Statement of Cash Flows- pg 118-142

Question 1

Purpose of Statement of CF

Answer 1

To provide info about cash receipts and cash pmts to help investors/creditors to assess

1. past ability to generate & control cash
2. Probable future ability to generate cash inflows to meet future obligations/dividends
3. likely need for external borrowing

Question 2

Cash Equivalents

Answer 2

1. Short-term, highly liquid investments
2. Readily convertible to known amts of cash
3. Bears no interest rate risk
   Entity should disclose policy for designating cash equivalents and change in policy for designating cash equivalents is change in ACCT principle

Question 3

What is Notes Payable in Statement of Cash Flows

Answer 3

Non-cash investing and financing activities-equip bought on Notes Payable is a disclosure

Question 4

Investments in Trading Securities

Answer 4

Holds securities for short time then operating. If holding other than for short-term then investing

Question 5

Look at major cash flow items in each section

Answer 5

pg 122-123

Question 6

What is working Capital

Answer 6

Current Assets-Current Liabilities

Question 7

Look at Diff in methods

Answer 7

pg 127

Question 8

Indirect and Direct Method

Answer 8

1. Direct: presents cash flows in terms of specific sources received/paid
   Indirect: Develops cash flows by adjusting net income doesn’t identify specific sources received/paid
2. Direct is preferred by FASB
3. Both require disclosure noncash investing/financing activities
4. Direct: requires additional schedule to reconcile Net Income to Cash Flow from Oper Act
   Indirect: Requires additional disclosure of amt cash paid for interest/dividends