Cash FLows – Part 1 - Exercises Classification of Cash Flows For each event listed below, select the appropriate category which describes the effect of the event on a statement of cash flows: a. Cash provided/used by operating activities. b. Cash provided/used by investing activities. c. Cash provided/used by financing activities. d. Not a cash flow. C/A 1. Payment on long-term debt (company pays INTEREST only) – think about this how this could be both – related to debt because financing and operating because it’s part of operations C 2. Issuance of bonds at a premium A3. Collection of accounts receivable D4.
Cash dividends declared – it’s not a cash flow D 5. Issuance of shares to acquire land (“exchange” of shares for land) – no cash exchanges here B6. Sale of marketable securities (long-term) - A7. Payment of employees' wages C8. Issuance of common shares for cash A/? 9. Payment of income taxes payable – could be disposition of property, etc. then this will fall under investing B10. Purchase of equipment B11. Purchase of common shares in another company B12. Sale of real estate held as a long-term investment Transactions Transaction| Journal Entry| Impact on earnings | Impact on cash flows| Cash flow classification| Adjustment? Issue 1,000 shares for $10,000| Dr. cash (BS) 10K Cr. Common shares 10K| No| INFLOW of 10k| Financing| No reconciliation required; item included in CFF| Purchase inventories for $2,000 on account (i. e. not for cash)| Dr. inventory (BS)CR. Accounts payable (BS)| No| No impact| Operating (no CASH FLOW)| Earnings $0CFO $0| Pay off $2,000 for inventories purchased above| Dr. AP (BS) 2kCr. Cash (BS) 2k| No| OUTFLOW of 2k| Operating| Earnings $0“Adjustment “Change in non-cash working capital $-2kCFO $-2k| Sell $1,000 worth of inventory for $4,000, on account (i. e. not for cash)| Dr. /r 4000Cr. Revenue 4000Dr. Cost of Goods Sold 1000Cr. Inventory 1000| Yes| no| Operating (no cash flow)| Earnings $3000AdjustmentChange in non-cash wc $-3000CFO $0| Collect $4,000 relating to sale above| Dr. cash 4kCr. Ar 4k| no| INFLOW of 4k| Operating | Earnings 0AdjustmentChange in non-cash wc 4kCFO 4k | Purchase truck (PPE) for $3,000 cash| Dr. PPE 3kCr. Cash 3K| No| Outflow of 3k| Investing| Included in CFI; no reconciliation needed| Record depreciation of truck for the period ($500)| Dr. Depreciation expense 500Cr. Acc. Dep. (BS) 500| Yes-500| no| Operating| Earnings -500AdjustmentDepreciation +500CFO 0|
Introduction to Cash Flow construction The Controller of Schmidt Tooling Corporation has provided you with the following information: Schmidt Tooling Corporation| Income Statement| For the Year Ended December 31, 2010| | | | Net Sales| | 620,000 | Operating expenses| | 410,000 | | | 210,000 | Income from operations| | | Other revenues and expenses| | | Gain on sale of equipment| 30,000 | | Interest expense| 8,000 | 22,000 | Income before income taxes| | 232,000 | Income taxes| | 92,800 | Net income| | 139,200 | Schmidt Tooling Corporation|
Comparative Account Information | Relating to Operations| For the Year Ended December 31, 2010| | | | | 2010| 2009| Accounts receivable| 56,000 | 40,000 | Prepaid insurance| 5,000 | 6,000 | Accounts payable| 59,000 | 47,000 | Interest payable| 600 | 1,500 | Income taxes payable| 4,200 | 6,000 | Unearned revenue| 20,000 | 14,000 | Instructions: Prepare a statement of cash flows (for the company’s operating activities only) for the year ended December 31, 2010 using the indirect format.