ACCT 1209 Chapter Notes - Chapter 12: Cash Flow, Net Income, Income Statement

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redmanatee539

16 Dec 2016

School

Northeastern University

Department

Accounting

Course

ACCT 1209

Professor

Ganesh Krishnamoorthy

For unlimited access to Textbook Notes, a Class+ subscription is required.

Chapter 12: Statement of Cash Flows

Classifications of the Statement of Cash Flows

Operating Activities

Cash inflows and outflows directly related to earnings from normal operations.

Investing Activities

Cash inflows and outflows related to the acquisition or sale of productive facilities and

investments in the securities of other companies.

Financing Activities

Cash inflows and outflows related to external sources of financing (owners and creditors) for

the enterprise.

Cash Inflows

Cash Outflows

Operating Activities

• Cash received from revenues

• Cash paid for expenses

Investing Activities

• Sale of operational assets

• Sale of investments

• Collections of loans

• Purchase of operational assets

• Purchase of investments

• Loans to others

Financing Activities

• Issuance of stock

• Issuance of bonds and notes

• Payment of dividends

• Repurchase of stock

• Repayment of debt

Cash Flows from Operating Activities

Inflows

Cash received from:

⚫ Customers

⚫ Dividends and interest on investments

Outflows

Cash paid for:

⚫ Purchase of goods for resale and services (electricity, etc.)

⚫ Salaries and wages

⚫ Income taxes

⚫ Interest on liabilities

Cash Flows from Investing Activities

Inflows

Cash received from:

⚫ Sale or disposal of property, plant and equipment

⚫ Sale or maturity of investments in securities

Outflows

Cash paid for:

⚫ Purchase of property, plant and equipment

⚫ Purchase of investments in securities

Cash Flows from Financing Activities

Inflows

Cash received from:

⚫ Borrowings on notes, mortgages, bonds, etc. from creditors

⚫ Issuing stock to owners

Outflows

Cash paid for:

⚫ Repayment of principal to creditors (excluding interest, which is an operating activity)

⚫ Repurchasing stock from owners

⚫ Dividends to owners

Direct Method vs. Indirect Method

Direct Method: Reports the cash effects of each operating activity

Indirect Method: Starts with accrual net income and converts to cash basis

*Note that no matter which format is used, the same amount of net cash flows from operating activities is generated.

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Document Summary

Cash inflows and outflows directly related to earnings from normal operations. Cash inflows and outflows related to the acquisition or sale of productive facilities and investments in the securities of other companies. Cash inflows and outflows related to external sources of financing (owners and creditors) for the enterprise. Cash outflows: cash paid for expenses, purchase of operational assets, purchase of investments, loans to others, payment of dividends, repurchase of stock, repayment of debt. Investing activities: sale of operational assets, sale of investments, collections of loans. Purchase of goods for resale and services (electricity, etc. ) Sale or disposal of property, plant and equipment. Sale or maturity of investments in securities. Borrowings on notes, mortgages, bonds, etc. from creditors. Repayment of principal to creditors (excluding interest, which is an operating activity) Direct method: reports the cash effects of each operating activity. Indirect method: starts with accrual net income and converts to cash basis.

Related Questions

Erroneous Statement of Cash Flows

Ryan Company's bookkeeper prepared the following 2016 statement of cash flows:

Flows of Cash Statement December 31, 2016
Sources (Inflows) of Cash
Net Source from Operations
Net income	$47,800
Add: Cash receipt from sale of land	6,500
Inflow from issuing 10% bonds payable	25,000
Depreciation expense	13,200
Reduction in inventory	1,900
Less: Outflow to buy equipment	(16,400)
Increase in prepaid expenses	(700)
Cash (principal) paid on long-term note	(9,500)
ordinary gain	(2,000)
Total source from operations		$65,800
Other Sources (Inflows) of Cash
Loss on sale of land	$2,300
Increase in accounts payable	1,000
Cash from issuing preferred stock	38,700
Patent amortization expense	2,100
Total other sources of cash		44,100
Sources (Financing) Not Affecting Cash
Issuance of common stock for patent		11,000
Total inflows of cash		$120,900
Uses (Outflows) of Cash
To purchase building	$(62,000)
Increase in accounts receivable	(7,800)
For acquiring marketable securities	(7,100)
Decrease in income taxes payable	(1,400)
Total uses of cash		(78,300)
Uses (Investing) Not Affecting Cash
Acquisition of patent by issuing common stock		(11,000)
Net inflow before dividends		$ 31,600
Less: Cash dividends		(24,000)
Net increase in cash		$7,600
Cash, January 1, 2016		15,300
Cash, December 31, 2016		$22,900

After a thorough investigation, you have determined that the amounts of the items listed on the statement are correct. However, you notice several items that are incorrectly classified and reported.

Required

Prepare a corrected 2016 statement of cash flows for the Ryan Company. Use the minus sign to indicate cash outflows, a decrease in cash or cash payments.

