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Chapter 14

Statement of Cash Flows

Multimedia Slides by: Gail A. Mestas, MAcc, New Mexico State University

The Statement of Cash Flows
… shows how a company’s operating, investing, and financing activities affected cash during an accounting period

• Explains the net increase (or decrease) in cash during the accounting period

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14–2

Cash and Cash Equivalents
• Cash includes cash and cash equivalents
– Cash
• Money on hand • Deposits in company checking accounts

– Cash equivalents
• Short-term, highly liquid investments including
– Money market accounts – Commercial paper – U.S. Treasury bills

• Combined with the Cash account on the cash flows

statement of

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14–3

All rights reserved. 14–4 .Purposes of the Statement of Cash Flows … is to provide information about a company’s cash receipts and cash payments during an accounting period • Other financial statements may also provide some of this information Copyright © Houghton Mifflin Company.

All rights reserved.Internal Uses of the Statement of Cash Flows • Management uses the statement of cash flows to – Assess liquidity • Determine if short-term financing is necessary – Determine dividend policy • Decide whether to raise or lower dividends – Evaluate the effects of investment and financing decisions • Plan for investing and financing needs Copyright © Houghton Mifflin Company. 14–5 .

External Uses of the Statement of Cash Flows • Investors and creditors use the statement of cash flows to assess a company’s ability to – Manage cash flows – Generate positive future cash flows – Pay its liabilities – Pay dividends and interest – Anticipate its need for additional financing Copyright © Houghton Mifflin Company. All rights reserved. 14–6 .

Investing activities 3.Classification of Cash Flows • The statement of cash flows classifies cash receipts and cash payments into categories 1. Financing activities Copyright © Houghton Mifflin Company. Operating activities 2. 14–7 . All rights reserved.

14–8 . All rights reserved. items on the income statement are changed from an accrual to a cash basis Copyright © Houghton Mifflin Company.Operating Activities … include the cash effects of transactions and other events that affect the income statement • In effect.

All rights reserved.Operating Activities • Cash inflows – Cash receipts from customers for goods and services – Interest and dividends received on loans and investments – Sales of trading securities • Cash outflows – Cash payments for • Wages • Goods and services • Expenses • Interest • Taxes • Purchases of trading securities Copyright © Houghton Mifflin Company. 14–9 .

All rights reserved. 14–10 .Investing Activities … include the cash effects of transactions that affect long-term assets • Acquiring and selling long-term assets • Acquiring and selling marketable securities other than trading securities or cash equivalents • Making and collecting loans Copyright © Houghton Mifflin Company.

14–11 . All rights reserved.Investing Activities • Cash inflows – Cash receipts from selling long-term assets and marketable securities – Collecting loans • Cash outflows – Cash expended for purchases of long-term assets and marketable securities – Cash loaned to borrowers Copyright © Houghton Mifflin Company.

All rights reserved. 14–12 .Financing Activities … include the cash effects of transactions that affect long-term liabilities and stockholders’ equity • Obtaining resources from stockholders • Returning resources to stockholders and providing them with a return on their investment • Obtaining resources from creditors • Repaying amounts borrowed from creditors or otherwise settling obligations – Repayments of accounts payable or accrued liabilities are classified under operating activities Copyright © Houghton Mifflin Company.

Financing Activities • Cash inflows – Proceeds from issues of stock – Proceeds from short-term and long-term borrowing • Cash outflows – Repayment of loans – Payments to owners (cash dividends) – Treasury stock transactions Copyright © Houghton Mifflin Company. All rights reserved. 14–13 .

Classification of Cash Inflows and Cash Outflows .

Noncash Investing and Financing Transactions • Involve only long-term assets long-term liabilities stockholders’ equity in significant investing and financing activities • Not reflected on the statement of cash flows because they do not involve either cash inflows or cash outflows • Disclosed in a separate schedule as part of the statement of cash flows Copyright © Houghton Mifflin Company. All rights reserved. 14–15 .

