intermed acc 1 ppt ch05
TRANSCRIPT
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Prepared byCoby Harmon
University of California, Santa Barbara
IntermediateAccounting
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Intermediate Accounting
14th Edition
5 Balance Sheet andStatement of Cash Flows
Kieso, Weygandt, and Warfield
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1. Explain the uses and limitations of a balance sheet.
2. Identify the major classifications of the balance sheet.
3. Prepare a classified balance sheet using the report and account
formats.
4. Indicate the purpose of the statement of cash flows.
5. Identify the content of the statement of cash flows.
6. Prepare a statement of cash flows.
7. Understand the usefulness of the statement of cash flows.
8. Determine which balance sheet information requires supplemental
disclosure.
9. Describe the major disclosure techniques for the balance sheet.
Learning Objectives
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Balance SheetAdditional
Information
Usefulness
Limitations
Classification
Supplemental
disclosures
Techniques of
disclosure
Balance Sheet and Statement of Cash Flows
Statement of Cash
Flows
Purpose
Content and format
Preparation
Usefulness
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Balance Sheet, also referred to as the statement of
financial position:
1. Reports assets, liabilities, and equity at a specific date.
2. Provides information about resources, obligations to
creditors, and equity in net resources.
3. Helps in predicting amounts, timing, and uncertainty of
future cash flows.
Balance Sheet
LO 1 Explain the uses and limitat ion s of a balance sheet.
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Computing rates of return.
Evaluating the capital structure.
Assess risk and future cash flows.
Analyze the companys:
Liquidity,
Solvency, and
Financial flexibility.
Balance Sheet
Usefulness of the Balance Sheet
LO 1 Explain the uses and limitat ion s of a balance sheet.
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Most assets and liabilities are reported at historical
cost.
Use of judgments and estimates.
Many items of financial value are omitted.
Limitations of the Balance Sheet
Balance Sheet
LO 1 Explain the uses and limitat ion s of a balance sheet.
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Classification
LO 2 Identi fy the major classif icat io ns of the balance sheet.
Balance Sheet
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Illustration 5-1
In practice you usually see little departure from these major subdivisions.
Balance Sheet
Classification
LO 2 Identi fy the major classif icat io ns of the balance sheet.
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Cash and other assets a company expects to convert
into cash, sell, or consume either in one year or in the
operating cycle, whichever is longer.
Current Assets
Classification in the Balance Sheet
Illustration 5-2
LO 2 Identi fy the major classif icat io ns of the balance sheet.
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Review
The correct order to present current assets is
a. Cash, accounts receivable, prepaid items, inventories.
b. Cash, accounts receivable, inventories, prepaid items.
c. Cash, inventories, accounts receivable, prepaid items.
d. Cash, inventories, prepaid items, accounts receivable.
Classification in the Balance Sheet
LO 2 Identi fy the major classif icat io ns of the balance sheet.
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Generally any monies available on demand.
Cash equivalents- short-term highly liquid investments
that mature within three months or less. Restrictions or commitments must be disclosed.
Cash
LO 2
Illustration 5-3
Balance SheetCurrent Assets
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Illustration 5-4
Balance SheetRestricted Cash
Cash
LO 2 Identi fy the major classif icat io ns of the balance sheet.
Balance SheetCurrent Assets
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Portfolios Type Valuation Classification
Held-to-Maturity Debt AmortizedCost Current orNoncurrent
TradingDebt orEquity
Fair Value Current
Available-for-Sale
Debt orEquity
Fair ValueCurrent orNoncurrent
Short-Term Investments
LO 2 Identi fy the major classif icat io ns of the balance sheet.
Balance SheetCurrent Assets
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Illustration 5-5
Balance Sheet Presentation of
Investments in Securities
Short-Term Investments
LO 2 Identi fy the major classif icat io ns of the balance sheet.
Balance SheetCurrent Assets
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Major categories of receivables should be shown in the
balance sheet or the related notes.
