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Chapter 14: Q-14-1RQ (page 758)
Question: What does the statement of cash flows report?
Answer
The statement of cash flows reportscash received and cash utilized for payments.
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Question: Describing the purposes of the statement of cash flows Financial statements all have a goal.
The statement of cash flows does as well. Describe how the statement of cash flows helps investors and creditors perform each of the following functions:
a. Predict future cash flows.
b. Evaluate management decisions.
c. Predict the ability to make debt payments to lenders and pay dividends to stockholders.
Question: Describe the three basic types of cash flow activities.
Computing operating activities cash flow—indirect method
The records of Vintage Color Engraving reveal the following:
Net income \( 36,000
Depreciation expense \) 5,000
Sales revenue 53,000
Decrease in current liabilities 19,000
Loss on sale of land 4,000
Increase in current assets other than cash 10,000
Acquisition of land 35,000
Compute cash flows from operating activities by the indirect method for year ended December 31, 2018.
The 2018 income statement and comparative balance sheet of Sweet Valley, Inc. follow:
Additionally, Sweet Valley purchased land of \(20,900 by financing it 100% with long-term notes payable during 2018. During the year, there were no sales of land, no retirements of stock, and no treasury stock transactions. A plant asset was disposed of for \)0. The cost and the accumulated depreciation of the disposed asset was $13,240. Plant asset was acquired for cash.
Requirements
1. Prepare the 2018 statement of cash flows, formatting operating activities by the indirect method.
2. How will what you learned in this problem help you evaluate an investment?
Using a spreadsheet to complete the statement of cash flows— indirect method
Companies can use a spreadsheet to complete the statement of cash flows. Each item that follows is recorded in the transaction analysis columns of the spreadsheet.
Identify each as being recorded by a Debit or Credit in the statement of cash flows section of the spreadsheet
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