Chapter 23: Q21Q (page 1372)
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?
Answer
Yes, the worksheet is desirablefor preparing the statement of cash flow because it provides relevant information in a classified manner.
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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 Ashley’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 Ashley’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 Ashley’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:
In 2017, Wild Corporation reported a net loss of \(70,000. Wild’s only net income adjustments were depreciation expense \)81,000, and increase in accounts receivable $8,100. Compute Wild’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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