A company should clearly identify
Anticipated loss due to uncollectibles.
Amount and nature of any nontrade receivables.
Receivables used as collateral.
Receivables
LO 2 Identi fy the major classif icat io ns of the balance sheet.
Balance SheetCurrent Assets
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ReceivablesIllustration 5-6
Balance Sheet Presentation
of Receivables
LO 2 Identi fy the major classif icat io ns of the balance sheet.
Balance SheetCurrent Assets
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Inventories
Disclose:
Basis of valuation (e.g., lower-of-cost-or-market).
Cost flow assumption (e.g., FIFO or average cost).
LO 2
Illustration 5-6
Balance SheetCurrent Assets
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Payment of cash, that is recorded as an asset becauseservice or benefit will be received in the future.
insurance
supplies
advertising
Cash Payment Expense RecordedBEFORE
rent
taxes
Prepayments often occur in regard to:
Prepaid Expenses
LO 2 Identi fy the major classif icat io ns of the balance sheet.
Balance SheetCurrent Assets
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Prepaid Expenses
Illustration 5-9
LO 2 Identi fy the major classif icat io ns of the balance sheet.
Balance SheetCurrent Assets
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Current Assets - Summary
Balance Sheet (in thousands)
Current assets
Cash 285,000$ST Investments 140,000
Accounts receivable 777,000
Inventory 402,000
Prepaid expenses 170,000
Total current assets 1,774,000Investments:
Invesment in ABC bonds 321,657
Investment in UC Inc. 253,980
Cash and other assets
a company expects to
convert into cash,
sell, or
consume
either in one year orinthe operating cycle,
whichever is longer.
LO 2 Identi fy the major classif icat io ns of the balance sheet.
Balance SheetCurrent Assets
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Long-term Investments
1. Securities(bonds, common stock, or long-term notes).
2. Tangible fixed assetsnot currently used in operations
(land held for speculation).
3. Special funds(sinking fund, pension fund, or plant
expansion fund.
4. Non-consolidated subsidiariesor affilated companies.
Classification in the Balance Sheet
Non-Current Assets
LO 2 Identi fy the major classif icat io ns of the balance sheet.
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Portfolios Type Valuation Classification
Held-to-Maturity Debt
AmortizedCost
Current orNoncurrent
TradingDebt orEquity
Fair Value Current
Available-for-Sale
Debt orEquity
Fair ValueCurrent orNoncurrent
Balance SheetNoncurrent Assets
Long-Term Investments
LO 2 Identi fy the major classif icat io ns of the balance sheet.
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Long-TermInvestments
SecuritiesInvestments:
Invesment in ABC bonds 321,657
Investment in UC Inc. 253,980Notes receivable 150,000
Land held for speculation 550,000
Sinking fund 225,000
Pension fund 653,798
Cash surrender value 84,321Investment in Uncon. Sub. 457,836
Total investments 2,696,592
Property, Plant, and Equip.
Building 1,375,778
Land 975,000
bonds,
stock, and
long-term notes
For marketable securities,
managements intent
determines current or
noncurrent classification.
Balance Sheet (in thousands)
Current assets
Cash 285,000$
LO 2
Balance SheetNoncurrent Assets
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Long-TermInvestments
Investments:
Invesment in ABC bonds 321,657
Investment in UC Inc. 253,980Notes receivable 150,000
Land held for speculation 550,000
Sinking fund 225,000
Pension fund 653,798
Cash surrender value 84,321Investment in Uncon. Sub. 457,836
Total investments 2,696,592
Property, Plant, and Equip.
Building 1,375,778
Land 975,000
Balance SheetNoncurrent Assets
Balance Sheet (in thousands)
Current assets
Cash 285,000$
Fixed Assets
Land held for
speculation
LO 2
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Long-TermInvestments
Investments:
Invesment in ABC bonds 321,657
Investment in UC Inc. 253,980Notes receivable 150,000
Land held for speculation 550,000
Sinking fund 225,000
Pension fund 653,798
Cash surrender value 84,321Investment in Uncon. Sub. 457,836
Total investments 2,696,592
Property, Plant, and Equip.
