FUNDAMENTAL ACCT PRIN CONNECT ACCESS
FUNDAMENTAL ACCT PRIN CONNECT ACCESS
24th Edition
ISBN: 9781266494604
Author: Wild
Publisher: MCG
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Chapter 16, Problem 20E
To determine

Concept Introduction:

Cash Flow Statements:

Cash flow statements are an integral part of the financial statements of a company. They reflect the direction and movement of the cash inflows and outflows during a reporting period. The cash inflows and outflows are segregated into the following activities:

Cash flows from Operating activities − The cash inflows refer to sales and income from operating activities and cash outflows include both cash and non-cash outflows from the operating activities i.e. the day to day activities of the business.

Cash flows from Investing activities − The cash inflows refer to sales and income from investing activities and cash outflows include cash outflows from the investing activities in the form of purchase of fixed assets and investments.

Cash flows from Financing activities − The cash inflows refer to income from financing activities such as raising share capital and debt and cash outflows include cash outflows from the financing activities in the form of dividends and interest paid.

There are two methods of preparing cash flow statements:

Direct Method − It measures the actual cash inflows and cash outflows that are affected during a particular reporting period. The actual cash flows do not include non-cash items and items that are recorded owing to the accrual principle.

Indirect Method −It measures the cash inflows and cash outflows that are affected during a particular reporting period including the non-cash items and items that are recorded owing to the accrual principle.

Requirement 1:

Cash flow statements using direct method.

Expert Solution
Check Mark

Answer to Problem 20E

Cash flow statements using direct method are as follows:

    ParticularsAmount($) Amount($)
    Cash flows from operating activities
    Cash receipts from customers $ 5,000,000.00
    Cash paid for rent $ (320,000.00)
    Cash paid to employees $ (550,000.00)
    Cash paid for inventory $ (2,590,000.00)
    Cash generated from operations $ 1,540,000.00
    Interest paid $ (218,000.00)
    Income taxes paid $ (450,000.00)
    Net cash from operating activities $ 872,000.00
    Cash flows from investing activities
    Purchase of machinery $ (2,236,000.00)
    Purchase of investments $ (1,260,000.00)
    Proceeds from sale of machinery $ 710,000.00
    Proceeds from sale of land $ 220,000.00
    Net cash used in investing activities $ (2,566,000.00)
    Cash flows from financing activities
    Cash received as dividends $ 208,400.00
    Cash received from issuance of stock $ 1,540,000.00
    Cash received from long term borrowings $ 3,600,000.00
    Cash paid for treasury stock $ (218,000.00)
    Cash paid to retire notes $ (386,000.00)
    Cash dividends paid $ (500,000.00)
    Net cash from financing activities $ 4,244,400.00
    Net increase in cash and cash equivalents $ 2,550,400.00
    Cash and cash equivalents at beginning of period $ 333,000.00
    Cash and cash equivalents at end of period $ 2,883,400.00

Explanation of Solution

Following is the cash account for the period:

    Cash
    ParticularsAmount ($) ParticularsAmount ($)
    Opening Balance $ 333,000.00 Payments for Inventory $ 2,590,000.00
    Receipts from customers $ 5,000,000.00 Payments for Wages $ 550,000.00
    Receipts from dividends $ 208,400.00 Payments for rent $ 320,000.00
    Receipts from land sale $ 220,000.00 Payments for Interest $ 218,000.00
    Receipts from mahcinery sale $ 710,000.00 Payments for taxes $ 450,000.00
    Receipts from issuing stock $ 1,540,000.00 Payments for machinery $ 2,236,000.00
    Receipts from borrowings $ 3,600,000.00 Payments for stock investments $ 1,260,000.00
    Payments for notes payable $ 386,000.00
    Payments for dividends $ 500,000.00
    Payments for treasury stock $ 218,000.00
    Closing Balance$ 2,883,400.00

Cash inflows and outflows from Income statement accounts such as Sales, Depreciation Expense etc. and the changes in the values from the preceding period and the effect of the same on the net income is detailed in the cash flow statement of the current year.

Operating Activities refer to the results from operations of the business. This includes cash inflows from sale of goods and services and cash outflows to fund the expenses of the operations. The operating activities do not capture change in balance sheet accounts such as change in values of inventory or change in closing balances of accounts payables etc. under the direct method.

The Cash flows from Operations are the excess of income through sales of goods and services over the expenses of operations and include direct costs in the form of material, labor and overheads and indirect costs including depreciation, selling and distribution expenses etc.

Investing activities are related to acquisition of assets and disposal of assets during the reporting period. They are concerned with the changes in non-current assets of the business.

