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Financial Reporting and Analysis: Using Financial Accounting Information

Charles H. Gibson

Chapter 10

Statement of Cash Flows - all with Video Answers

Educators

Chapter Questions

Problem 1

If a firm presents an income statement and a balance sheet, why is it necessary that a statement of cash flows also be presented?

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Problem 2

Into what three categories are cash flows segregated on the statement of cash flows?

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02:19

Problem 3

Using the descriptions of assets, liabilities, and stockholders' equity, summarize the changes to these accounts for cash inflows and changes for cash outflows.

Jennifer Stoner
Jennifer Stoner
Numerade Educator

Problem 4

The land account may be used only to explain a use of cash, but not a source of cash. Comment.

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Problem 5

Indicate the three techniques that may be used to complete the steps in developing the statement of cash flows.

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01:47

Problem 6

There are two principal methods of presenting cash flow from operating activities-the direct method and the indirect method. Describe these two methods.

Jennifer Stoner
Jennifer Stoner
Numerade Educator

Problem 7

Depreciation expense, amortization of patents, and amortization of bond discount are examples of items that are added to net income when using the indirect method of presenting cash flows from operating activities. Amortization of premium on bonds and a reduction in deferred taxes are examples of items that are deducted from net income when using the indirect method of presenting cash flows from operating activities. Explain why these adjustments to net income are made to compute cash flows from operating activities.

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Problem 8

What is the meaning of the term cash in the statement of cash flows?

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Problem 9

What is the purpose of the statement of cash flows?

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01:48

Problem 10

Why is it important to disclose certain noncash investing and financing transactions, such as exchanging common stock for land?

Jen H
Jen H
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Problem 11

Would a write-off of uncollectible accounts against allowance for doubtful accounts be disclosed on a cash flow statement? Explain.

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06:15

Problem 12

Fully depreciated equipment costing $$\$ 60,000$$ was discarded, with no salvage value. What effect would this have on the statement of cash flows?

Puneet Prajapati
Puneet Prajapati
Numerade Educator

Problem 13

For the current year, a firm reported net income from operations of $$\$ 20,000$$ on its income statement and an increase of $$\$ 30,000$$ in cash from operations on the statement of cash flows. Explain some likely reasons for the greater increase in cash from operations than net income from operations.

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Problem 14

A firm owed accounts payable of $$\$ 150,000$$ at the beginning of the year and $$\$ 250,000$$ at the end of the year. What influence will the $$\$ 100,000$$ increase have on cash from operations?

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Problem 15

A member of the board of directors is puzzled by the fact that the firm has had a very profitable year but does not have enough cash to pay its bills on time. Explain to the director how a firm can be profitable, yet not have enough cash to pay its bills and dividends.

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Problem 16

Depreciation is often considered a major source of funds. Do you agree? Explain.

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Problem 17

Pickerton started the year with $$\$ 50,000$$ in accounts receivable. The firm ended the year with $$\$ 20,000$$ in accounts receivable. How did this decrease influence cash from operations?

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Problem 18

Aerco Company acquired equipment in exchange for $$\$ 50,000$$ in common stock. Should this transaction be on the statement of cash flows?

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Problem 19

Operating cash flow per share is a better indicator of profitability than is earnings per share. Do you agree? Explain.

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00:17

Problem 20

Hornet Company had operating cash flow of $$\$ 60,000$$ during a year in which it paid dividends of $$\$ 11,000$$. What does this indicate about Hornet's dividend-paying ability?

Zach Steedman
Zach Steedman
Numerade Educator