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Chapter 14 Blue print problem

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solution


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Blueprint Problem: Statement of Cash Flows;Statement of Cash Flows and Business Activities;The statement of cash flows provides information about the cash inflows and cash outflows for a company. It is considered to be a complement to the other three financial statements. A company's cash flows are generated from operating, investing, and financing activities. (Click on the activity name in the image for definitions.);In the table below, review the transaction and select the appropriate type of activity and cash flow.;Operating Activities and the Indirect Method;The first section of the statement of cash flows is the operating activities section. There are two methods to prepare this section: the direct method and the indirect method. Both methods calculate the same result. Under the indirect method, net income is adjusted to determine cash flows from operating activities.;Why is net income not equal to the increase in cash? Recall that under GAAP, net income is calculated on-----------------------;The income statement and comparative balance sheets for Leonardo Inc. can be viewed by clicking on the links below. No depreciable assets were purchased or sold during the period, therefore, the increase in Accumulated Depreciation is due to depreciation expense for the period. Complete the operating activities section of the statement of cash flows. Use a minus sign (-) to indicate an outflow of cash. No sign is needed to indicate an inflow of cash.;APPLY THE CONCEPTS: Prepare the investing activities section;Investing Activities;Investing activities include inflows and outflows of cash related to noncurrent assets. Additional data related to noncurrent assets and liabilities may need to be collected to correctly calculate the cash flows from investing activities. Inflows of cash from investing activities may include a gain or loss in the sale of a noncurrent asset.;Additional information for investing activities;1. One of Leonardo's suppliers experienced a devastating loss due to a tornado. Leonardo loaned the company $76,320 cash to help restore its operations. The loan is interest-free.;2. Leonardo sold one of its parcels of land for $44,000.;Use a minus sign (?) to indicate an outflow of cash. No sign is needed to indicate an inflow of cash.;Financing Activities;Financing activities include inflows and outflows of cash from transactions that either generate capital or repay capital provided to the company. As with investing activities, you must review the changes to equity accounts and noncurrent liabilities as well as collect any additional data related to equity accounts and noncurrent liabilities to correctly calculate the cash flows from financing activities.;APPLY THE CONCEPTS: Prepare the financing activities section;Additional financing activities data;1. On February 1, 2013, Leonardo Inc. issued 6,400 shares of its $1 par value stock. The company received the par value for the shares and $12,800 in excess of par value.;2. Leonardo paid dividends of $4,800 to its stockholders on June 30, 2013.;Use a minus sign (?) to indicate an outflow of cash. No sign is needed to indicate an inflow of cash.;Complete the Statement of Cash Flows;After determining the cash flows from the operating, investing, and financing activities, the net change in cash can be calculated by totaling the cash flows from each of the activities. The net change in Cash is added to the Cash balance at the beginning of the period. The sum should be equal to the balance in Cash at the end of the year.;APPLY THE CONCEPTS: Complete the statement of cash flows;Use a minus sign (?) to indicate an outflow of cash. No sign is needed to indicate an inflow of cash.;Additional Disclosures;Often a company will engage in significant investing or financing transactions that involve no cash flow. For example, a company may sign a long-term note payable in exchange for an asset, such as a building or equipment. Or, perhaps common stock is issued to retire bonds. These activities are not reported on the statement of cash flows because there is no cash flow in the current period.

 

Paper#79139 | Written in 18-Jul-2015

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