Statement of Cash Flows Flashcards
Operating Income Additions/Deductions
The increase in the equity method investment is Metro’s share of the undistributed earnings of Videogold. This amount increases net income but causes no cash inflow and is subtracted. The amortization of bond premiums reduces interest expense relative to cash interest paid. Income, therefore, understates the cash outflow for interest. The subtraction of the premium adjusts income for the difference. The increase in the deferred tax liability increases income tax expense without any cash outflow. Therefore, the increase is added to income.
Cash Inflows from Operating Activities
Cash receipts from sales of goods/services
Cash receipts from interest or dividends on investments in another enterprise
All cash receipts not classified as investing/financing activities
Cash Outflows from Operating Activities
Cash payments to acquire materials for manufacture/sale of goods
Cash payments to suppliers/employees for goods/services
Cash payments to governments for taxes/fees/licenses/penalties
Cash payments to lenders and other creditors for interest
All other cash payments that are not classified as investing or financing activities
Cash Inflows from Investing Activities
Cash receipts from collections or sales of loans made by the enterprise and of other debt instruments that are purchased by the enterprise
Cash receipts from sales of equity securities of other enterprises
Cash receipts from the sales of property, plant, and equipment and other productive assets
Cash Outflows from Investing Activities
Cash payments for loans made by the enterprise and payments to acquire debt instruments of other entities
Cash payments to acquire equity instruments of other enterprises
Cash payments to purchase property, plant, as well as equipment and other productive assets
Cash Inflows from Financing Activities
Cash proceeds from issuing equity instruments
Cash proceeds from issuing bonds, mortgages, notes, and other short- and long-term debt instruments
Cash Outflows from Financing Activities
Cash payments of dividends or other distributions to owners, including outlays to reacquire the enterprise’s instruments
Cash repayments of amounts borrowed
Other principal cash payments to creditors who have extended long-term credit
How to report unamortized bond premium in statement of cash flows
As a subtraction to net income - operating section
Amortization of bond premium is difference between cash interest and interest expense. Because less expense has been defected in computing income than the amount paid, the difference must be subtracted from income to reconcile cash
How to report gain for sale of used equipment for cash - indirect method
Cash inflow to investing activities
Gain deducted from income in order to avoid double counting
Cash proceeds include carrying value of equipment and the gain from the sale
