Chapter 11 homework solution - Solutions to Questions and...

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Solutions to Questions and Multiple Choice Questions 1. 2. The balance sheet and the income statement are required to prepare the statement of cash flows. 3. 4. 5. Through computerization, modern technology makes it easy to prepare a statement of cash flows. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. Interest collected or paid is classified as a cash flow from operating activities. The purpose of the statement of cash flows is to provide information about the sources and uses of cash (cash inflows and outflows) for a specific period of time. The three categories of cash flows that explain the total change in cash for the year are the cash from operating activities, the cash from investing activities and the cash from financing activities. The statement of cash flows is important because it presents financial information on a cash, rather than an accrual, basis. The two traditional approaches for preparing and presenting the statement of cash flows are the indirect method and the direct method. The difference is in the way that the operating activities section of the statement of cash flows is prepared. Sales of goods and services result in operating cash inflows. Payments for goods and services (to employees and creditors) result in operating cash outflows. Examples of operating cash flows include payment of salaries, payments on accounts payable and cash sales to customers. Sales of long-term assets such as property, plant and equipment result in investing cash inflows. Purchases of these long-term assets result in investing cash outflows. Examples of investing cash flows include the sale of equipment, the sale of land and the purchase of a building. Financing cash inflows result from the issuance of stock or debt. Financing cash outflows result from the repayment of debt, the payment of cash dividends, or the purchase of treasury stock. Depreciation expense is added back to net income as a non-cash expense in the operating section when using the indirect method. Depreciation expense is ignored in the direct method--it has no effect. Cash collected from customers is determined by examining Sales Revenue and the change in the Accounts Receivable balance. This is an operating cash inflow. The general ledger accounts that should be examined to determine the proceeds from the sale of a building would be the Building and the related Accumulated Depreciation account as well as the Gain or Loss on the Sale of Building account. This is an investing cash inflow. Cash paid to vendors is determined by examining the Cost of Goods Sold, the change in Inventory and the change in Accounts Payable. This is an operating cash outflow. The Retained Earnings account is analyzed to determine cash paid for dividends. This is a financing cash outflow.
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16. 17.
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Chapter 11 homework solution - Solutions to Questions and...

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