Building 1,375,778
Land 975,000
Balance SheetNoncurrent Assets
Balance Sheet (in thousands)
Current assets
Cash 285,000$
Special Funds Sinking fund
Pensions fund
Cash surrender
value of life
insurance
LO 2
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Long-TermInvestments
Investments:
Invesment in ABC bonds 321,657
Investment in UC Inc. 253,980Notes receivable 150,000
Land held for speculation 550,000
Sinking fund 225,000
Pension fund 653,798
Cash surrender value 84,321Investment in Uncon. Sub. 457,836
Total investments 2,696,592
Property, Plant, and Equip.
Building 1,375,778
Land 975,000
Balance SheetNoncurrent Assets
Balance Sheet (in thousands)
Current assets
Cash 285,000$
Nonconsolidated
Subsidiaries orAffiliated
Companies
LO 2
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Long-Term InvestmentsIllustration 5-10
Balance Sheet
Presentation of
Long-Term Investments
LO 2 Identi fy the major classif icat io ns of the balance sheet.
Balance SheetNoncurrent Assets
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Tangible long-lived assets used in the regular operations
of the business.
Physical propertysuch as land, buildings, machinery,
furniture, tools, and wasting resources (minerals).
With the exception of land, a company either depreciates
(e.g., buildings) or depletes (e.g., oil reserves) theseassets.
Property, Plant, and Equipment
LO 2 Identi fy the major classif icat io ns of the balance sheet.
Balance SheetNoncurrent Assets
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5-30 LO 2 Identi fy the major classif icat io ns of the balance sheet.
Property, Plant, andEquipment
Total investments 2,696,592
Property, Plant, and Equip.
Building 1,375,778
Land 975,000
Machinery and equipment 234,958
Capital leases 384,650
Leasehold improvements 175,000
Accumulated depreciation (975,000)
Total PP&E 2,170,386Intangibles
Goodwill 3,000,000
Patents 177,000
Trademarks 40,000
Balance SheetNoncurrent Assets
Tangible assets used
in the regular
operations of the
business.
Balance Sheet (in thousands)
Current assets
Cash 285,000$
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Illustration 5-11Balance Sheet Presentation of
Property, Plant, and Equipment
LO 2 Identi fy the major classif icat io ns of the balance sheet.
Balance SheetNoncurrent Assets
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Total PP&E 2,170,386
Intangibles
Goodwill 2,000,000
Patents 177,000
Trademark 40,000
Franchises 125,000
Copyright 55,000
Total intangibles 2,397,000
Other assets
Prepaid pension costs 133,000
Deferred income tax 40,000
Total other 173,000
Total Assets 9,210,978$
Balance SheetNoncurrent Assets
Balance Sheet (in thousands)
Current assets
Cash 285,000$Intangibles
Lack physical substance
and are not financial
instruments.
Limited life
intangibles amortized.
Indefinite-life
intangibles tested forimpairment.
LO 2
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Int ang ib les (BE5-6): Patrick Corporation adjusted trial balancecontained the following asset accounts at December 31, 2012: Prepaid
Rent $12,000; Goodwill $50,000; Franchise Fees Receivable $2,000;
Franchises $47,000; Patents $33,000; Trademarks $10,000. Prepare
the intangible assets sectionof the balance sheet.
Intangibles
Goodwill $ 50,000
Franchises 47,000
Patents 33,000
Trademarks 10,000
Total $140,000
LO 2 Identi fy the major classif icat io ns of the balance sheet.
Balance SheetNoncurrent Assets
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Intangible AssetsIllustration 5-12
Balance Sheet
Presentation of
Intangible Assets
LO 2 Identi fy the major classif icat io ns of the balance sheet.
