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Chapter 2: 2-7DQ (page 46)

Explain why the statement of cash flows provides useful information that goes beyond income statement and balance sheet data.

Short Answer

Expert verified

The cash flow statement exhibits information beyond the income statement and the balance sheet. It provides a reconciliation between the opening balance of the cash and cash equivalent and the closing balance of the cash and cash equivalent over the reporting period.

Step by step solution

01

Financial statements 

Financial statements are described as the summary report of the organization鈥檚 financial position, performance, and cash flows.It is prepared by the management of the company at the end of the reporting period.

02

Cash flow statement 

A cash flow statement is prepared by an organization to show the movement of cash in the company.It is a component of the financial statements of the company. It is prepared to reconcile the cash and cash equivalent balance, which is impossible to do from the income statement and balance sheet alone.

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Most popular questions from this chapter

Explain how depreciation generates actual cash flows for the company.

The Denver Corporation has forecast the following sales for the first seven months of the year:

January

\(15,000

May

\)15,000

February

17,000

June

21,000

March

19,000

July

23,000

April

25,000

Monthly material purchases are set equal to 40 percent of forecast sales for the next month. Of the total material costs, 50 percent are paid in the month of purchase and 50 percent in the following month. Labor costs will run \(4,500 per month, and fixed overhead is \)4,500 per month. Interest payments on the debt will be $3,500 for both March and June. Finally, the Denver salesforce will receive a 3.00 percent commission on total sales for the first six months of the year, to be paid on June 30.

Prepare a monthly summary of cash payments for the six-month period from January through June. (Note: Compute prior December purchases to help get total material payments for January.)

Dr. Zhiva虁go Diagnostics Corp.鈥檚 income statement for 20X1 is as follows:

Sales\( 2790000
Cost of goods sold1790000
Gross Profits\)1000000
Selling and administrative expenses302000
Operating profits\(698000
Interest Expense54800
Income before taxes\)643200
Taxes30%192960
Income after-tax$ 450240

Compute the profit margin for 20X1.

The Volt Battery Company has forecast its sales in units as follows:

January

1,300

May

1,850

February

1,150

June

2,000

March

1,100

July

1,700

April

1,600

Volt Battery always keeps an ending inventory equal to 110 percent of the next month鈥檚 expected sales. The ending inventory for December (January鈥檚 beginning inventory) is 1,460 units, which is consistent with this policy.

Materials cost \(14 per unit and are paid for in the month after purchase. Labor cost is \)7 per unit and is paid in the month the cost is incurred. Overhead costs are \(8,500 per month. Interest of \)8,500 is scheduled to be paid in March, and employee bonuses of $13,700 will be paid in June.

Prepare a monthly production schedule and a monthly summary of cash payments for January through June. Volt produced 1,100 units in December.

At the end of January, Mineral Labs had an inventory of 775 units, which cost \(12 per unit to produce. During February, the company produced 900 units at a cost of \)16 per unit. If the firm sold 1,500 units in February, what was the cost of goods sold?

a. Assume LIFO inventory accounting.
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