Operating Activities

________________ __________

Adjustment for non cash income items:

________________ __________

Adjustments for cash flow effects from working capital items:

________________ __________

Net cash provided by operating activities ____________

Investing Activities:

________________ __________

Net cash used for investing activities _________

Financing Activities:

________________ __________

Net cash provided by financing activies _________

Net increase in cash _________

Cash, january 1, 2016 _________

Cash, december 31, 2016 _________

Investing and Financing Activities not Affecting Cash

Investing Activities:

Acquistion of patent by issuing commons stock ______________

Financing Activities:

Issuance of common stock for patent ____________

ivorymallard438

The Blackbeard Company Ltd provided the following information in regard to its operations for the year ended 30 June 2014:

Cash Book Summary
Opening balance	$20,000	Accounts Payable	$40,000
Accounts receivable	100,000	Bills Payable (suppliers)	20,000
Bills Receivable (suppliers)	20,000	Interest paid	60,000
Debenture Issue	400,000	Operating expenses	180,000
Dividends received	20,000	Salaries & wages	200,000
Interest received	40,000	Current tax payable	80,000
Motor vehicles	60,000	Plant & machinery	100,000
Share capital	200,000	Dividend paid	120,000
		Balance c/d	60,000
	860,000		860,000
Balance b/d	60,000

Required:

(a) Net cash used in operating activities; (b) Net cash used in investing activities; (c) Net cash from financing activities;

(d) Net increase/(decrease) in cash and cash equivalents.

Please use the following format

*Statement of Cash Flows for Blackbeard Company*
*For the Financial Year Ended 30 June 2014*
( i ) Cash flows from Operating Activities	Inflows/	Inflows/
	(Outflows)	(Outflows)










Net cash used in operating activities

( ii ) Cash flows from Investing Activities


Net cash used in Investing Activities

( iii ) Cash flows from Financing Activities

violetcoyote644

The comparative balance sheet of Canace Products Inc. forDecember 31, 2016 and 2015, is shown as follows:

1		Dec. 31, 2016	Dec. 31, 2015
2	Assets
3	Cash	$643,460.00	$679,530.00
4	Accounts receivable (net)	566,490.00	548,320.00
5	Inventories	1,010,720.00	982,600.00
6	Investments	0.00	240,910.00
7	Land	519,510.00	0.00
8	Equipment	879,710.00	680,990.00
9	Accumulated depreciation-equipment	(243,750.00)	(200,970.00)
10	Total assets	$3,376,140.00	$2,931,380.00
11	Liabilities and Stockholdersâ Equity
12	Accounts payable (merchandise creditors)	$772,290.00	$748,770.00
13	Accrued expenses payable (operating expenses)	63,970.00	69,800.00
14	Dividends payable	8,000.00	7,040.00
15	Common stock, $2 par	56,000.00	32,000.00
16	Paid-in capital: Excess of issue price over parâcommon stock	408,000.00	192,000.00
17	Retained earnings	2,067,880.00	1,881,770.00
18	Total liabilities and stockholdersâ equity	$3,376,140.00	$2,931,380.00

The income statement for the year ended December 31, 2016, is asfollows:

1	Sales		$5,974,620.00
2	Cost of merchandise sold		2,451,470.00
3	Gross profit		$3,523,150.00
4	Operating expenses:
5	Depreciation expense	$42,780.00
6	Other operating expenses	3,099,440.00
7	Total operating expenses		3,142,220.00
8	Operating income		$380,930.00
9	Other expense:
10	Loss on sale of investments		(64,890.00)
11	Income before income tax		$316,040.00
12	Income tax expense		102,160.00
13	Net income		$213,880.00

Additional data obtained from an examination of the accounts inthe ledger for 2016 are as follows:

A.	Equipment and land were acquired for cash.
B.	There were no disposals of equipment during the year.
C.	The investments were sold for $176,020 cash
D.	The common stock was issued for cash.
E.	There was a $27,770 debit to Retained Earnings for cashdividends declared.

Prepare a statement of cash flows, using the direct method ofpresenting cash flows from operating activities. Be sure tocomplete the heading of the statement. Refer to the Labels andAmount Descriptions list provided for the exact wording of theanswer choices for text entries. Use the minus sign only toindicate the net cash outflows for each section. âDeductâ, âLessâor colons (:) will automatically appear if required.

Labels and Amount Descriptions

Cash paid for dividends

Cash paid for purchase of equipment

Cash paid for purchase of land

Cash paid for purchase of treasury stock

Cash payments for income taxes

Cash payments for merchandise

Cash payments for operating expenses

Cash received from customers

Cash received from sale of common stock

Cash received from sale of investments

December 31, 2016

Decrease in cash

Depreciation

For the Year Ended December 31, 2016

Gain on sale of investments

Increase in cash

Issuance of common stock for acquisition of land

Issuance of common stock for purchase of equipment

Loss on sale of investments

Net cash flow from financing activities

Net cash flow from investing activities

Net cash flow from operating activities

Net cash flow used for financing activities

Net cash flow used for investing activities

Net cash flow used for operating activities

Canace Products Inc.

Statement of Cash Flows

1	Cash flows from operating activities:
2
3
4
5
6
7
8	Cash flows from investing activities:
9
10
11
12
13
14	Cash flows from financing activities:
15
16
17
18
19	Cash at the beginning of the year
20	Cash at the end of the year

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ACCT 1209 Chapter Notes - Chapter 12: Cash Flow, Net Income, Income Statement

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