Ch 10 HW FIN4345

Ch 10 HW FIN4345 - Chapter 10 Statement of Cash Flows...

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302 Chapter 10 Statement of Cash Flows QUESTIONS 10- 1. The basic justification for a statement of cash flows is that the balance sheet and the income statement do not adequately indicate changes in cash. The balance sheet indicates the position of the firm at a particular point of time. Some idea of how the changes in cash occurred can be obtained by comparing consecutive balance sheets, but only a limited amount of information can be obtained this way. The income statement shows the income or loss for a period of time, but it does not indicate cash generated by operations. Neither the balance sheet nor the income statement summarize the cash flows related to investing or financing activities. Neither presents such items as sale of stock, retirement of bonds, purchase of machinery, or sale of a subsidiary. Thus, there is a need to summarize the cash flows in another statement. 10- 2. 1. Cash flows from operating activities 2. Cash flows from investing activities 3. Cash flows from financing activities 10- 3. The cash inflows (outflows) will be determined by analyzing all balance sheet accounts other than the cash and cash equivalent accounts. The cash inflows will be generated from the following accounts: 1. Decreases in assets 2. Increases in liabilities 3. Increases in stockholders' equity The cash outflows will be generated from the following accounts. 1. Increases in assets 2. Decreases in liabilities 3. Decreases in stockholders' equity 10- 4. This statement is not correct. The land account may contain an explanation of a source and use of cash. 10- 5. 1. Visual method 2. T-account method 3. Worksheet method
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303 10- 6. For the direct approach, the revenue and expense accounts on the income statement are presented on a cash basis. For this purpose, the accrual basis income statement is adjusted to a cash basis. For the indirect approach, start with net income and add back or deduct adjustments necessary to change the income on an accrual basis to income on a cash basis after eliminating gains or losses that relate to investing or financing activities. 10- 7. Items have been included in income that did not provide cash and items have been deducted from income that did not use cash. Net income must be converted to a cash-from-operations figure for the statement of cash flows. 10- 8. Cash and short-term highly liquid investments. This would include cash on hand, cash on deposit, and investments in short-term, highly liquid investments. 10- 9. The purpose of the statement of cash flows is to provide information on why the cash position of the company changed during the period. 10-10. These transactions represent significant investing and/or financing activities, and one purpose of the statement of cash flows is to present investing and financing activities. 10-11. No.
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This note was uploaded on 08/28/2011 for the course FIN 4345 taught by Professor Moysidis during the Fall '10 term at FIU.

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Ch 10 HW FIN4345 - Chapter 10 Statement of Cash Flows...

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