Chapter 14 - CHAPTER 14 STATEMENT OF CASH FLOWS CLASS...

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CHAPTER 14 STATEMENT OF CASH FLOWS CLASS DISCUSSION QUESTIONS 1. It is costly to accumulate the data needed. 2. It focuses on the differences between net in- come and cash flows from operating activit- ies, and the data needed are generally more readily available and less costly to obtain than is the case for the direct method. 3. In a separate schedule of noncash investing and financing activities accompanying the statement of cash flows. 4. a. No effect b. No 5. The $25,000 increase must be added to in- come from operations because the amount of cash paid to merchandise creditors was $25,000 less than the amount of purchases included in the cost of goods sold. 6. The $10,000 decrease in salaries payable should be deducted from income to determ- ine the amount of cash flows from operating activities. The effect of the decrease in the amount of salaries owed was to pay $10,000 more cash during the year than had been re- corded as an expense. 7. a. $5,000 gain b. Cash inflow of $80,000 c. The gain of $5,000 would be deducted from net income in determining net cash flow from operating activities; $80,000 would be reported as cash flow from in- vesting activities. 8. Cash flow from financing activities—issu- ance of bonds, $5,250,000 9. a. Cash flow from investing activities—dis- posal of fixed assets, $5,000 The $5,000 gain on asset disposal should be deducted from net income in determining cash flow from operating activities under the indirect method. b. No effect 10. The same. The amount reported as the net cash flow from operating activities is not af- fected by the use of the direct or indirect method. 11. Cash received from customers, cash pay- ments for merchandise, cash payments for operating expenses, cash payments for in- terest, cash payments for income taxes. 12. Reported in a separate schedule, as follows: Schedule of noncash financing activities: Issuance of stock for acquisitions. ......................... $128 million 99
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EXERCISES Ex. 14–1 There were net additions, such as depreciation and amortization of intangible as- sets of $10.2 billion, to the net loss reported on the income statement to convert the net loss from the accrual basis to the cash basis. For example, depreciation is an expense in determining net income, but it does not result in a cash outflow. Thus, depreciation is added back to the net loss in order to determine cash flow from operations. The cash from operating activities detail is provided as follows for class discus- sion: TimeWarner Inc. Cash Flows from Operating Activities (selected from Statement of Cash Flows) (in millions) OPERATING ACTIVITIES Net income (loss). ................................................................................. $(4,921) Adjustments for noncash and nonoperating items: Depreciation and amortization. ...................................................... 9,203 Amortization of film costs. ............................................................. 2,380 Loss on writedown of investments. .............................................. 2,537
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This note was uploaded on 05/03/2008 for the course ACCT 1B taught by Professor Llorente during the Spring '08 term at CSU Fullerton.

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Chapter 14 - CHAPTER 14 STATEMENT OF CASH FLOWS CLASS...

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