General Purpose Financial Statements - Statement of Cash Flows

Question 1

26. Which of the following would be disclosed as supplemental info in the stmt of CF’s?

• Cash Flow per share
• Conversion of Debt to equity

Answer 1

• Conversion of Debt to Equity - YES - would appear in the supplemental noncash disclosure schedule, assuming a material amount is involved
• Cash flow per share - NO

Question 2

27. If salaries for 12/31/x1, payable on 1/6/x2 were not accrued at year end, what would be the effect on 12/31/x1 ?
    - working capital
    - cash flow from operating activities

Answer 2

• working capital would be overstated
• cash flows from operating activities - NO EFFECT. This is because there was no cash paid out as of 12/31/x1. even if they were accrued, there would no cash paid until 1/6/x2.

remember - statement of cash flows - dealing with CASH

Question 3

28. What items are added back to Net Income when indirect method is used for operating activities section of cash flow?

Answer 3

• Depreciation expense
• Amortization expense
• Depletion expense
• Losses (from sale of assets, etc.)
• Loss under equity method of accounting for -Investments
• Amortization of premium on bond investment
• Amortization of discount on bonds payable
• Decreases in current assets (accounts receivable, —-inventory, prepaid assets, etc.)
• Increases in current liabilities (accounts payable, deferred taxes, etc.)
• Increase in unearned revenue

Question 4

28. What items are deducted from Net Income when indirect method is used for operating activities section of cash flow?

Answer 4

• Gains (from sale of assets, etc.)
• Amortization of discount on bond investment
• Amortization of premium on bond payable
• Undistributed income under equity method of accounting for investments
• Increases in current assets (accounts receivable, inventory, prepaid assets, etc.)
• Decreases in current liabilities (accounts payable, deferred taxes, etc.)
• Decrease in unearned revenue

Question 5

28. What category should conversion of preferred stock be listed in on cash flow?

Answer 5

it should not be listed, because the conversion of preferred stock is a NON CASH activity. no cash flow to report.

Question 6

28. Where should “Short Term Bank Debt” be reported in statement of cash flows?

Answer 6

Financing activities

Note: even though its “short term” and you would expect to see this is in the operating activities section this is one of those exceptions to the rule.

Question 7

28. Where should the purchase of “trading securities” be classified in the statement of cash flows?

Answer 7

Operating activities

Note: even though this seems to be an “investing activity” these s/b classed in operating activities.