Chapter 12, Problem 4BTN

To determine

Cash Flow Statement:

Cash flow statement gives the information related to the cash inflow and outflow of the company. It gives the information cash inflow and out flow from the operating, investing and financing activities.

1.

a.

To explain: Object of the cash flow statement.

Explanation of Solution

• Cash flow statement gives the information related to the cash receipt and cash payment of the company.
• It also gives the information related to change cash of operating activities, investing activities and financing activities.

b.

To determine

To explain: Similarity and difference between the direct and indirect method.

Explanation of Solution

• There are the two method two calculate the cash flow are direct and indirect method.
• Cash flow stamen from direct method starts from the sale and by indirect method stare form the net income of the company.
• Similarity in the both method is that both of these give the same answer of the cash inflow and outflow.

c.

To determine

To explain: Steps followed in the cash flow statement.

Explanation of Solution

To make the cash flow statement 1^st calculate the cash from the operating activities then investing activities and at the end cash flow from financing activities are calculated.

d.

To determine

To explain: Type of the information given by the cash flow statement.

Explanation of Solution

Cash flow statement analyses how much cash is coming from the operating, investing and financing activities to the company and from where these cash are coming.

2.

a.

To determine

To explain: Adjustment of the noncash operating revenue and expense in cash flow statement.

Explanation of Solution

• All the noncash expense is add in net income to get the cash from the operating activities.
• All the noncash revenue are deducted from the net income to get the correct cash flow from the operating activities.

b.

To determine

To explain: Adjustment of the noncash operating gain and loss.

Explanation of Solution

In the cash flow stamen all the noncash gain are deducted from the net income and all the noncash loss are added in the net income.

c.

To determine

To explain: Increase and decrease in noncash current assets.

Explanation of Solution

If the noncash current assets are increase then it is added and if the noncash assets decrease then it is added in the cash flow statement.

d.

To determine

To explain: Increase and decrease in noncash current assets.

Explanation of Solution

If the noncash current liability is increase then it is deducted and if the noncash liability decreases then it is added in the cash flow statement.

3.

a.

To determine

To explain: Formula for cash collected from customer.

Explanation of Solution

• To fine the cash collected from the customer, increase in the account receivable is deducted from the sales revenue.
• If the account receivable decrease during the year then account receivable are added in the sales revenue.

Formula to calculate the cash collected from the customer

$\text{Cash}\text{collectod}\text{from}\text{customer}=\left(\begin{array}{l}\text{Sales}\text{revenue}-\text{Increase}\text{in}\text{account}\text{receivable}\\ +\text{Decrease}\text{in}\text{account}\text{receivable}\end{array}\right)$

b.

To determine

To explain: Formula for cash paid for inventory to supplier.

Explanation of Solution

To calculate the cash paid to the supplies decrease in the account payable are added to the cost of the goods sold and decrease in the inventory is detected from the cost of the goods sold and vise vase.

Formula to calculate the cash paid to supplies

$\begin{array}{c}\text{Cash}\text{paid}\text{to}\text{supplies}=\left(\begin{array}{l}\text{Cost}\text{of}\text{the}\text{goods}\text{sold}+\text{Decrease}\text{in}\text{account}\text{payable}\\ -\text{Decrease}\text{in}\text{inventory}\end{array}\right)\\ =\$411,000+\$5,000-\$22,700\\ =\$393,300\end{array}$

c.

To determine

To explain: Formula for cash paid for wages and operating expense.

Explanation of Solution

To calculate the cash paid wages and operating expanse decrease in prepaid expense and wages payable are deducted from the other expense and vice versa.

Calculate the cash paid for other expenses,

$\begin{array}{c}\text{Cash}\text{paid}\text{other}\text{expenses}=\left(\begin{array}{l}\text{Other}\text{expense}-\text{Decrease}\text{in}\text{prepaid}\text{expense}\\ -\text{Decrease}\text{Wages}\text{payable}\end{array}\right)\\ =\text{\$67,000}-\text{\$1,000}-\$9,000\\ =\text{\$57,000}\end{array}$

d.

To determine

To explain: Formula for cash paid for interest and taxes.

Explanation of Solution

To calculate the cash paid for the interest and taxes, if the tax is increasing during the year then it will be added and if tax and interest is decreasing then it subtract.