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17-1
Chapter 17
Statement of
Cash Flows
Chapter
17-2 Accounting Principles, Ninth Edition
Study Objectives
Chapter
17-3
Statement of Cash Flows
Chapter
17-4
Usefulness of the Statement of Cash Flows
Chapter
17-5 SO 1 Indicate the usefulness of the statement of cash flows.
Classification of Cash Flows
Operating
Activities Investing
Activities Financing
Income
Statement
Activities
Generally
Items Long-Term Generally
Asset Items Long-Term
Liability
and
Equity Items
Chapter
17-6 SO 2 Distinguish among operating, investing, and financing activities.
Classification of Cash Flows
Chapter
17-9 SO 2 Distinguish among operating, investing, and financing activities.
Classification of Cash Flows
Order of Presentation:
Direct Method
1. Operating activities.
Indirect Method
2. Investing activities.
3. Financing activities.
Chapter
17-12 SO 2 Distinguish among operating, investing, and financing activities.
Preparing the Statement of Cash Flows
Chapter
17-13 SO 2 Identify the major classifications of cash flows.
Preparing the Statement of Cash Flows
Chapter
17-14 SO 2 Identify the major classifications of cash flows.
Preparing the Statement of Cash Flows
Chapter
17-15 SO 2 Identify the major classifications of cash flows.
Preparing the Statement of Cash Flows
Indirect Demonstration
Method Problem
Illustration 17-4
Chapter
17-16 SO 3 Prepare a statement of cash flows using the indirect method.
Preparing the Statement of Cash Flows
Indirect Demonstration
Method Problem
Illustration 17-4
Chapter
17-17 SO 3 Prepare a statement of cash flows using the indirect method.
Preparing the Statement of Cash Flows
Demonstration
Problem
Illustration 17-4
Additional information for 2010:
1. The company declared and paid a $29,000 cash dividend.
2. Issued $110,000 of long-term bonds in direct exchange for land.
3. A building costing $120,000 and equipment costing $25,000 were purchased for cash.
4. The company sold equipment with a book value of $7,000 (cost $8,000, less accumulated
depreciation $1,000) for $4,000 cash.
5. Issued common stock for $20,000 cash.
6. Depreciation expense was comprised of $6,000 for building and $3,000 for equipment.
Chapter
17-18 SO 3 Prepare a statement of cash flows using the indirect method.
Preparing the Statement of Cash Flows –
Indirect Method
Question
Which is an example of a cash flow from an
operating activity?
a. Payment of cash to lenders for interest.
b. Receipt of cash from the sale of capital stock.
c. Payment of cash dividends to the company’s
stockholders.
d. None of the above.
Chapter
17-20 SO 3 Prepare a statement of cash flows using the indirect method.
Step 1: Operating Activities
Depreciation Expense
Although depreciation expense reduces net income, it
does not reduce cash. Depreciation is a noncash
charge. The company must add it back to net income.
Illustration 17-6
Cash flows from operating activities:
Net income $ 145,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 9,000
Net cash provided by operating activities $ 154,000
Chapter
17-21 SO 3 Prepare a statement of cash flows using the indirect method.
Operating Activities
Chapter
17-22 SO 3 Prepare a statement of cash flows using the indirect method.
Operating Activities
Chapter
17-23 SO 3 Prepare a statement of cash flows using the indirect method.
Operating Activities
Chapter
17-24 SO 3 Prepare a statement of cash flows using the indirect method.
Operating Activities
Chapter
17-25 SO 3 Prepare a statement of cash flows using the indirect method.
Operating Activities
Merchandise Inventory
Chapter
17-27 SO 3 Prepare a statement of cash flows using the indirect method.
Operating Activities
Chapter
17-28 SO 3 Prepare a statement of cash flows using the indirect method.
Operating Activities
Chapter
17-29 SO 3 Prepare a statement of cash flows using the indirect method.
Operating Activities
Chapter
17-31 SO 3 Prepare a statement of cash flows using the indirect method.
Operating Activities
Chapter
17-32 SO 3 Prepare a statement of cash flows using the indirect method.
Step 2: Investing and Financing Activities
From the additional information, the company purchased land
of $110,000 by issuing long-term bonds. This is a significant
noncash investing and financing activity that merits disclosure
in a separate schedule.
Land
1/1/10 Balance 20,000
Issued bonds 110,000
12/31/10 Balance 130,000
Bonds Payable
1/1/10 Balance 20,000
For land 110,000
12/31/10 Balance 130,000
Chapter
17-33 SO 3 Prepare a statement of cash flows using the indirect method.
Investing and Financing Activities
Partial statement Illustration 17-13
Building
Chapter
17-35 SO 3 Prepare a statement of cash flows using the indirect method.
Investing and Financing Activities
Partial statement Illustration 17-13
Equipment
Cash 4,000
Journal Accumulated depreciation 1,000
Entry Loss on sale of equipment 3,000
Equipment 8,000
Chapter
17-37 SO 3 Prepare a statement of cash flows using the indirect method.
