Connect Access Card For Fundamental Accounting Principles
Connect Access Card For Fundamental Accounting Principles
24th Edition
ISBN: 9781260158526
Author: John J Wild
Publisher: McGraw-Hill Education
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Chapter 16, Problem 3BTN
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:

The method of preparation of the cash flow statements

Expert Solution
Check Mark

Answer to Problem 3BTN

The method of preparation of the cash flow statements is Indirect Method.

Explanation of Solution

The Indirect method of preparation of cash flow statements 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.

Cash inflows and outflows from both balance sheet accounts such as accounts receivable, accounts payable, inventory etc. as well as 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.

Cash flows under the indirect method take into account a comprehensive view of the cash flows for the year and hence are the more preferred method of preparation of cash flow statements.

Non-cash items include depreciation, amortization expenses, prepaid expenses etc. and the accrual principle requires items of the financial statements to reflect data of the current reporting period and hence the indirect method is preferred.

Hence the method of preparation of the cash flow statements is explained.

To determine

Concept Introduction:

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:

The largest amount reconciling the difference between the net income and the cash flow from operating activities in the fiscal years 2015.

Expert Solution
Check Mark

Answer to Problem 3BTN

The largest amount reconciling the difference between the net income and the cash flow from operating activities in the fiscal years 2015 is Depreciation on assets.

Explanation of Solution

The following table highlights the key figures for the year 2015.

    Particulars2015 ($ Thousands)
    Net Income$ (1,148.50)
    Depreciation $ 1,181.20
    Cash flows from Operations $ 1,105.90

The Net Income before Extraordinary items is the starting point of preparation of cash flow statements. It is taken from the Income summary. Net Loss for 2015 is $ 1,148.50 Thousand

Depreciation is the cost of wear and tear of assets owing to their usage, charged to the income statement over the useful life of the assets. Depreciation for 2015 is $ 1,181.20 Thousand

The cash flows from Operations are $ 1,105.90 Thousand and indicate that the actual loss from operations is primarily due to non-cash items and the actual results from operations are positive and that the cash flow statement indicates the true result from operations.

Hence it can be seen that the largest amount reconciling the difference between the net income and the cash flow from operating activities in the fiscal years 2015 is Depreciation on assets.

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 3:

Whether the cash flows from operating activities increases over the last 2 years

Expert Solution
Check Mark

Answer to Problem 3BTN

The cash flows from operating activities for Fiscal years 2015, 2014 and 2013 have increased year on year.

Explanation of Solution

The following table highlights the cash flows from financing activities and cash flows from operating activities.

    Particulars2015 ($ Thousands)2014 ($ Thousands)2014 ($ Thousands)
    Net Income(1,148.5)(1,539.5)(876.9)
    Depreciation Expense1,181.21,382.41,105.4
    Cash flows from Operations1,105.9793.4276.1

The Net Income before Extraordinary items is the starting point of preparation of cash flow statements. It is taken from the Income summary. Net Loss for 2015 is $ 1,148.50 thousand and this has increased from 2013 as the net loss in 2013 was $ 876.900 thousand. The Net loss in 2014 is $ 1,539.50 thousand. The loss is fluctuating year on year.

Depreciation is the cost of wear and tear of assets owing to their usage, charged to the income statement over the useful life of the assets. Depreciation for 2015 is $ 1,181.20 thousand whereas the corresponding figures for 2013 and 2014 are $1,105.40 thousand and $1382.4 thousand respectively. The depreciation is also fluctuating year on year thus explaining the fluctuation in the Net Loss for the year.

The cash flows from Operations are steadily increasing from $276,100 in 2013 to $793,400 in 2014 to $1.11 Million in 2015 and indicate that the actual loss from operations is primarily due to non-cash items and the actual results from operations are positive and that the cash flow statement indicates the true result from operations.

Hence the increase in cash flow from operations over the last 2 years is explained.

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 4:

The largest cash outflows in investing and financing activities in the year ending 2015.

Expert Solution
Check Mark

Answer to Problem 3BTN

The largest cash outflow in investing activities in the year 2015 is Capital expenditure on Fixed Assets

The largest cash outflow in financing activities in the year 2015 is Reduction in long term debt.

Explanation of Solution

The following table highlights the various key figures for the years 2015.

    Particulars2015 ($ thousand)
    Capital Expenditure on Fixed Assets$ 642.40
    Reduction of Debt$ 1062.30

A clear reading of the financial statements indicates that the change in key figures of the Capital Expenditure on Assets and Reduction of Debt are the largest items on the cash flow statement with respect to the Investing and Financing Activities.

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 it can be seen the largest cash outflows in investing and financing activities in the year 2015 are Capital Expenditure on Assets and Reduction of Debt respectively.

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 5:

Supplemental Cash flow information provided

Expert Solution
Check Mark

Answer to Problem 3BTN

There is no Supplemental Cash flow information provided.

Explanation of Solution

Supplemental Cash flow information refers to additional information regarding the cash flow statements and items thereof.

These could refer to the breakup of the components of Cash flows Statements, explanations of items in addition to the explanation already offered to make the information more decipherable and lead to better interpretation etc.

However, careful scrutiny of the financial statements indicates there is no such information provided.

Hence it is explained how there is no Supplemental Cash flow information provided.

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 6:

Non cash financing activities.

Expert Solution
Check Mark

Answer to Problem 3BTN

There are no non cash financing activities.

Explanation of Solution

Non cash financing activities are financing activities that do not lead to cash inflows or outflows, however these activities have an impact on the financial statements as they are primarily concerned with the adjustments to components of the financial statements.

Examples include: Issue of Equity in exchange of Debt, Issue of Notes Payable in exchange for purchase of asset, Conversion of Preference Shares to Equity shares etc.

These activities aid and assist in analysis of financial statements and require mandatory distinct disclosures. However, scrutiny of the financial statements indicates there is no such non cash financing activities.

Hence it is explained how there are no non cash financing activities.

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Chapter 16 Solutions

Connect Access Card For Fundamental Accounting Principles

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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