ATC 3-5 Writing Assignment How do deferrals affect net income versus cash flow? The following scenarios are independent of each other. 1. During Year 1, a company pays $3,000 cash to purchase supplies. There are $1,000 of supplies on hand at the end of Year 1. 2. On April 1, Year 1, a company pays $4,000 for a one-year insurance policy. 3. On October 1, Year 1, a company collects $12,000 in advance for services that will be performed over the next year. 4. On January 1, Year 1, a company pays $16,000 to purchase a long-term asset. The asset has a $4,000 salvage value and a three-year useful life. Required For each scenario, write a brief memo explaining why amounts recognized in the income statement will be different from amounts shown in the operating section of the cash flow statement for Year 1.
ATC 3-5 Writing Assignment How do deferrals affect net income versus cash flow? The following scenarios are independent of each other. 1. During Year 1, a company pays $3,000 cash to purchase supplies. There are $1,000 of supplies on hand at the end of Year 1. 2. On April 1, Year 1, a company pays $4,000 for a one-year insurance policy. 3. On October 1, Year 1, a company collects $12,000 in advance for services that will be performed over the next year. 4. On January 1, Year 1, a company pays $16,000 to purchase a long-term asset. The asset has a $4,000 salvage value and a three-year useful life. Required For each scenario, write a brief memo explaining why amounts recognized in the income statement will be different from amounts shown in the operating section of the cash flow statement for Year 1.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:ATC 3-5 Writing Assignment How do deferrals affect net income versus cash flow?
The following scenarios are independent of each other.
1. During Year 1, a company pays $3,000 cash to purchase supplies. There are $1,000 of supplies on hand at the end of Year 1.
2. On April 1, Year 1, a company pays $4,000 for a one-year insurance policy.
3. On October 1, Year 1, a company collects $12,000 in advance for services that will be performed over the next year.
4. On January 1, Year 1, a company pays $16,000 to purchase a long-term asset. The asset has a $4,000 salvage value and a three-year useful life.
Required
For each scenario, write a brief memo explaining why amounts recognized in the income statement will be different from amounts shown in the operating
section of the cash flow statement for Year 1.
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