Financing activities are concerned with the acquisition and disposal of funds in the forms of equity and debt during a reporting period. They are concerned with the changes in non-current liabilities of the business.

Hence the Cash flow statements are prepared using direct method.

To determine

Concept Introduction:

Cash Flow Statements:

Cash flow statements are an integral part of the financial statements of a company. They reflect the direction and movement of the cash inflows and outflows during a reporting period. The cash inflows and outflows are segregated into the following activities:

Cash flows from Operating activities − The cash inflows refer to sales and income from operating activities and cash outflows include both cash and non-cash outflows from the operating activities i.e. the day to day activities of the business.

Cash flows from Investing activities − The cash inflows refer to sales and income from investing activities and cash outflows include cash outflows from the investing activities in the form of purchase of fixed assets and investments.

Cash flows from Financing activities − The cash inflows refer to income from financing activities such as raising share capital and debt and cash outflows include cash outflows from the financing activities in the form of dividends and interest paid.

There are two methods of preparing cash flow statements:

Direct Method − It measures the actual cash inflows and cash outflows that are affected during a particular reporting period. The actual cash flows do not include non-cash items and items that are recorded owing to the accrual principle.

Indirect Method −It measures the cash inflows and cash outflows that are affected during a particular reporting period including the non-cash items and items that are recorded owing to the accrual principle.

Requirement 2:

  1. Largest inflows and outflows from the activities of the cash flow statement
  2. Largest individual item from the investing activities
  3. Whether cash proceeds are higher from issuance of notes or issuance of stocks
  4. If cash flows from borrowings are inflows or outflows

Expert Solution
Check Mark

Answer to Problem 20E

  1. Largest inflows from the activities of the cash flow statement are from financing activities amounting to $4,244,400.00 and outflows from the activities of the cash flow statement are from investing activities amounting to $2,566,000.00.
  2. Largest individual item from the investing activities is purchase of machinery, amounting to $2,236,000.00
  3. Cash proceeds are higher from issuance of notes since the amount is $3,600,000 whereas the corresponding amount from issuance of stocks are $1,540,000.
  4. Net Cash flows from borrowings are inflows since an amount of $3,600,000 has been borrowed whereas payments of $386,000 are made.

Explanation of Solution

Following is the cash flow statement for the period:

    ParticularsAmount($) Amount($)
    Cash flows from operating activities
    Cash receipts from customers $ 5,000,000.00
    Cash paid for rent $ (320,000.00)
    Cash paid to employees $ (550,000.00)
    Cash paid for inventory $ (2,590,000.00)
    Cash generated from operations $ 1,540,000.00
    Interest paid $ (218,000.00)
    Income taxes paid $ (450,000.00)
    Net cash from operating activities $ 872,000.00
    Cash flows from investing activities
    Purchase of machinery $ (2,236,000.00)
    Purchase of investments $ (1,260,000.00)
    Proceeds from sale of machinery $ 710,000.00
    Proceeds from sale of land $ 220,000.00
    Net cash used in investing activities $ (2,566,000.00)
    Cash flows from financing activities
    Cash received as dividends $ 208,400.00
    Cash received from issuance of stock $ 1,540,000.00
    Cash received from long term borrowings $ 3,600,000.00
    Cash paid for treasury stock $ (218,000.00)
    Cash paid to retire notes $ (386,000.00)
    Cash dividends paid $ (500,000.00)
    Net cash from financing activities $ 4,244,400.00
    Net increase in cash and cash equivalents $ 2,550,400.00
    Cash and cash equivalents at beginning of period $ 333,000.00
    Cash and cash equivalents at end of period $ 2,883,400.00

Cash inflows and outflows from Income statement accounts such as Sales, Depreciation Expense etc. and the changes in the values from the preceding period and the effect of the same on the net income is detailed in the cash flow statement of the current year.

Operating Activities refer to the results from operations of the business. This includes cash inflows from sale of goods and services and cash outflows to fund the expenses of the operations. The operating activities do not capture change in balance sheet accounts such as change in values of inventory or change in closing balances of accounts payables etc. under the direct method.

The Cash flows from Operations are the excess of income through sales of goods and services over the expenses of operations and include direct costs in the form of material, labor and overheads and indirect costs including depreciation, selling and distribution expenses etc.

Investing activities are related to acquisition of assets and disposal of assets during the reporting period. They are concerned with the changes in non-current assets of the business.

Financing activities are concerned with the acquisition and disposal of funds in the forms of equity and debt during a reporting period. They are concerned with the changes in non-current liabilities of the business.