Illustration 17-13
Statement
Cash flows from operating activities:
Net income $ 145,000
of Cash
Adjustments to reconcile net income to net cash
provided by operating activities:
Method
Increase in accounts payable 16,000
Decrease in income taxes payable (2,000)
Net cash provided by operating activities 172,000
Cash flows from investing activities:
Purchase of building (120,000)
Purchase of equipment (25,000)
Sale of equipment 4,000
Net cash used by investing activities (141,000)
Cash flows from financing activities:
Issuance of common stock 20,000
Payment of cash dividends (29,000)
Net cash used by financing activities (9,000)
Net increase in cash 22,000
Cash at beginning of period 33,000
Cash at end of period $ 55,000
Chapter
17-38 SO 3 Prepare a statement of cash flows using the indirect method.
Investing and Financing Activities
Common Stock
Chapter
17-39 SO 3 Prepare a statement of cash flows using the indirect method.
Investing and Financing Activities
Partial statement Illustration 17-13
Retained Earnings
Chapter
17-41 SO 3 Prepare a statement of cash flows using the indirect method.
Illustration 17-13
Statement
Cash flows from operating activities:
Net income $ 145,000
of Cash
Adjustments to reconcile net income to net cash
provided by operating activities:
Method
Increase in accounts payable 16,000
Decrease in income taxes payable (2,000)
Net cash provided by operating activities 172,000
Cash flows from investing activities:
Purchase of building (120,000)
Purchase of equipment (25,000)
Sale of equipment 4,000
Net cash used by investing activities (141,000)
Cash flows from financing activities:
Issuance of common stock 20,000
Payment of cash dividends (29,000)
Net cash used by financing activities (9,000)
Net increase in cash 22,000
Cash at beginning of period 33,000
Cash at end of period $ 55,000
Chapter
17-42 SO 3 Prepare a statement of cash flows using the indirect method.
Investing and Financing Activities
Question
Which is an example of a cash flow from an investing
activity?
a. Receipt of cash from the issuance of bonds
payable.
b. Payment of cash to repurchase outstanding
capital stock.
c. Receipt of cash from the sale of equipment.
d. Payment of cash to suppliers for inventory.
Chapter
17-43 SO 3 Prepare a statement of cash flows using the indirect method.
Using Cash Flows to Evaluate a Company
Chapter
17-44 SO 4 Analyze the statement of cash flows.
Appendix 17A Using a Worksheet to Prepare the
Statement of Cash Flows-Indirect Method
Illustration 17A-1
Chapter SO 5 Explain how to use a worksheet to prepare the statement of cash flows
17-45
using the indirect method.
Appendix 17A Using a Worksheet to Prepare the
Statement of Cash Flows-Indirect Method
Preparing a Worksheet
1. In the balance sheet accounts section, list accounts with
debit balances separately from those with credit balances.
2. Enter the reconciling columns of the worksheet the data
that explain the changes in the balance sheet accounts
other than cash and their effects on the statement of
cash flows.
3. Enter the cash line and at the bottom of the worksheet
the increase or decrease in cash. This entry should enable
the totals of the reconciling columns to be in agreement.
Chapter SO 5 Explain how to use a worksheet to prepare the statement of cash flows
17-46
using the indirect method.
Appendix 17A
Using a Worksheet
to Prepare the
Statement of Cash
Flows-Indirect
Method
Illustration 17A-3
Completed worksheet—
indirect method
Chapter
17-47
Appendix 17B Statement of Cash Flows-Direct Method
Chapter
17-48 SO 6 Prepare a statement of cash flows using the direct method.
Appendix 17B Statement of Cash Flows-Direct Method
Chapter
17-49 SO 6 Prepare a statement of cash flows using the direct method.
Appendix 17B Statement of Cash Flows-Direct Method
Illustration 17B-1
Chapter
17-50 SO 6 Prepare a statement of cash flows using the direct method.
Appendix 17B Statement of Cash Flows-Direct Method
Illustration 17B-1
Chapter
17-51 SO 6 Prepare a statement of cash flows using the direct method.
Appendix 17B Statement of Cash Flows-Direct Method
Illustration 17B-5
Chapter
17-52 SO 6 Prepare a statement of cash flows using the direct method.
Appendix 17B Statement of Cash Flows-Direct Method
Illustration 17B-9
Chapter
17-53 SO 6 Prepare a statement of cash flows using the direct method.
Appendix 17B Statement of Cash Flows-Direct Method
Illustration 17B-11
Chapter
17-54 SO 6 Prepare a statement of cash flows using the direct method.
Appendix 17B Statement of Cash Flows-Direct Method
Illustration 17B-13
Chapter
17-55 SO 6 Prepare a statement of cash flows using the direct method.
Appendix 17B Statement of Cash Flows-Direct Method
Chapter
17-56 SO 6 Prepare a statement of cash flows using the direct method.
Appendix 17B Statement of Cash Flows-Direct Method
Chapter
17-57 SO 6 Prepare a statement of cash flows using the direct method.
Appendix 17B Statement of Cash Flows-Direct Method
Step 2:
Investing
and
Financing
Activities
Illustration 17B-16
Chapter
17-59
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Chapter
17-60