Balance SheetNoncurrent Assets
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Items vary in practice. Can include:
Long-term prepaid expenses
Non-current receivables
Assets in special funds
Property held for sale
Restricted cash or securities
Other Assets
LO 2 Identi fy the major classif icat io ns of the balance sheet.
Balance SheetNoncurrent Assets
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Total PP&E 2,170,386
Intangibles
Goodwill 2,000,000
Patents 177,000
Trademark 40,000
Franchises 125,000
Copyright 55,000
Total intangibles 2,397,000
Other assets
Prepaid pension costs 133,000
Deferred income tax 40,000
Total other 173,000
Total Assets 9,210,978$
Balance SheetNoncurrent Assets
Balance Sheet (in thousands)
Current assets
Cash 285,000$Other Assets
This section should
include only unusual items
sufficiently different from
assets in the other
categories.
LO 2
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Obligations that a
company reasonably
expects to liquidate eitherthrough the use of current
assets or the creation of
other current liabilities.
Classification in the Balance Sheet
Current Liabilities Balance Sheet (in thousands)Current liabilities
Notes payable 233,450$
Accounts payable 131,800
Accrued compensation 43,000
Unearned revenue 17,000Income tax payable 23,400
Current maturities LT debt 121,000
Total current liabilities 569,650
Long-term liabilities
Long-term debt 979,500
Obligations capital lease 345,800
Deferred income taxes 77,909
Total long-term liabilities 1,403,209
Stockholders' equity
LO 2 Identi fy the major classif icat io ns of the balance sheet.
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Current LiabilitiesIllustration 5-13
Balance Sheet Presentation
of Current Liabilities
LO 2 Identi fy the major classif icat io ns of the balance sheet.
Classification in the Balance Sheet
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Obligations that a
company does not
reasonably expect toliquidate within the normal
operating cycle.
All covenants andrestrictions must be
disclosed.
Long-Term Liabilities Balance Sheet (in thousands)Current liabilities
Notes payable 233,450$
Accounts payable 131,800
Accrued compensation 43,000
Unearned revenue 17,000Income tax payable 23,400
Current maturities LT debt 121,000
Total current liabilities 569,650
Long-term liabilities
Long-term debt 979,500
Obligations capital lease 345,800
Deferred income taxes 77,909
Total long-term liabilities 1,403,209
Stockholders' equity
LO 2 Identi fy the major classif icat io ns of the balance sheet.
Classification in the Balance Sheet
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Long -Term Liabi l i t ies (BE5-9): Included in Adams CompanysDecember 31, 2012, trial balance are the following accounts: Accounts
Payable $220,000; Pension Asset/Liability $375,000; Discount on
Bonds Payable $29,000; Unearned Revenue $41,000; Bonds Payable
$400,000; Salaries and Wages Payable $27,000; Interest Payable
$12,000; Income Taxes Payable $29,000. Prepare the long-termliabilitiessection of the balance sheet.
Long-term liabilities
Pension Asset/liability $375,000
Bonds payable 400,000
Discount on bonds payable (29,000)
Total 746,000
LO 2 Identi fy the major classif icat io ns of the balance sheet.
Balance SheetLong-Term Liabilities
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Non-Current LiabilitiesIllustration 5-14
Balance Sheet Presentation
of Non-Current Liabilities
LO 2 Identi fy the major classif icat io ns of the balance sheet.
Balance SheetLong-Term Liabilities
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Owners Equity
LO 2 Identi fy the major classif icat io ns of the balance sheet.
Balance SheetOwners Equity
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Illustration 5-15
Balance Sheet Presentation
of Stockholders Equity
Owners Equity
LO 2 Identi fy the major classif icat io ns of the balance sheet.
