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Chapter 23: Question 2Q (page 1371)

Of what use is the statement of cash flows?

Short Answer

Expert verified

A cash flow statement is one of the financial statements used to support investors in making investment decisions. Hence, it helps to provide them with useful information.

Reporting information in the statement of cash flowscontributes to meeting the purpose of financial reporting.

Step by step solution

01

Meaning of Cash Transactions

Business transactions that are typically performed using cash in the course of business refer to cash transactions such aspurchasing inventory using cash and cash dividends.

02

Uses of the statement of cash flows

  • The primary objective is to identify the entity’sability to generate future cash flows.
  • It determines the entity’sability to pay dividends and meet obligations.
  • It helps to determine reasons for the difference between net income andnet cash flow from operating activities.
  • It classifies thecash and noncash investing and financing transactions during the period.

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Most popular questions from this chapter

The following data are taken from the records of Alee Company

December 31, December 31,

2017 2016

Cash \( 15,000 \) 8,000

Current assets other than cash 85,000 60,000

Long-term debt investments 10,000 53,000

Plant assets 335,000 215,000

\(445,000 \)336,000

December 31, December 31,

2017 2016

Accumulated depreciation \( 20,000 \) 40,000

Current liabilities 40,000 22,000

Bonds payable 75,000 –0–

Common stock 254,000 254,000

Retained earnings 56,000 20,000

\(445,000 \)336,000

Additional information:

1. Held-to-maturity securities carried at a cost of \(43,000 on December 31, 2016, were sold in 2017 for \)34,000. The loss (not unusual) was incorrectly charged directly to Retained Earnings.

2. Plant assets that cost \(50,000 and were 80% depreciated were sold during 2017 for \)8,000. The loss was incorrectly charged directly to Retained Earnings.

3. Net income as reported on the income statement for the year was \(57,000.

4. Dividends paid amounted to \)10,000.

5. Depreciation charged for the year was $20,000.

Instructions

Prepare a statement of cash flows for the year 2017 using the indirect method

Identify and explain the major steps involved in preparing the statement of cash flows.

Data for Brecker Inc. are presented in E23-13. Instructions Prepare a statement of cash flows using the indirect method.

Broussard Company reported net income of \(3.5 million in 2017. Depreciation for the year was \)520,000, accounts receivable increased \(500,000, and accounts payable increased \)300,000. Compute net cash flow from operating activities using the indirect method.

At January 1, 2017, Eikenberry Inc. had accounts receivable of \(72,000. At December 31, 2017, accounts receivable is \)54,000. Sales revenue for 2017 total $420,000. Compute Eikenberry’s 2017 cash receipts from customers.
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