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Chapter 23: Q7Q (page 1372)

Unlike the other major financial statements, the statement of cash flows is not prepared from the adjusted trial balance. From what sources does the information to prepare this statement come, and what information does each source provide?

Short Answer

Expert verified

Comparative balance sheets specify how equity, liabilities, and assets have evolved.

Income statement of current year indicates the cash generated by operations.

Specific transaction data indicates the cash provided or used during the period.

Step by step solution

01

Meaning of Statement of cash flow

The cash flow statement gives information on changes in a company's Cash Equivalents and Cash throughout an accounting period. This adjustment consolidates the interests in running, finance, and investing.

02

Explaining the sources and the information to prepare an income statement.

Information sources used to create the cash flow statement:

  • Comparative Balance Sheets
  • Current year income Statement
  • Information about specific deals

Comparative balance sheets clarify the changes in resources, liabilities, and value throughout a period. The current pay statement details how much money was generated by operating activities. It is conceivable to determine whether cash was conveyed or utilized during the period by looking at certain selected transactions, which reveal extensive additional information

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Most popular questions from this chapter

Question:Mortonson Company has not yet prepared a formal statement of cash flows for the 2017 fiscal year. Comparative balance sheets as of December 31, 2016 and 2017, and a statement of income and retained earnings for the year ended December 31, 2017, are presented as follows.


MORTONSON COMPANY

STATEMENT OF INCOME AND RETAINED EARNINGS

FOR THE YEAR ENDED DECEMBER 31, 2017

(\(000 OMITTED)

Sales revenue

\)3,800

Expenses

Cost of goods sold

\(1,200

Salaries and benefits

725

Heat, light and power

75

Depreciation

80

Property tax

19

Patent amortization

25

Miscellaneous expenses

10

Interest

30

2,164

Income before taxes

1,636

Income tax

818

Net income

818

Retained earnings 鈥� Jan 1, 2017

310

1,128

Stock dividend declared and issued

600

Retained earnings Dec 31, 2017

\)528


MORTONSON COMPANY

COMPARATIVE BALANCE SHEETS

AS OF DECEMBER 31

(\(000 OMITTED)

Assets

2017

2016

Current assets

Cash

\)333

\(100

U.S treasury notes (available for sale)

10

50

Accounts receivables

780

500

Inventory

720

560

Total current assets

1,843

1,210

Long-term assets

Land

150

70

Building and equipment

910

600

Accumulated depreciation 鈥� building and equipment

(200)

(120)

Patent (less: amortization)

105

130

Total long-term assets

965

680

Total assets

\)2,808

\(1,890

Liabilities and stockholder鈥檚 equity

Current liabilities

Account payable

\)420

\(330

Income tax payable

40

30

Notes payable

320

320

Total current liabilities

780

680

Long-term note payable

200

200

Total liabilities

980

880

Stockholder鈥檚 equity

Common stock

1,300

700

Retained earnings

528

310

Total stockholder鈥檚 equity

1,828

1,010

Total liabilities and stockholder鈥檚 equity

\)2,808

$1,890

Instructions

Prepare a statement of cash flows using the direct method. Changes in accounts receivable and accounts payable relate to sales and the cost of goods sold. Do not prepare a reconciliation schedule.

Question: The board of directors of Tirico Corp. declared cash dividends of \(260,000 during the current year. If dividends payable was \)85,000 at the beginning of the year and $90,000 at the end of the year, how much cash was paid in dividends during the year?

Bloom Corporation had the following 2017 income statement.

Sales revenue

\(200,000

Cost of goods sold

120,000

Gross profit

80,000

Operating expenses (including depreciation of \)21,000)

50,000

Net income

\(30,000

The following accounts increased during 2017: Accounts Receivable \)12,000, Inventory \(11,000, and Accounts Payable \)13,000. Prepare the cash flows from the operating activities section of Bloom鈥檚 2017 statement of cash flows using the direct method.

Briefly describe some of the similarities and differences between GAAP and IFRS with respect to cash flow reporting.

Question: Collinsworth Co. reported sales on an accrual basis of \(100,000. If accounts receivable increased \)30,000 and the allowance for doubtful accounts increased \(9,000 after a write-off of \)2,000, compute cash sales.
See all solutions

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