M2 - Statement of Cash Flows Flashcards
The US Treasury bill is considered to be a cash equivalent item so purchasing the T-Bill merely changes the form of cash held, it does not change the cash position of the entity. Thus, the purchase is not reported on the statement of cash flows. (true or false)
True
A reconciliation of ending retained earnings to net cash flow from operations is NOT disclosed on the statement of cash flows either on the direct or indirect method, nor is it shown in a separate schedule. Instead, the reconciliation is from “net income” to “net cash from operations” (true or false)
True
What are some required disclosures of a statement of cash flows under the direct method under US GAAP?
- The major classes of gross cash receipts and gross cash payments
- The amount of income taxes paid
- A reconciliation of net income to net cash flow from operations
Investing activities include acquisitions and sales of long-term assets or investment assets. (true or false)
In this example they had
- Gain on sale of equipment (6,000)
- Proceeds from sale of equipment 10,000
- Purchase of A.S., Inc bonds (par value 200,000) (180,000)
- Amortization on bond discount 2,000
- Dividends Declared (45,000)
- Dividends Paid (38,000)
- Proceeds from sale of Treasury Stock (carrying amount $65,000) 75,000
Cash used for investing activities = $170,000 ($180,000 paid less $10,000 received from sale of equipment)
Financing activities include obtaining resources from owners and providing them with a return on, and a return of, their investment; borrowing money and repaying amounts borrowed. Dividends paid, not dividends declared, should be included as an outflow of cash from financing activities. (true or false)
True
In this example they had
- Gain on sale of equipment (6,000)
- Proceeds from sale of equipment 10,000
- Purchase of A.S., Inc bonds (par value 200,000) (180,000)
- Amortization on bond discount 2,000
- Dividends Declared (45,000)
- Dividends Paid (38,000)
- Proceeds from sale of Treasury Stock (carrying amount $65,000) 75,000
Cash provided by financing activities:
Dividends Paid (38,000)
Proceeds from sale of TS 75,000
————————————————————————-
Net cash provided by financing activities $37,000
Conversion of debt to equity SHOULD NOT be disclosed as supplemental information in the statement of cash flows. Cash flow per share SHOULD be disclosed. (true or false)
FALSE
Conversion of debt to equity SHOULD be disclosed as supplemental information in the statement of cash flows. Cash flow per share SHOULD NOT be disclosed.
The allowance for uncollectible accounts is a contra-asset and, like a liability, an increase in a contra-asset should be added to net income to compute operating cash flow. (true or false)
True
An increase in Accounts Receivable would do what to cash provided by operating activities?
It would decrease the amount (subtract the increase from net income).
A decrease in prepaid rent would do what to cash provided by operating activities?
It would increase the amount (add the decrease to net income)
An increase in Accounts Payable would do what to cash provided by operating activities?
It would increase the amount (add the increase to net income)
Depreciation expense should be reported where on the statement of cash flows and should it increase or decrease net income?
Depreciation expense, not the increase or decrease in accumulated deprecation, should be added to net income to compute cash provided by operating activities.
The gain on the sale of equipment should be reported where on the statement of cash flows and should it increase or decrease net income?
Decrease/ Operating section
The gain on the sale of equipment is included in net income, but must be excluded from cash provided by operations because the cash flows related to fixed asset sale are reported in the investing section.
Journal Entry for equipment sold is:
Cash 18,000
Accumulated Depr. 12,000
Gain 5,000
Equipment 25,000
Conversion of preferred stock into common stock is a noncash financing disclosure. (true or false)
true
Under IFRS, dividend payment may be reported in the operating section OR the financing section. (true or false)
True
Same goes for Interest Paid and taxes paid
How to calculate Cash received from customers under the direct method:
Revenues - Increase in Receivables \+ Decrease in Receivables \+ Increase in unearned Revenue - Decrease in unearned Revenue ------------------------------------------------- Cash received from customers ==============================
How to calculate Cash paid to suppliers under the direct method:
Cost of Goods Sold \+ Increase in inventory - Decrease in inventory - Increase in accounts payable \+ Decrease in accounts payable ------------------------------------------------- Cash paid to suppliers ==============================
The increase in inventory is added to COGS because an inventory increase means net purchase of inventory, which results in a cash outflow to suppliers. A decrease in AP is also added because AP decreases when cash payments are made to suppliers.
How to calculate Cash paid to employees under the direct method:
Salaries and wages expense - Increase in wages payable \+ Decrease in wages payable -------------------------------------------- Cash Paid To Employees ===========================
How to calculate Cash paid for other expenses under the direct method:
Other Operating Expenses - Decrease in prepaid expenses \+ Increase in prepaid expenses \+ Decrease in accrued liabilities - Increase in accrued liabilities ------------------------------------------------ Cash paid for other expenses ==============================
Under the INdirect method, a supplemental disclosure of cash paid for interest and income taxes is required. (true or false)
True
However, a supplemental disclosure of capital expenditures and capital lease payments is not required because capital expenditures is a line-item disclosure in the investing section and the principal portion of capital lease payment is a line-item disclosure in the financing section.
Cash payments made to reduce debt principal are properly reported as a financing activity. (True or false)
True, An outflow equal to the current year principal payments only.
Cash interest payments would be reported as a component of cash from operating activities.
Impairment of Good will should be reported where on the statement of cash flows and should it increase or decrease net income?
In the operating section and increase net income
Amortization of bond discount is an income related item, thus is almost automatically an operating activity. Because the amortization of the discount was originally subtracted to get to net income in the first place, it is added back to net income for an indirect method statement of cash flows. (true or false)
true
Net cash from investing activities includes cash flows from both available-for-sale and held-to-maturity security transactions. (true or false)
True
The purchase of common stock will be reported where on the statement of cash flows?
Investing section and reported as a cash outflow
Under IFRS, Interest Received may be reported in the operating section OR the investing section. (true or false)
True
Same goes for Dividends received and taxes paid
Loans TO other entities and the consequent collection of the loans are reflected in the investing activity section of the cash flow statement (true or false)
True
Note payables fall under financing activities in the statement of cash flows.
When the direct method of preparing a statement of cash flows is used, an enterprise should provide a reconciliation of net income to net cash flow from which activity?
Operating
If the direct method is used to present cash flows from operating activities, the indirect method must also be presented in the footnotes. The indirect method starts with net income and makes adjustments to it generating cash flows from operating activities that would agree to the same amount calculated using the direct method.