Balance SheetOwners Equity
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(a) Investment in preferred stock
Classification in the Balance Sheet
Account
(b) Treasury stock
(c) Common stock
(d) Cash dividends payable
(e) Accumulated depreciation
(f) Interest payable
(g) Deficit(h) Trading securities
(i) Unearned revenue
(a) Current asset/Investment
(b) Stockholders Equity
(c) Stockholders Equity
(d) Current liability
(e) Contra-asset
(f) Current liability
(g) Stockholders Equity(h) Current asset
(i) Current liability
Classification
LO 2 Identi fy the major classif icat io ns of the balance sheet.
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Classified Balance Sheet
Account form
Report form
Balance Sheet Format
Acc oun t ing Trends and Techn iques2009(New York:AICPA) indicates that all of the 500 companies surveyed
use either the report form (438) or the account form (62),sometimes collectively referred to as the customary form.
LO 3 Prepare a classi f ied balance sheet using the report and accoun t formats.
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5-46 LO 3 Prepare a classi f ied balance sheet using the report and accoun t formats.
Balance Sheet Format
Account Form Illustration 5-16
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Balance Sheet
Format
Report Form
Illustration 5-16
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Statement of Cash Flows
LO 4 Indicate the purp ose of the statement of cash f lows.
One of the three basic objectives of financialreporting is
assessing the amounts, timing, and
uncertainty of cash flows.
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To provide relevant information about the cash receipts
and cash payments of an enterprise during a period.
The statement provides answers to the followingquestions:
1. Where did the cash come from?
2. What was the cash used for?
3. What was the change in the cash balance?
Purpose of the Statement of Cash Flows
Statement of Cash Flows
LO 4 Indicate the purp ose of the statement of cash f lows.
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Three different activities:
Operating,
Content and Format
Statement of Cash Flows
LO 5 Ident i fy the content of the statement of cash f lows.
Investing, Financing
Illustration 5-17
Basic Format of Cash
Flow Statement
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Financing
Cash inflows and
outflows from
non-current
liabilities and
equity.
Statement of Cash Flows
Operating
Cash inflows and
outflows that
enter into the
determination of
net income.
Investing
Cash inflows and
outflows from
non-current
assets.
The statements value is that it helps users evaluate liquidity, solvency,
and financial flexibility.
LO 5 Ident i fy the content of the statement of cash f lows.
Content and Format
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Statement of Cash Flows
LO 5 Ident i fy the content of the statement of cash f lows.
Illustration 5-18
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Information obtained from several sources:
(1) comparative balance sheets,
(2) the current income statement, and
(3) selected transaction data.
Sources of Information
Preparation of the Statement of Cash Flows
LO 6 Prepare a basic statement o f cash f lows.
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Statement of Cash Flows
Statement of Cash Flow s: On January 1, 2012, in its firstyear of operations, Telemarketing Inc. issued 50,000 shares of
$1 par value common stock for $50,000 cash. The company
rented its office space, furniture, and telecommunications
equipment and performed marketing services throughout thefirst year. In June 2012 the company purchased land for
$15,000. Illustration 5-19 shows the companys comparative
balance sheets at the beginning and end of 2012.
LO 6 Prepare a basic statement o f cash f lows.
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Statement of Cash Flows
LO 6
Illustration 5-19
Illustration 5-20
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Statement of Cash Flows
Preparing the Statement of Cash FlowsDetermine:
1. Cash provided by (or used in) operating activities.
2. Cash provided by or used in investing and financing
activities.
3. Determine the change (increase or decrease) in cash
during the period.4. Reconcile the change in cash with the beginning and the
ending cash balances.
LO 6 Prepare a basic statement o f cash f lows.
St t t f C h Fl
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Statement of Cash Flows
Cash provided by operating activitiesIllustration 5-21
Illustration 5-19
Illustration 5-20
LO 6 Prepare a basic statement o f cash f lows.
Illustration 5-19
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Statement of
Cash Flows
Illustration 5-21
Next, the company
determines its investingand financing activities.
Illustration 5-20
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Statement of Cash Flows
Statement o f Cash Flow s (BE 5-12): Keyser BeverageCompany reported the following items in the most recent year.
