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Chapter 14: Q-14-2RQ (page 768)
Question: How does the statement of cash flows help users of financial statements?
Answer
The statement of cash flows helps users in various ways such as comparison with other firms in operating efficiency, liquidity, and solvency, reconciliation of cash balance, etc
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Using a spreadsheet to complete the statement of cash flows鈥� indirect method
Companies can use a spreadsheet to complete the statement of cash flows. Each item that follows is recorded in the transaction analysis columns of the spreadsheet.
Identify each as being recorded by a Debit or Credit in the statement of cash flows section of the spreadsheet
Preparing the statement of cash flows鈥攊ndirect method with non-cash transactions the 2018 income statement and comparative balance sheet of Rolling Hills, Inc. follow:
Additionally, Rolling Hills purchased land of \(21,100 by financing it 100% with long-term notes payable during 2018. During the year, there were no sales of land, no retirements of stock, and no treasury stock transactions. A plant asset was disposed of for \)0. The cost and the accumulated depreciation of the disposed asset was $13,410. The plant acquisition was for cash.
Requirements
1. Prepare the 2018 statement of cash flows, formatting operating activities by the indirect method.
2. How will what you learned in this problem help you evaluate an investment?
Preparing a statement of cash flows using the direct method Jelly Bean, Inc. began 2018 with cash of \(58,000. During the year, Jelly Bean earned revenue of \)595,000 and collected \(614,000 from customers. Expenses for the year totaled \)427,000, of which Jelly Bean paid \(212,000 in cash to suppliers and \)205,000 in cash to employees. Jelly Bean also paid \(148,000 to purchase equipment and a cash dividend of \)57,000 to its stockholders during 2018. Prepare the company鈥檚 statement of cash flows for the year ended December 31, 2018. Format operating activities by the direct method.
Question: Describing the purposes of the statement of cash flows Financial statements all have a goal.
The statement of cash flows does as well. Describe how the statement of cash flows helps investors and creditors perform each of the following functions:
a. Predict future cash flows.
b. Evaluate management decisions.
c. Predict the ability to make debt payments to lenders and pay dividends to stockholders.
Preparing the direct method statement of cash flows Use the data in Short Exercise S14A-12 and your results. Prepare the business鈥檚 complete statement of cash flows for the year ended June 30, 2018, using the direct method for operating activities
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