Ch05 - Chapter 5 Reporting and Interpreting Cash Flows...

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Chapter 5 Reporting and Interpreting Cash Flows EXERCISES E5–2 1. O Income tax expense Cash 2. + F Cash Common shares 3. O Prepaid rent Cash 4. NE Expense Prepaid expense 5. I Plant and equipment Cash 6. + F Cash Long-term debt 7. + O Cash Accounts receivable 8. NE Inventory Accounts payable 9. O Salary expense Cash 10. NE Plant and equipment Note payable E5–8 Req. 1 Cash flows from operating activities—indirect method Net income. ............................................................................................... $4,078 Add (deduct) items not affecting cash: Depreciation and amortization. .............................................................. 1,308
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Increase in accounts receivable. ............................................................ (272) Increase in inventory. ............................................................................. (132) Decrease in prepaid expenses. .............................................................. 56 Increase in accounts payable. ................................................................ 220 Increase in taxes payable. ..................................................................... 609 Decrease in other current liabilities. ....................................................... (38) Cash flows from operating activities. .................................................. $5,829 Note: The cash dividend paid and repurchase of shares are not related to operating activities and do not affect cash flows from operating activities. The decrease in other current liabilities was not explained in the PepsiCo annual report, so its proper inclusion in this computation is a judgment call. If it was not related to operations, it should not be included in the previous computation. In reality, PepsiCo included the decrease on its cash flow statement. Req. 2 Quality of income ratio = Cash flow from operations = $5,829 =1.43 Net income $4,078 Req. 3 The main reasons the quality of income ratio was significantly greater than one are the large non-cash amortization charges ($1,308) and the net increase in accruals ($443) during the period, which reduced net income. E5–10 Req. 1 The investing and financing sections of the cash flow statement for Sobeys Inc.: Cash flows from investing activities: Purchase of property, plant and equipment ...................... $(424.2) Sale of discontinued operations .......................................... 412.7 Net cash flows from investing activities ........................ $(11.5) Cash flows from financing activities: Proceeds from issuance of shares ...................................... 8.6 Repayment on long term debt ............................................. (147.5 ) Payment of dividends ............................................................ ( 15.8 ) Net cash flows from financing activities ........................ (154.7) Req. 2
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Sobeys Inc.'s management is using the cash proceeds from sale of discontinued operations for two purposes. First, it is using the funds to finance the Company’s
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This note was uploaded on 12/09/2009 for the course ACCO comm 217 taught by Professor Mroz during the Fall '09 term at Concordia Canada.

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Ch05 - Chapter 5 Reporting and Interpreting Cash Flows...

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