Activity
Operating
Financing
Operating
Operating
Investing
Operating
Financing
Required:Compute net cash provided by operating activities.
Net income $40,000
Dividends paid 5,000
Increase in accounts receivable 10,000
Increase in accounts payable 7,000
Purchase of equipment 8,000
Depreciation expense 4,000
Issue of notes payable 20,000
LO 6 Prepare a basic statement o f cash f lows.
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Statement of Cash Flow (in thousands)
Operating activities
Net income 40,000$
Increase in accounts receivable (10,000)
Increase in accounts payable 5,000Depreciation expense 40,000
Cash flow from operations 75,000
Investing activities
Purchase of equipment (8,000)
Financing activitiesProceeds from notes payable 20,000
Dividends paid (5,000)
Cash flow from financing 15,000
Increase in cash 82,000$
Statement of Cash Flows
Noncash charge toexpenses.
Statement o f Cash Flows (BE 5-12)
LO 6 Prepare a basic statement o f cash f lows.
Noncash credit torevenues.
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ReviewIn preparing a statement of cash flows, which of the following
transactions would be considered an investing activity?
a. Sale of equipment at book value
b. Sale of merchandise on credit
c. Declaration of a cash dividend
d. Issuance of bonds payable at a discount receivable.
Statement of Cash Flows
LO 6 Prepare a basic statement o f cash f lows.
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Issuance of common stock to purchase assets.
Conversion of bonds into common stock. Issuance of debt to purchase assets.
Exchanges on long-lived assets.
Statement of Cash Flows
Significant financing and investing activities that do not
affect cash are reported in either a separate schedule at
the bottom of the statement of cash flows or in the notes.
Examples include:
Significant Noncash Activities
LO 6 Prepare a basic statement o f cash f lows.
Statement of Cash Flo s
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Statement of Cash Flows
Illustration 5-23
Comprehensive
Statement of Cash Flows
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High amount- company able to generate sufficient
cash to pay its bills.
Low amount- company may have to borrow or issue
equity securities to pay bills.
Usefulness of the Statement of Cash Flows
Without cash, a company will not survive.
Cash flow from Operations:
LO 7 Understand the usefulness of the statement of cash f lows .
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Usefulness of the Statement of Cash Flows
Ratio indicates whether the company can pay off its current
liabilities from its operations. A ratio near 1:1 is good.
LO 7 Understand the usefulness of the statement of cash f lows .
Financial Liquidity
Net Cash Provided byOperating Activities
Average Current Liabilities
Current Cash
Debt Coverage
Ratio=
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Usefulness of the Statement of Cash Flows
This ratio indicates a companys ability to repay its liabilities
from net cash provided by operating activities, without havingto liquidate the assets employed in its operations.
LO 7 Understand the usefulness of the statement of cash f lows .
Net Cash Provided byOperating Activities
Average Total Liabilities
Cash Debt
Coverage
Ratio=
Financial Liquidity
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Usefulness of the Statement of Cash Flows
The amount of discretionary cash flow a company has forpurchasing additional investments, retiring its debt, purchasing
treasury stock, or simply adding to its liquidity.
LO 7 Understand the usefulness of the statement of cash f lows .
Illustration 5-28Free Cash Flow
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ReviewThe current cash debt coverage ratio is often used to assess
a. financial flexibility.
b. liquidity.
c. profitability.
d. solvency.
LO 7 Understand the usefulness of the statement of cash f lows .
Usefulness of the Statement of Cash Flows
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Supplemental Disclosures
Four types of information that are supplemental to accounttitles and amounts presented in the balance sheet:
LO 8 Determine which balance sheet inform at ion
requires supp lemental disclo sure.
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Parenthetical Explanations
Notes
Cross-Reference and Contra Items
Supporting Schedules
Terminology
Techniques of Disclosure
LO 9 Descr ibe the major disc losure techniqu es for the balance sheet.
