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Chapter 23: Q4Q (page 1371)

What are the major sources of cash (inflows) in a statement of cash flows? What are the major uses (outflows) of cash?

Short Answer

Expert verified

Major sources of cash in a statement of cash flows are cash from operating activities, issuing of shares, proceeds by borrowing, selling of fixed assets.

The major uses (outflows) of cash includes Payment to suppliers, purchase of fixed assets, payment of a cash dividend, repayment of debts or loans.

Step by step solution

01

Meaning of Cash flows Statement

The cash flow statement gives information on changes in a company's Cash Equivalents and Cash throughout an accounting period. This adjustment consolidates the interests in running, finance, and investing.

02

Explanation on major sources of cash (inflows) in a statement of cash flows and major uses (outflows) of cash.

Cash from operating exercises, the issuing of obligations, the issuance of capital stock, a lot of investments, and the sale of real estate, machinery, and equipment are many sources of cash in a statement of cash flows. These are the some of the items which indicates the majority of cash inflows. Although there are more transactions.

Cash can be utilized for various things, such as operational costs, dividend payments in cash, debt repayment, investing, stock redemption, and acquiring real bequest, apparatus, and equipment.These transactions which indicates the majority of cash outflows of the company. Also there are more transactions, apart from these.

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Most popular questions from this chapter

Question: Your roommate is puzzled. During the last year, the company in which she is a stockholder reported a net loss of \(675,000, yet its cash increased \)321,000 during the same period of time. Explain to your roommate how this situation could occur.

Comparative balance sheet accounts of Sharpe Company are presented below.

SHARPE COMPANY

COMPARATIVE BALANCE SHEET ACCOUNTS

AS OF DECEMBER 31

Debit Balances 2017 2016

Cash \( 70,000 \) 51,000

Accounts Receivable 155,000 130,000

Inventory 75,000 61,000

Debt investments (available-for-sale) 55,000 85,000

Equipment 70,000 48,000

Buildings 145,000 145,000

Land 40,000 25,000

Totals \(610,000 \)545,000

Credit Balances

Allowance for Doubtful Accounts \( 10,000 \) 8,000

Accumulated Depreciation—Equipment 21,000 14,000

Accumulated Depreciation—Buildings 37,000 28,000

Accounts Payable 66,000 60,000

Income Taxes Payable 12,000 10,000

Long-Term Notes Payable 62,000 70,000

Common Stock 310,000 260,000

Retained Earnings 92,000 95,000

Totals \(610,000 \)545,000

Additional data:

1. Equipment that cost \(10,000 and was 60% depreciated was sold in 2017.

2. Cash dividends were declared and paid during the year.

3. Common stock was issued in exchange for land.

4. Debt investments that cost \)35,000 were sold during the year.

5. There were no write-offs of uncollectible accounts during the year.

Sharpe’s 2017 income statement is as follows.

Sales revenue \(950,000

Less: Cost of goods sold 600,000

Gross profit 350,000

Less: Operating expenses (includes depreciation expense and bad debt expense) 250,000

Income from operations 100,000

Other revenues and expenses Gain on sale of investments \)15,000

Loss on sale of equipment (3,000) 12,000

Income before taxes 112,000

Income taxes 45,000

Net income $ 67,000

Instructions

(a) Compute net cash provided by operating activities under the direct method.

(b) Prepare a statement of cash flows using the indirect method.

Accounting, Analysis, and Principles The income statement for the year ended December 31, 2017, for Laskowski Manufacturing Company contains the following condensed information.

LASKOWSKI CO.

INCOME STATEMENT


Revenues

\(6,583,000

Operating expenses (excluding depreciation) \)4,920,000

Depreciation expense 880,000

5,800,000

Income before income tax

783,000

Income tax expense

353,000

Net income

\( 430,000

Included in operating expenses is a \)24,000 loss resulting from the sale of machinery for \(270,000 cash. The company purchased machinery at the cost of \)750,000.

Laskowski reports the following balances on its comparative balance sheets on December 31.


LASKOWSKI CO.

COMPARATIVE BALANCE SHEETS (PARTIAL)

2017

2016

Cash

\(672,000

\)130,000

Accounts receivable

775,000

610,000

Inventory

834,000

867,000

Accounts payable

521,000

501,000

Income tax expense of \(353,000 represents the amount paid in 2017. Dividends declared and paid in 2017 totalled \)200,000.

Accounting

Prepare the statement of cash flows using the indirect method.

Analysis

Laskowski has an aggressive growth plan, which will require significant investments in plant and equipment over the next several years. Preliminary plans call for an investment of over $500,000 in the next year. Compute Laskowski’s free cash flow (from Chapter 5) and use it to evaluate the investment plans with the use of only internally generated funds.

Principles

How does the statement of cash flows contribute to achieving the objective of financial reporting?

Briefly describe some of the similarities and differences between GAAP and IFRS with respect to cash flow reporting.

Jobim Inc. had the following condensed balance sheet at the end of operations for 2016.

JOBIM INC.

BALANCE SHEET

DECEMBER 31, 2016

Cash \( 8,500 Current liabilities \) 15,000

Current assets other than cash 29,000 Long-term notes payable 25,500

Equity investments 20,000 Bonds payable 25,000

Plant assets (net) 67,500 Common stock 75,000

Land 40,000 Retained earnings 24,500

\(165,000 \)165,000

During 2017, the following occurred.

1. A tract of land was purchased for \(9,000.

2. Bonds payable in the amount of \)15,000 were redeemed at par.

3. An additional \(10,000 in common stock was issued at par.

4. Dividends totaling \)9,375 were paid to stockholders.

5. Net income was \(35,250 after allowing depreciation of \)13,500.

6. Land was purchased through the issuance of \(22,500 in bonds.

7. Jobim Inc. sold part of its investment portfolio for \)12,875. This transaction resulted in a gain of $2,000 for the company. No unrealized gains or losses were recorded on these investments in 2017.

8. Both current assets (other than cash) and current liabilities remained at the same amount.

Instructions

(a) Prepare a statement of cash flows for 2017 using the indirect method.

(b) Prepare the condensed balance sheet for Jobim Inc. as it would appear at December 31, 2017
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