Module 17

Question 1

What is the primary purpose of the statement of cash flows?

Answer 1

To provide information about an entity’s cash receipts and cash payments for the period, and to disclose information about the financing and investing activities of an entity.

Question 2

What are operating activities?

Answer 2

delivering or preducing goods for sale and providing services. - Generally related to net income and current assets and current liabilities

Question 3

What are Investing Activities?

Answer 3

Include the Acquisition or Disposition of long-term productive assets or securities - generally realted to noncurrent section of the balance sheet

Question 4

What are financing activities?

Answer 4

Obraining resources from reditors and repaying amount borrowed. Generally financing activities are related to noncurrent liabilitiy and rquity sections fo the balance sheet.

Question 5

What are cash and cash equivalents to include?

Answer 5

Highly liquid investmetns that are readily convertible to known amounts of cash, and so near their maturity (purchase to maturity of 3 months or less) that they present neglibible risk of changes of value.

Question 6

What are the two methods of presenting the operating activities?

Answer 6

Indirect Method, Direct Method

Question 7

What information do you need to fill out a statement of cash flows?

Answer 7

You need the Income Statement to be complete, and the Balance Sheet.

Question 8

What order are the 3 items reported on the statement of cash flows?

Answer 8

Operating, Investing, Financing

Question 9

What is the direct method of presentation for operating activities?

Answer 9

You take each item of Revenues and expenses and convert it to cash basis.

Question 10

What is the indirect method of presentation for operating activities?

Answer 10

You take the Net Income only and convert it over to cash basis.

Question 11

What are the unique disclosures required under the indirect method of presentation?

Answer 11

You must disclose 1) The income taxes paid and 2) The Interest Paid

Question 12

What are the unique disclosures required under the direct method of Presentation?

Answer 12

You must disclose the reconcilation of NI to cash from operating activities.

Question 13

What are required disclosures under both the indirect and Direct methods of presentation?

Answer 13

You must disclose 1) The Policy and treatment for Cash equivalents in significant accounting policies and 2) Significant non-cash investing and financing activities.

Question 14

Which method is more work? Indirect or Direct method?

Answer 14

Indirect Method is easier to present.

Question 15

Where are operating activities likely to be found in the financial statements?

Answer 15

On the income statement.

Question 16

Where are Investing activities likely to be found in the financial statements?

Answer 16

On the asset section of the balance Sheet

Question 17

Where are financing activities likely to be found in the financial statements?

Answer 17

In the Liability and Shareholder Equity section of the balance sheet

Question 18

How do you adjust back Net Income to Cash from Operating activities under the indirect method?

Answer 18

Start with net income. Add Back non $ expenses (dep, BDX, Amor, Warranty expense). Subtract non $ Revenues (equity in earnings of investee). Add Losses. Subract Gains. Add Amortized Bond Discount. Subract Amortized bonds premium. Fake Cash all current assets and liabilities