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5-71 LO 10 Ident i fy the major types of f inancial rat ios and wh at they measure.
Using Ratios to Analyze PerformanceAnalysts and other interested parties can gather qualitative
information from financial statements by examining
relationships between items on the statements and identifying
trends in these relationships.
APPENDIX5A Ratio AnalysisA Reference
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5-72 LO 10 Ident i fy the major types of f inancial rat ios and wh at they measure.
Using Ratios to Analyze Performance Illustration 5A-1A Summary of Financial Ratios
APPENDIX5A Ratio AnalysisA Reference
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5-73 LO 10 Ident i fy the major types of f inancial rat ios and wh at they measure.
Using Ratios to Analyze Performance Illustration 5A-1A Summary of Financial Ratios
APPENDIX5A Ratio AnalysisA Reference
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5-74 LO 10 Ident i fy the major types of f inancial rat ios and wh at they measure.
Using Ratios to Analyze Performance Illustration 5A-1A Summary of Financial Ratios
APPENDIX5A Ratio AnalysisA Reference
Specimen Financial Statements:
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APPENDIX5BSpecimen Financial Statements:
The Procter & Gamble Company
Specimen Financial Statements:
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APPENDIX5BSpecimen Financial Statements:
The Procter & Gamble Company
5BSpecimen Financial Statements:
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APPENDIX5BSpecimen Financial Statements:
The Procter & Gamble Company
5BSpecimen Financial Statements:
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APPENDIX5BSpecimen Financial Statements:
The Procter & Gamble Company
5BSpecimen Financial Statements:
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APPENDIX5BSpecimen Financial Statements:
The Procter & Gamble Company
5BSpecimen Financial Statements:
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APPENDIX5BSpecimen Financial Statements:
The Procter & Gamble Company
5BSpecimen Financial Statements:
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APPENDIX5BSpecimen Financial Statements:
The Procter & Gamble Company
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RELEVANT FACTS IFRS recommends but does not require the use of the title
statement of financial position rather than balance sheet.
IFRS requires a classified statement of financial position except in
very limited situations. IFRS follows the same guidelines as thistextbook for distinguishing between current and noncurrent assets
and liabilities. However under GAAP, public companies must follow
SEC regulations, which require specific line items. In addition,
specific GAAP standards mandate certain forms of reporting this
information.
Under IFRS, current assets are usually listed in the reverse order of
liquidity. For example, under GAAP cash is listed first, but under
IFRS it is listed last.
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RELEVANT FACTS IFRS has many differences in terminology that you will notice in this
textbook.
Both IFRS and GAAP require disclosures about (1) accounting
policies followed, (2) judgments that management has made in theprocess of applying the entitys accounting policies, and (3) the key
assumptions and estimation uncertainty that could result in a
material adjustment to the carrying amounts of assets and liabilities
within the next financial year. Comparative prior period information
must be presented and financial statements must be preparedannually.
Use of the term reserve is discouraged in GAAP, but there is no
such prohibition in IFRS.
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Current assets under IFRS are listed generally:
a. by importance.
b. in the reverse order of their expected conversion to cash.
c. by longevity.
d. alphabetically.
IFRS SELF-TEST QUESTION
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Companies that use IFRS:
a. may report all their assets on the statement of financial position
at fair value.
b. are not allowed to net assets (assets 2 liabilities) on their
statement of financial positions.
c. may report noncurrent assets before current assets on the
statement of financial position.
d. do not have any guidelines as to what should be reported on the
statement of financial position.
IFRS SELF-TEST QUESTION
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A company has purchased a tract of land and expects to build a
production plant on the land in approximately 5 years. During the 5
years before construction, the land will be idle. Under IFRS, the land
should be reported as:
a. land expense.
b. property, plant, and equipment.
c. an intangible asset.
d. a long-term investment.
IFRS SELF-TEST QUESTION
Copyright
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