F8/M2 Statement of Cash Flows

Question 1

Operating Activities

Answer 1

Income statement items
Change in...
      - Operating Assets (no cash/cash 
                 equivalents)
      - Operating Liabilities (accruals, nothing 
                  interest bearing)
 - Excluding Notes payable and current 
    portion of LT-Debt

Question 2

Investing Activities

Answer 2

Non-current assets

Question 3

Financing Activities

Answer 3

Debt/Equity

- Bank overdrafts

Question 4

Cash equivalents

Answer 4

Original maturity < 3 months

Question 5

Direct method and Indirect method

Answer 5

Differ only in Operating activities

Question 6

Direct Method

Answer 6

Cash collected from customers
(-) cash paid for operating expenses

• Ignore Depreciation, Net Income,
  Gains/losses

Question 7

Indirect Method

Answer 7

Reconciliation

• Start with Net Income
• Add back depreciation
• Add back losses / subtract gains
• Anything to do with Cash received from customers or cash paid to vendors is irrelevant

Question 8

** Calculate Direct Method **

Answer 8

1. • 5. = INFLOWS

1. Cash received from customers 
(Sales) (Change in AR & Unearned)
  (-) Increase in AR
  (+) Increase in Unearned Revenue
2. (+) Interest received
3. (+) Dividends recieved
4. (+) Insurance proceeds
5. (+) Sale of trading securities

6. • 10. = OUTFLOWS
7. Cash paid to suppliers and emply.
   (COGS) –> (Change in Inventory & AP)
   (+) Increase in Inventory
   (-) Increase in Accounts Payable
   (+) Decrease in Salaries and Wages payable
8. (-) Interest Paid
9. (-) Income Taxes Paid
10. (-) Purchase of Trading Securities
11. (-) Other Operating Expenses
    (+) Increase in Prepaid Expenses
    (-) Increase in Accrued Liabilities

Question 9

** Calculation of Operating Cash Flows using Indirect Method **

Answer 9

Net Income
(+) Depreciation / Amort. of Bond Discount
(+) Losses
(-) Gains / Amortization of Bond premium
(-) Equity Earnings from affiliate (20-50%)
(-) (+/-) Change in OA
(+) (+/-) Change in OL

Question 10

Calculation of Investing Activities

Answer 10

Non-Current Assets
- Use T-account to find investing outflows (cap-ex)
- Making loans to other entities
- Purchase/disposal of AFS and HTM 
    securities
- Acquiring another enitty

Question 11

Calculation of Financing Activities

Answer 11

Change in OWN Debt and OWN Equity

• (+) Increase in Debt or Equity
• (-) Paying cash dividends
• (-) Repayment of principal

Question 12

Must disclose material Non-cash Investing and Financing Activities

Answer 12

True

Question 13

Must disclose Interest Paid and Taxes paid when using Indirect method

Answer 13

True

Question 14

If you chose to do the Direct Method, you must provide a supplemental disclosure of the reconciliation of net income to net cash from operating activities (Indirect method)

Answer 14

True;

- If you do Direct, you have to disclose Indirect method