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Question: Why is it desirable to use a worksheet when preparing a statement of cash flows? Is a worksheet required to prepare a statement of cash flows?

Short Answer

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Answer

Yes, the worksheet is desirablefor preparing the statement of cash flow because it provides relevant information in a classified manner.

Step by step solution

01

Definition of Cashflow Statement

The statement prepared by the business entity providing the information regarding all the transactions that increase or decrease the cash balance is known as the cash flow statement. Such a statement is prepared in three sections.

02

Use of worksheet in preparation of the statement of cash flows

The worksheet is desirable in the preparation of the statement of the cash flow because it provides a proper classification of all the data that will be reported in the statement of the cash flow. Although it is an option it provides aids in the preparation of the cash flow.

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Most popular questions from this chapter


Question: (SCF Theory and Analysis of Transactions) Ashley Company is a young and growing producer of electronic measuring instruments and technical equipment. You have been retained by Ashley to advise it in the preparation of a statement of cash flows using the indirect method. For the fiscal year ended October 31, 2017, you have obtained the following information concerning certain events and transactions of Ashley.

1. The amount of reported earnings for the fiscal year was \(700,000, which included a deduction for a loss of \)110,000 (see item 5 below).

2. Depreciation expense of \(315,000 was included in the income statement.

3. Uncollectible accounts receivable of \)40,000 were written off against the allowance for doubtful accounts. Also, \(51,000 of bad debt expense was included in determining income for the fiscal year, and the same amount was added to the allowance for doubtful accounts.

4. A gain of \)6,000 was realized on the sale of a machine. It originally cost \(75,000, of which \)30,000 was undepreciated on the date of sale.

5. On April 1, 2017, lightning caused an uninsured building loss of \(110,000 (\)180,000 loss, less reduction in income taxes of \(70,000). This loss was included in determining income as indicated in item 1 above.

6. On July 3, 2017, building and land were purchased for \)700,000. Ashley gave in payment \(75,000 cash, \)200,000 market price of its unissued common stock, and signed a \(425,000 mortgage note payable.

7. On August 3, 2017, \)800,000 face value of Ashleyโ€™s 10% convertible debentures was converted into $150,000 par value of its common stock. The bonds were originally issued at face value.

Instructions

Explain whether each of the seven numbered items above is a cash inflow or outflow, and explain how it should be disclosed in Ashleyโ€™s statement of cash flows for the fiscal year ended October 31, 2017. If any item is neither an inflow nor an outflow of cash, explain why it is not, and indicate the disclosure, if any, that should be made of the item in Ashleyโ€™s statement of cash flows for the fiscal year ended October 31, 2017.

For purposes of the statement of cash flows, under IFRS interest paid is treated as:

  1. an operating activity in all cases.
  2. an investing or operating activity, depending on use of the borrowed funds.
  3. either a financing or investing activity.
  4. either an operating or financing activity, but treated consistently from period to period.

In 2017, Wild Corporation reported a net loss of \(70,000. Wildโ€™s only net income adjustments were depreciation expense \)81,000, and increase in accounts receivable $8,100. Compute Wildโ€™s net cash provided (used) by operating activities.

The income statement of Vince Gill Company is shown below.

VINCE GILL COMPANY

INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2017

Sales revenue \(6,900,000

Cost of goods sold

Beginning inventory \)1,900,000

Purchases 4,400,000

Goods available for sale 6,300,000

Ending inventory 1,600,000

Cost of goods sold 4,700,000

Gross profit 2,200,000

Operating expenses

Selling expenses 450,000

Administrative expenses 700,000 1,150,000

Net income \(1,050,000

Additional information:

1. Accounts receivable decreased \)360,000 during the year.

2. Prepaid expenses increased \(170,000 during the year.

3. Accounts payable to suppliers of merchandise decreased \)275,000 during the year.

4. Accrued expenses payable decreased \(100,000 during the year.

5. Administrative expenses include depreciation expense of \)60,000.

Instructions

Prepare the operating activities section of the statement of cash flows for the year ended December 31, 2017, for Vince Gill Company, using the indirect method.

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

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