Question 1 Using the following data, prepare the operating activities section of a statement of cash flows for Maximum Corporation for the year ended December 31, 20X6, using the indirect method. Question 2 Increase in salary payable Decrease in accounts payable Increase in accounts receivable Net income Decrease in inventory Increase in prepaid expenses Depreciation expense - equipment Depreciation expense - building Gain on sale of equipment Loss on sale of patent $1,50 2,000 3,500 98,00 5,800 1,200 5,000 7,500 1,300 2,500
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
![Additional information provided:
●
Required:
Equipment costing $52,000 was purchased for cash.
Equipment with a net asset value of $10,000 was sold for $14,000
Depreciation expense of $12,000 was recorded during the year.
During 2014, the company repaid $40,000 of long-term notes payable.
During 2014, the company borrowed $34,000 on a new note payable
There were no stock retirements during the year.
There were no sales of treasury stock during the year.
Prepare the statement of cash flows for Altar Corporation using the indirect method for the year ended
December 31st, 2014.
Question 4
The comparative balance sheet of Southern Bell Company at March 31, 20X9, reported
the following
Current Assets:
Cash and cash equivalents
Accounts receivable
Inventories
Current Liabilities:
31/3/20X
$4,000
21,700
60,600
$27,600
11,100
4,700
-3-
47,000
70,000
31/3/X9
$6,200
Accounts payable
Accrued liabilities
Income taxes payable
Southern Bell's transactions during the year ended March 31, 20X9 included the following:
Payment of cash dividend.
$30,000
Purchase of equipment
78,700
Issuance of long-term note payable to borrow cash
50,000
Depreciation expense
17,300
Purchase of building
Net income
Issuance of common stock
Acquisition of land by issuing L-T Note Payable
11,000
95,000
14,900
63,200
$30,100
10,700
8,000
Required:
Prepare Southern Bell's statement of cash flows for the year ended March 31, 20 X 9, using the
indirect method.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6474d709-b55b-47a7-b8ff-3ea4342702b7%2Fb20e04c5-4641-4ed0-8595-86211d11abe4%2Fma8ck9g_processed.jpeg&w=3840&q=75)
![11:53
Statement of Cash Flows
Question 1
Increase in salary payable
Decrease in accounts payable
Increase in accounts receivable
Net income
Using the following data, prepare the operating activities section of a statement of cash flows for
Maximum Corporation for the year ended December 31, 20X6, using the indirect method.
Decrease in inventory
Increase in prepaid expenses
Depreciation expense - equipment
Depreciation expense building
Gain on sale of equipment
Loss on sale of patent
B
Question 2
A. In the long run it is more important for a business to have positive cash flows from its
operating activities, investing activities or financing activities? Why?
B. Identify three factors that may cause net income to differ from net cash flows from operating
activities.
D. Name and explain the three (3) categories of cash-flow activities.
Comparative Balance Sheet
Cash
Accounts receivable
Inventory
PP&E, net
C. Describe how the Statement of Cash Flows helps investors and creditors perform each of
the following functions: predict future cash flows; evaluate management decisions; predict
the ability to make debt payments to lenders and pay dividends to stockholders.
Total assets
Accounts payable
Accrued liabilities
Long-term notes payable
Total liabilities
Question 3
Altar Company uses the indirect method to prepare its statement of cash flows. Please refer to the
following information for the year 2014.
Common stock
Retained earnings
Treasury stock
Total equity
Total liabilities and equity
Income Statement
Sales revenue
Interest revenue
Gain on sale of plant assets
Total revenues and gains
Cost of goods sold
Salary expense
Depreciation expense
Other operating expenses
Interest expense
Income tax expense
Total expenses
Net income (loss)
Statement of Retained Earnings
Retained earnings, January 1, 2013
Net income
Dividends
Retained earnings, December 31, 2013
-1-
2014
$ 21,000
31,000
53,000
120,000
$225,000 $168,000
$ 4,000 $ 6,000
2,000
1,000
90,000
84,000
$ 90,000
$ 97,000
$240,000
1,000
4,000
2013
$ 18,000
35,000
25,000
90,000
30,000
113,000
(8,000) (5,000)
$135,000
$ 71,000
$225,000
110,000
45,000
12,000
23,000
1,000
5,000
2,000
74,000
$1,50
2,000
3,500
98,00
5,800
1,200
5,000
7,500
1,300
2,500
$168,000
$245,000
$196,000
$49,000
$ 74,000
49,000
(10,000)
$113,000
الله
Increase/decrease
$ 3.000
(4,000)
28,000
30,000
$57,000
16
$(2,000)
1,000
(6,000)
$(7,000)
28,000
39,000
(3,000)
$64,000
$57,000](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6474d709-b55b-47a7-b8ff-3ea4342702b7%2Fb20e04c5-4641-4ed0-8595-86211d11abe4%2Fyl1pp38_processed.jpeg&w=3840&q=75)
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