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Chapter 14: Q14-10RQ (page 769)

Question: If current liabilities increase, what is the effect on cash? What about a decrease in current liabilities?

Short Answer

Expert verified

Answer

If current liabilities increase it is an increased adjustment to the net income. If there is a decrease in current liabilities it causes a decreasing adjustment from the net income.

Step by step solution

01

If current liabilities increase it is an increased adjustment to the net income

An increase in current liabilities means cash is not yet paid only expenses are recorded. Therefore, an increase in current liabilities causes an increased adjustment to the income.

02

If current liabilities decrease it is a decreasing adjustment from the net income

Decrease in current liabilities is the opposite of an increase in current liabilitiesand hence it causes a decreasing adjustment to the net income.

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Most popular questions from this chapter

Question: Computing investing and financing cash flows Preston Media Corporation had the following income statement and balance sheet for 2018:

PRESTON MEDIA CORPORATION

Income Statement

Year Ended December 31, 2018

Sales Revenue \(80,000

Depreciation Expense––Plant Assets \)11,000

Other Expenses \(50,000

Net Income \)19,000

Requirements

1. Compute the acquisition of plant assets for Preston Media Corporation during 2018. The business sold no plant assets during the year. Assume the company paid cash for the acquisition of plant assets.

2. Compute the payment of a long-term note payable. During the year, the business issued a $4,400 note payable.

Preparing the statement of cash flows—direct method Use the Rolling Hills, Inc. data from Problem P14-34A. Requirements

1. Prepare the 2018 statement of cash flows by the direct method.

2. How will what you learned in this problem help you evaluate an investment?

Question: Computing cash flows from operating activities—indirect method

DVR Equipment, Inc. reported the following data for 2018:

Income Statement:

Net Income $ 43,000

Depreciation Expense 6,000

Balance Sheet:

Increase in Accounts Receivable 6,000

Decrease in Accounts Payable 2,000

Compute DVR’s net cash provided by operating activities—indirect method.

Identify each item as operating (O), investing (I), financing (F), or non-cash (N).

1. Cash receipt from the sale of equipment

2. Cash payment for salaries

3. Cash receipt from the collection of long-term notes receivable

4. Purchase of equipment in exchange for notes payable

5. Cash receipt from the issuance of common stock

Question: Preparing the statement of cash flows—direct method The income statement and additional data of Value Corporation follow:

  1. Collections from customers are \(13,000 more than sales.
  2. Dividend revenue, interest expense, and income tax expense equal their cash amounts.
  3. Payments to suppliers are the sum of cost of goods sold plus advertising expense.
  4. Payments to employees are \)3,000 more than salaries expense.
  5. Cash payment for the acquisition of plant assets is \(102,000.
  6. Cash receipts from sale of land total \)29,000.
  7. Cash receipts from issuance of common stock total \(38,000.
  8. Payment of long-term notes payable is \)10,000.
  9. Payment of dividends is \(9,000.
  10. Cash balance at June 30, 2017, was \)21,000; at June 30, 2018, it was $43,000.

Prepare Value Corporation’s statement of cash flows for the year ended June 30, 2018. Use the direct method.
See all solutions

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