Chapter 4 - Cambridge Business Publishers, 2011 Solutions...

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Unformatted text preview: Cambridge Business Publishers, 2011 Solutions Manual, Chapter 4 4-1 Chapter 4 Reporting and Analyzing Cash Flows Learning Objectives coverage by question Mini-exercises Exercises Problems Cases LO1 Explain the purpose of the statement of cash flows and how it complements the income statement and balance sheet. 21, 22, 24, 25 34, 36, 38, 39 44, 47, 51, 55 57, 58, 59 LO2 Construct and explain the statement of cash flows. 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31 34, 35, 36, 37, 38, 39, 40, 41, 42, 43 44, 45, 46, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56 57, 58 LO3 Compute and interpret ratios that reflect a companys liquidity and solvency. 32, 33, 35, 43 46, 48, 50, 52, 56 59 LO4 Appendix 4A: Use a spreadsheet to construct the statement of cash flows. 56 Cambridge Business Publishers, 2011 Financial Accounting, 3rd Edition 4-2 QUESTIONS Q4-1 Cash equivalents are short-term, highly liquid investments that firms acquire with temporarily idle cash to earn interest on these excess funds. To qualify as a cash equivalent, an investment must (1) be easily convertible into a known cash amount and (2) be close enough to maturity so that its market value is not sensitive to interest rate changes (generally, investments with initial maturities of three months or less). Three examples of cash equivalents are Treasury bills, commercial paper, and money market funds. Q4-2 Cash equivalents are included with cash in a statement of cash flows because the purchase and sale of such investments are considered to be part of a firm's overall management of cash rather than a source or use of cash. Similarly, as statement users evaluate cash flows, it may matter very little to them whether the cash is on hand, deposited in a bank account, or invested in cash equivalents. Q4-3 Operating activities Inflow: Cash received from customers Outflow: Cash paid to suppliers Investing activities Inflow: Sale of equipment Outflow: Purchase of stocks and bonds Financing activities Inflow: Issuance of common stock Outflow: Payment of dividends Q4-4 a. Investing; outflow. b. Investing; inflow. c. Financing; outflow. d. Operating (direct method, not shown separately under indirect method); inflow. e. Financing; inflow. f. Operating (direct method, not shown separately under indirect method); inflow. g. Operating (direct method, not shown separately under indirect method); outflow. h. Operating (direct method, not shown separately under indirect method); inflow. Q4-5 This is a noncash investing and financing event. It must be reported in a supplementary schedule to the statement of cash flows. Cambridge Business Publishers, 2011 Solutions Manual, Chapter 4 4-3 Q4-6 Noncash investing and financing transactions are disclosed as supplemental information to a statement of cash flows because a secondary objective of cash flow reporting is to present information about investing and financing activities. Noncash investing and financing transactions, generally, affect activities....
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Chapter 4 - Cambridge Business Publishers, 2011 Solutions...

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