Net income includes gain 210 gain on sale 10 other

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Net Income (includes gain) 210 - Gain on sale - 10 +/- Other Adjustments XXX = Cash Flow from Operations XXX Losses from sale are ADDED back to net income in cash flow from operations because the sale of PPE at a loss does not reduce cash flow from operations. The sales price of 100 is included in cash flow from investing because that is the amount of cash received. Sale of PPE also affects the Accumulated Depreciation account because the accumulated depreciation of the asset that is sold must be removed from the balance sheet. The following equation can be used to analyze the Accumulated Depreciation account: ∆ - Accum Deprec (neg balance because contra asset) = - Dep Expense (makes it more negative) + Accum Deprec of PPE Sold (removed from account so added to offset) With an intangible asset the amortization is netted against the asset itself ∆ Intangible = Purchase (cash outflow) – Book value of Intangible Sold – Amortization Expense Cash Flow from Financing - only 1 format “Firms finance with debt and equity” so elements of the financing section are determined by explaining changes in common stock, additional paid-in-capital, interest-bearing debt, and retained earnings accounts. Logic Add cash received from issuance of stock, which is related to an increase in contributed capital. Add cash received from borrowing money (e.g., issuing bonds payable), which is related to an increase in financing liabilities. Subtract cash paid for repurchasing treasury stock, which is related to a decrease in contributed capital. Subtract cash paid for reducing debts, which is related to a decrease in financing liabilities. Subtract cash paid for dividends, which is related to a decrease in retained earnings. 2
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Riffe - ACCT 6201 – Session 10 – Fall 2018 Noncash financing transactions do not show up on the statement of cash flows. For example, if debt is converted into common stock, this transaction doesn't show up on the statement, but it may be discussed in the notes. If a liability account is increased by one event and decreased by another, then the following equation may help with the analysis of the change in the account. ∆ Liability = Borrow (Cash inflow) – Book Value of Amount Paid Off Changes in market interest rates or default risk can lead to paying more or less than book value of debt when paid off early.
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