Statement of cash flows : It is one of the financial statement that shows the cash and cash equivalents of a company for a particular period. It determines the net changes in cash through reporting the sources and uses of cash due to the operating, investing, and financing activities of a company. Indirect method: Under this method, the following amounts are to be adjusted from the Net Income to calculate the net cash provided from operating activities . Cash flows from operating activities: These are the cash produced by the normal business operations. The below table shows the way of calculation of cash flows from operating activities: Cash flows from operating activities (Indirect method) Add: Decrease in current assets Increase in current liability Depreciation expense and amortization expense Loss on sale of plant assets Deduct: Increase in current assets Decrease in current liabilities Gain on sale of plant assets Net cash provided from or used by operating activities Table (1) Cash flows from investing activities: Cash provided by or used in investing activities is a section of statement of cash flows. It includes the purchase or sale of equipment or land, or marketable securities, which is used for business operations. The below table shows the way of calculation of cash flows from investing activities: Cash flows from investing activities Add: Proceeds from sale of fixed assets Sale of marketable securities / investments Interest received Dividend received Deduct: Purchase of fixed assets/long-lived assets Purchase of marketable securities Net cash provided from or used by investing activities Table (2) Cash flows from financing activities: Cash provided by or used in financing activities is a section of statement of cash flows. It includes raising cash from long-term debt or payment of long-term debt, which is used for business operations. The below table shows the way of calculation of cash flows from financing activities: Cash flows from financing activities Add: Issuance of common stock Proceeds from borrowings Proceeds from issuance of debt Issuance of bonds payable Deduct: Payment of dividend Repayment of debt Interest paid Redemption of debt Repurchase of stock Net cash provided from or used by financing activities Table (3) To Prepare: A statement of cash flows using the indirect method for presenting cash flows from operating activities.

Question

Statement of Cash Flows—Indirect Method The comparative balance sheet of Whitman Co. at December 31, 20Y2 and 20Y1, is as follows: Dec. 31, 20Y2 Dec. 31, 20Y1 Assets Cash $ 858,550 $ 923,880 Accounts receivable (net) 781,280 712,600 Inventories 1,184,800 1,090,360 Prepaid expenses 27,470 32,620 Land 295,340 446,450 Buildings 1,365,090 841,380 Accumulated depreciation-buildings (386,350) (360,590) Equipment 480,790 424,980 Accumulated depreciation-equipment (132,220) (148,530) Total assets $4,474,750 $3,963,150 Liabilities and Stockholders' Equity Accounts payable (merchandise creditors) $ 850,200 $ 897,180 Bonds payable 250,590 0 Common stock, $20 par 295,000 109,000 Paid-in capital: Excess of issue price over par-common stock 708,000 522,000 Retained earnings 2,370,960 2,434,970 Total liabilities and stockholders’ equity $4,474,750…

Answer 1

Question

Chapter 13, Problem 13.3APR

To determine

Statement of cash flows: It is one of the financial statement that shows the cash and cash equivalents of a company for a particular period. It determines the net changes in cash through reporting the sources and uses of cash due to the operating, investing, and financing activities of a company.

Indirect method: Under this method, the following amounts are to be adjusted from the Net Income to calculate the net cash provided from operating activities.

Cash flows from operating activities: These are the cash produced by the normal business operations.

The below table shows the way of calculation of cash flows from operating activities:

Cash flows from operating activities (Indirect method)

Add: Decrease in current assets
         Increase in current liability
         Depreciation expense and amortization expense
         Loss on sale of plant assets

Deduct: Increase in current assets
              Decrease in current liabilities
              Gain on sale of plant assets
Net cash provided from or used by operating activities

Table (1)

Cash flows from investing activities: Cash provided by or used in investing activities is a section of statement of cash flows. It includes the purchase or sale of equipment or land, or marketable securities, which is used for business operations.

The below table shows the way of calculation of cash flows from investing activities:

Cash flows from investing activities

Add: Proceeds from sale of fixed assets
         Sale of marketable securities / investments
         Interest received
         Dividend received

Deduct: Purchase of fixed assets/long-lived assets
              Purchase of marketable securities
Net cash provided from or used by investing activities

Table (2)

Cash flows from financing activities: Cash provided by or used in financing activities is a section of statement of cash flows. It includes raising cash from long-term debt or payment of long-term debt, which is used for business operations.

The below table shows the way of calculation of cash flows from financing activities:

Cash flows from financing activities

Add: Issuance of common stock
          Proceeds from borrowings
          Proceeds from issuance of debt
          Issuance of bonds payable

Deduct: Payment of dividend
              Repayment of debt
              Interest paid
              Redemption of debt
              Repurchase of stock
Net cash provided from or used by financing activities

Table (3)

To Prepare: A statement of cash flows using the indirect method for presenting cash flows from operating activities.

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Statement of Cash Flows—Indirect Method The comparative balance sheet of Whitman Co. at December 31, 20Y2 and 20Y1, is as follows: Dec. 31, 20Y2 Dec. 31, 20Y1 Assets Cash $ 858,550 $ 923,880 Accounts receivable (net) 781,280 712,600 Inventories 1,184,800 1,090,360 Prepaid expenses 27,470 32,620 Land 295,340 446,450 Buildings 1,365,090 841,380 Accumulated depreciation-buildings (386,350) (360,590) Equipment 480,790 424,980 Accumulated depreciation-equipment (132,220) (148,530) Total assets $4,474,750 $3,963,150 Liabilities and Stockholders' Equity Accounts payable (merchandise creditors) $ 850,200 $ 897,180 Bonds payable 250,590 0 Common stock, $20 par 295,000 109,000 Paid-in capital: Excess of issue price over par-common stock 708,000 522,000 Retained earnings 2,370,960 2,434,970 Total liabilities and stockholders’ equity $4,474,750…

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