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Chapter 12: Q20QS (page 570)

Answer each of the following questions related to international accounting standards.

1. Which method, indirect or direct, is acceptable for reporting operating cash flows under IFRS?

2. For each of the following four cash flows, identify whether it is reported under the operating, investing, or financing section (or some combination) within the indirect format of the statement of cash flows reported under IFRS and under U.S. GAAP.

Cash Flow Source

US GAAP Reporting

IFRS Reporting

a

Interest paid

b

Dividends paid

c

Interest received

d

Dividends received

Short Answer

Expert verified
  1. Indirect method is acceptable.
  2. Under US GAAP and IFRS reporting, interest paid, interest received, and dividend received are reported as operating activities.

Step by step solution

01

Meaning of IFRS

IFRS refers to a collection of globally agreed accounting and financial reporting rules for preparing and presenting financial statements. Ensures that accounting practices are consistent, resulting in comparable financial records among various reporting substances worldwide

02

(1) Method acceptable for reporting operating cash flows under IFRS?

In both operating cash flows, the direct method is encouraged to be used but the indirect method is acceptable, under IFRS

03

(2) Reporting of cash flow

Cash Flow Source

US GAAP Reporting

IFRS Reporting

a

Interest paid

Operating

Operating or financing

b

Dividends paid

Financing

Operating or financing

c

Interest received

Operating

Operating or investing

d

Dividends received

Operating

Operating or investing

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Most popular questions from this chapter

Describe the indirect method of reporting cash flows from operating activities.

Use the following information about the cash flows of Ferron Company to prepare a complete statement of cash flows (direct method) for the year ended December 31, 2017. Use a note disclosure for any noncash investing and financing activities.

Cash and cash equivalent balance, December 31, 2016

$40,000

Cash and cash equivalent balance, December 31, 2017

148,000

Cash received as interest

3,500

Cash paid for salaries

76,500

Bonds payable retired by issuing common stock (no gains or loss on retirement)

185,500

Cash paid to retire long-term note payable

100,000

Cash received from sale of equipment

60,250

Cash received in exchange of six month note payable

35,000

Land purchased by issuing long-term note payable

105,250

Cash paid for store equipment

24,750

Cash dividend paid

10,000

Cash paid for other expenses

20,000

Cash received from customers

495,000

Cash paid for inventory

254,500

Use the following information to determine this company’s cash flows from investing activities.

  1. Equipment with a book value of \(65,300 and an original cost of \)133,000 was sold at a loss of \(14,000.
  2. Paid \)89,000 cash for a new truck.
  3. Sold land costing \(154,000 for \)198,000 cash, yielding a gain of \(44,000.
  4. Long-term investments in stock were sold for \)60,800 cash, yielding a gain of $4,150.

Refer to Golden Corporation’s financial statements and related information in Problem 12-6A.

Required

Prepare a complete statement of cash flows; report its cash flows from operating activities according to the direct method.

CRUZ, INC.

Income Statement

For Year Ended December 31, 2017

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \(488,000

Cost of goods sold . . . . . . . . . . . . . . . . . . 314,000

Gross profit . . . . . . . . . . . . . . . . . . . . . . . 174,000

Operating expenses

Depreciation expense . . . . . . . . . . . . . \)37,600

Other expenses . . . . . . . . . . . . . . . . . . 89,100 126,700

Income before taxes . . . . . . . . . . . . . . . . 47,300

Income taxes expense . . . . . . . . . . . . . . . 17,300

Net income . . . . . . . . . . . . . . . . . . . . . . . . \( 30,000

CRUZ, INC.

Comparative Balance Sheets

December 31, 2017

2017 2016

Assets

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \) 94,800 \( 24,000

Accounts receivable, net . . . . . . . . . . . . . . . . . . . 41,000 51,000

Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,800 95,800

Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . 5,400 4,200

Total current assets . . . . . . . . . . . . . . . . . . . . . . . 227,000 175,000

Furniture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109,000 119,000

Accum. depreciation—Furniture . . . . . . . . . . . . . (17,000) (9,000)

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \)319,000 \(285,000

Liabilities and Equity

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . \) 15,000 \( 21,000

Wages payable . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000 5,000

Income taxes payable . . . . . . . . . . . . . . . . . . . . . 1,400 2,600

Total current liabilities . . . . . . . . . . . . . . . . . . . . . 25,400 28,600

Notes payable (long-term) . . . . . . . . . . . . . . . . . 29,000 69,000

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,400 97,600

Equity Common stock, \)5 par value . . . . . . . . . . . . . . . 229,000 179,000

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 35,600 8,400

Total liabilities and equity . . . . . . . . . . . . . . . . . . \(319,000 \)285,000

Required Use the indirect method to prepare the cash provided or used from operating activities section only of the statement of cash flows for this company.
See all solutions

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