Ch 23 HWq - Chapter 23 Homework Questions Q1. What is the...

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Chapter 23 Homework Questions Q1. What is the purpose of the SCF? What information does it provide? The main purpose of the statement of cash flows is to show the change in cash of a company from one period to the next. The statement of cash flows provides information about a company’s operating, financing, and investing activities. More precisely, it provides information about the company’s cash inflows and outflows for the period. Q3. Differentiate between investing activities, financing activities, and operating activities. Investing activities generally involve noncurrent assets and include (1) lending money and collecting on those loans and (2) acquiring and disposing of investments and productive long-lived assets. Financing activities, on the other hand, involve liability and owners’ equity items and include (1) obtaining cash from creditors and repaying the amounts borrowed and (2) obtaining capital from owners and providing them with a return on their investment. Operating activities include all transactions and events that are not investing and financing activities. Operating activities involve the cash effects of transactions that enter into the determination of net income. Q4. What are the major sources of cash inflows and outflows in the SCF? Examples of sources of cash in a statement of cash flows include cash from operating activities, issuance of debt, issuance of capital stock, sale of investments, and the sale of property, plant, and equipment. Examples of uses of cash include cash used in operating activities,
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payment of cash dividends, redemption of debt, purchase of investments, redemption of capital stock, and the purchase of property, plant, and equipment. Q7. From what sources is the SCF prepared? Comparative balance sheets, a current income statement, and certain transaction data all provide information necessary for preparation of the statement of cash flows. Comparative balance sheets indicate how assets, liabilities, and equities have changed during the period. A current income statement provides information about the amount of cash provided from operating activities. Certain transactions provide additional detailed information needed to determine whether cash was provided or used during the period. Q9. Differentiate between the direct and indirect methods. Net cash flow from operating activities under the direct method is the difference between cash revenues and cash expenses. The direct method adjusts the revenues and expenses directly to reflect the cash basis. This results in cash net income, which is equal to “net cash flow from operating activities.” The indirect method involves adjusting accrual net income. This is done by starting with accrual net income and adding or subtracting
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This note was uploaded on 01/13/2011 for the course ACT AC 557 taught by Professor George during the Spring '10 term at DeVry Chicago.

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Ch 23 HWq - Chapter 23 Homework Questions Q1. What is the...

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