Hence, the various questions based on Part 1 have been answered.

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Chapter 16 Solutions

FUNDAMENTAL ACCT PRIN CONNECT ACCESS

Ch. 16 - Prob. 11DQCh. 16 - Prob. 12DQCh. 16 - Prob. 13DQCh. 16 - Prob. 14DQCh. 16 - Prob. 15DQCh. 16 - Transaction classification by activity C1 Classify...Ch. 16 - Prob. 2QSCh. 16 - QS 16-3 Indirect: Computing cash flows from...Ch. 16 - QS 16-4 Indirect: Computing cash flows from...Ch. 16 - QS 16-5 Indirect: Computing cash flows from...Ch. 16 - QS 16-6 Indirect: Computing cash from operations...Ch. 16 - QS 16-7 Indirect: Computing cash from operations...Ch. 16 - QS 16-8 Computing cash from asset sales P3 The...Ch. 16 - Prob. 9QSCh. 16 - QS 16-10 Computing investing cash flows P3 The...Ch. 16 - QS 16-11 Computing investing cash flows P3 Refer...Ch. 16 - Computing cash flows flow investing P3 Compute...Ch. 16 - QS 16-13 Computing cash from asset sales P3 Q...Ch. 16 - QS 16-14 Computing financing cash flows...Ch. 16 - Prob. 15QSCh. 16 - Prob. 16QSCh. 16 - Prob. 17QSCh. 16 - QS 16-18 Indirect: Preparing statement of cash...Ch. 16 - Ma rice la Yahtzee Cluedu Cash provided (used) by...Ch. 16 - QS 16-20A Recording entries in a spreadsheet P4 A...Ch. 16 - QS 16-21B Direct: Computing cash receipts from...Ch. 16 - QS 16-22B Direct: Computing cash payments to...Ch. 16 - QS 16-23B Direct: Computing cash paid for...Ch. 16 - Prob. 24QSCh. 16 - Prob. 25QSCh. 16 - Prob. 26QSCh. 16 - Prob. 27QSCh. 16 - Prob. 1ECh. 16 - Prob. 2ECh. 16 - Exercise 16-3 Indirect: Reporting and interpreting...Ch. 16 - Exercise 16-4 Indirect: Cash flows from operating...Ch. 16 - Exercise 16-5 Indirect: Cash flows from operating...Ch. 16 - Exercise 16-6 Indirect: Cash flows from operating...Ch. 16 - Exercise 16-7 Indirect: Reporting cash flows from...Ch. 16 - Prob. 8ECh. 16 - Exercise 16-8 Cash flows from financing...Ch. 16 - Exercise 16-10 Reconstructed entries P3 For each...Ch. 16 - Exercise 16-11 Indirect: Preparing statement of...Ch. 16 - Exercise 16-12 Indirect: Preparing statement of...Ch. 16 - Exercise 16-13 Analyzing cash flow on total assets...Ch. 16 - Exercise 16-14A Indirect: Cash flows spreadsheet...Ch. 16 - Exercise 16-14 Direct Cash flow...Ch. 16 - Exercise 16-16BDirect: Computing cash flows P5 For...Ch. 16 - Exercise 16-17B Direct: Preparing statement of...Ch. 16 - Prob. 18ECh. 16 - Prob. 19ECh. 16 - Prob. 20ECh. 16 - Prob. 1APSACh. 16 - Prob. 2APSACh. 16 - Prob. 3APSACh. 16 - Prob. 4APSACh. 16 - Prob. 5APSACh. 16 - Prob. 6APSACh. 16 - Prob. 7APSACh. 16 - Prob. 8APSACh. 16 - Problem 16-1B Indirect Computing cash flows from...Ch. 16 - Prob. 2BPSBCh. 16 - Prob. 3BPSBCh. 16 - Prob. 4BPSBCh. 16 - Prob. 5BPSBCh. 16 - Prob. 6BPSBCh. 16 - Prob. 7BPSBCh. 16 - Problem 16-8BBDirect: Statement of cash flows P5...Ch. 16 - Prob. 16SPCh. 16 - Prob. 1AACh. 16 - Prob. 2AACh. 16 - Prob. 3AACh. 16 - Prob. 1BTNCh. 16 - Prob. 2BTNCh. 16 - BTN 16-3 Access the April 14. 2016. filing of the...Ch. 16 - BTN 16-6 Team members are to coordinate and...Ch. 16 - Prob. 5BTNCh. 16 - Prob. 6BTNCh. 16 - Prob. 7BTN
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