In the operating activities, income from an equity method investment and amortization for bond premium are types of…

A

non-cash revenues

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20
Q

Non-cash revenues are ___ in the operating activities section in the statement of cash flow.

A

subtracted

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21
Q

In the operating activities, lales of PPE, investments, and extraordinary items are types of…

A

losses/gains on peripheral activity

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22
Q

losses/gains on peripheral activity are ___ in the operating activities section in the statement of cash flow.

A

added/subtracted

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23
Q

Increases and decreases in current assets and liabilities are all types of…

A

changes in current assets and liabilities

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24
Q

Increases in current assets are ___ in the operating activity section in the statement of cash flow.

A

subtracted

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25
Q

Decreases in current assets are ___ in the operating activity section in the statement of cash flow.

A

added

26
Q

Increases in current liabilities are ___ in the operating activity section in the statement of cash flow.

A

added

27
Q

Decreases in current liabilities are ___ in the operating activity section in the statement of cash flow.

A

subtracted

28
Q

What type of activity from the statement of cash flow is cash received from dividends and interest?

A

operating activity

29
Q

Activity? Inflow or Outflow?

- purchase of property and equipment

A

investing activity; outflow

30
Q

Activity? Inflow or Outflow?

- sale of property and equipment (total proceeds)

A

investing activity; inflow

31
Q

Activity? Inflow or Outflow?

- purchase of investment

A

investing activity; outflow

32
Q

Activity? Inflow or Outflow?

- sale of investments (total proceeds)

A

investing activity; infow

33
Q

Activity? Inflow or Outflow?

- issuance of L/T notes receivables

A

investing activity; outflow

34
Q

Activity? Inflow or Outflow?

- collections of principal of notes receivables

A

investing activity; inflow

35
Q

Activity? Inflow or Outflow?

- issuance of debt (gross)

A

financing activity; inflow

36
Q

Activity? Inflow or Outflow?

- payments on debt (gross)

A

financing activity; outflow

37
Q

Activity? Inflow or Outflow?

- issuance of stock

A

financing activity; inflow

38
Q

Activity? Inflow or Outflow?

- reacquisition of stock

A

financing activity; outflow

39
Q

Activity? Inflow or Outflow?

- payment of dividends

A

financing activity; outflow

40
Q

How is the total change in cash and cash equivalents calculated?

A

OA + IA + FA

41
Q

Supplemental operating cash flow information includes…

A
  • cash paid for interest

- cash paid for taxes

42
Q
  • changes in current taxes payable and deferred tax assets and liabilities are recorded in operating activities
  • deferred tax expense is recorded as a reconciling item from net income to operating cash flows
A

income taxes, current and deferred

43
Q

Adjust net income from the difference between Pension expense and funding.

A

postretirement benefits

44
Q
  • cash flows from purchase and sale of investments

- gains/losses on investment securities

A

investments in trading and available for sale securities

45
Q

Trading securities falls under what activity in the statement of cash flow?

A

operating activities

46
Q

Available for sale securities falls under what activity in the statement of cash flows?

A

investing activities

47
Q

Type of security?

- record reconciling items to offset unrealized and realized gains/losses to reflect “actual cash flows.”

A

trading securites

48
Q

Type of security?

  • unrealized gains/losses dont affect income (only equity) or operating cash flows (only investing); no adjustment.
  • record reconciling item to offset realized gains/losses to reflect operating cash flow effect of $0.
A

available for sale securities

49
Q
  • investor increases its investment for % of earnings and decreases its investment for % of dividends
  • adjust the “income effect” by subtracting the % of investee earnings (noncash revenue item).
  • record an operating cash inflow for dividends received
A

equity method investment

50
Q
  • present the net change in A/R (including the allowance)

- present the change in Gross A/R and a separate reconciling item for “bad debt expense”

A

accounts receivable

51
Q
  • usually affects investing or financing activities
  • record and adjustment to offset the income effect of extraordinary items (gross amount) because they do not impact operating activities
A

extraordinary items

52
Q

Operating, Investing, or Financing?

Proceeds from sale of land

A

investing

53
Q

Operating, Investing, or Financing?

Purchase of treasury stock

A

financing

54
Q

Operating, Investing, or Financing?

Issuance of long term bonds

A

financing

55
Q

Operating, Investing, or Financing?

acquisition of stock of another corporation

A

investing

56
Q

Operating, Investing, or Financing?

Payment of semi-annual interest on bonds payable

A

operating

57
Q

Operating, Investing, or Financing?

Payment of a cash dividend

A

financing

58
Q

Operating, Investing, or Financing?

Receipt of a cash dividend

A

investing

59
Q

Operating, Investing, or Financing?

Purchase of a building

A

investing

60
Q

Operating, Investing, or Financing?

Cash dividends received on an equity method investment

A

operating

61
Q

Operating, Investing, or Financing?

Payment of income taxes

A

operating

62
Q

Operating, Investing, or Financing?

Issuance of common stock for cash

A

financing

Accounting 3332 (10 decks)

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