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Chapter 14: Q14-9RQ (page 769)

Question: If current assets other than cash increase, what is the effect on cash? What about a decrease in current assets other than cash?

Short Answer

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Answer

If current assets other than cash increase it is reduced from the net income. If there is a decrease in current assets other than cash it causes anincrease adjustment to the net income.

Step by step solution

01

If current assets other than cash increases it is reduced from the net income

An increase in current assets other than cash means either the cash will be received in the future or reduces the cash balance.Therefore, an increase in current assets other than cash causes a decreased adjustment to the income.

02

If current assets other than cash decreases it is added to the net income

Decrease in current asset is theopposite of increase in current asset and hence it causes an increase adjustment to the net income.

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Most popular questions from this chapter

Julie Lopez Company expects the following for 2018:

  1. Net cash provided by operating activities of \(148,000.
  2. Net cash provided by financing activities of \)56,000.
  3. Net cash used for investing activities of \(77,000 (no sales of long-term assets).
  4. Cash dividends paid to stockholders of \)7,000.

How much free cash flow does Lopez expect for 2018?

Classifying transactions on the statement of cash flows鈥攊ndirect method Consider the following transactions:

Identify the category of the statement of cash flows, indirect method, in which each transaction would be reported.

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.

  1. Net income
  2. Increases in current assets (other than Cash)
  3. Decreases in current liabilities
  4. Cash payment for acquisition of plant assets
  5. Cash receipt from issuance of common stock
  6. Depreciation expense

Identify each as being recorded by a Debit or Credit in the statement of cash flows section of the spreadsheet

Classifying transactions on the statement of cash flows鈥攊ndirect method Consider the following transactions:

Identify the category of the statement of cash flows, indirect method, in which each transaction would be reported.

Question: Preparing operating activities cash flow鈥攄irect method

The accounting records of Four Seasons Parts reveal the following:

Payment of salaries and wages \( 34,000

Net income \) 21,000

Depreciation expense 10,000

Payment of income tax 16,000

Payment of interest 17,000

Collection of dividend revenue 5,000

Payment of dividends 5,000

Payment to suppliers 51,000

Collections from customers 116,000

Compute cash flows from operating activities using the direct method for the year ended December 31, 2018.
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