Format of the Statement of Cash Flows • Divided into three sections – Cash flows from operating activities – Cash flows from investing activities – Cash flows from financing activities • A reconciliation of beginning and ending Cash balances appears near the bottom of the statement • Schedule of noncash investing and financing transactions .

Cash-Generating Efficiency (CGE) …shows the company’s ability to generate cash from its current or continuing operations • There are three measures of CGE 1. All rights reserved. Cash Flow Yield Cash Flow Yield  Net Cash Flows from Operating Activities Net Income Shows how much of net income actually results in operating cash inflows 14–17 $850   1. .8 times $479 Copyright © Houghton Mifflin Company.

239  $7.017 Shows how much of net sales actually results in cash inflows 3. Cash Flows to Assets Cash Flows to Assets  Shows how much cash is being generated by operations for each dollar of assets Net Cash Flows from Operating Activities Average Total Assets $850   10.Cash-Generating Efficiency (CGE) (cont’d) 2. .9% ($8. Cash Flows to Sales Net Cash Flows from Operating Activities Cash Flows to Sales  Net Sales $850   8.324)  2 14–18 Copyright © Houghton Mifflin Company.5% $10. All rights reserved.

income taxes.Free Cash Flow (FCF) … is the amount of cash that remains after paying for continuing operations at the current level. . All rights reserved. and net capital expenditures • Shows how much cash a company has available to reduce debt or expand Free Cash Flow = – – + Net Cash Flows from Operating Activities Dividends Purchases of Plant Assets Sales of Plant Assets 14–19 Copyright © Houghton Mifflin Company. interest. dividends.

All rights reserved. the company will have to – Sell investments – Borrow money – Issue stock in the short term to continue at its planned level of operation Copyright © Houghton Mifflin Company. 14–20 . the company – Has met all of its planned cash commitments – Has cash available to reduce debt or expand • If free cash flow is negative.Free Cash Flow (cont’d) • If free cash flow is positive.

The indirect method • • • Both methods produce the same net figure Copyright © Houghton Mifflin Company.Determining Cash Flows from Operating Activities • There are two methods of converting the income statement from an accrual basis to a cash basis 1. 14–21 . All rights reserved. The direct method • Adjusts each item in the income statement to its cash equivalent More easily understood by the average reader Lists only necessary adjustments to convert net income to net cash flows Superior from an analyst’s perspective Used by most companies • • 2.

All rights reserved.Indirect Method of Determining Net Cash Flows from Operating Activities Copyright © Houghton Mifflin Company. 14–22 .

and depletion expense are allocations of expense and do not involve cash flows • An adjustment is needed to increase net income by the amount recorded Copyright © Houghton Mifflin Company. 14–23 .Depreciation • Depreciation. All rights reserved. amortization.

All rights reserved.000 to net income Copyright © Houghton Mifflin Company. 14–24 .000 Cash Effect on income statement: -$37.000 Income Taxes Payable 37.000 less.000 Effect on cash flows: zero Cash flow out is $37.Adjustments to Depreciation Depreciation expense $37.000 Depreciation Expense 37. because depreciation expense has no cash effect Add $37.

000 $37.000 Cash Cash Flows from Operating Activities Net income Depreciation expense $16.000 Copyright © Houghton Mifflin Company.000 Depreciation Expense 37. 14–25 . All rights reserved.000 Accumulated Depreciation 37.Adjustments to Depreciation Depreciation expense $37.

14–26 .Gains and Losses • Gains and losses do not affect cash flows from operating activities and need to be removed from this section • The cash receipts that resulted in the gains or losses are shown with investing activities Copyright © Houghton Mifflin Company. All rights reserved.

Adjustments to Gains and Losses Gain on sale of investments Investments sold for $102.000 90.000 Investments 90.000 Cash 102. All rights reserved. .Investments 12.000 -0- +$102.000) $12.000 from net income 14–27 +$12.000 Copyright © Houghton Mifflin Company.000 Effect on cash flows: (Shown under investing activities) Gains do not affect cash flows from operating activities and need to be removed from this section Effect on income statement: Deduct $12.000 Gain on Sale .000 (original cost $90.

000 $37.000 -0- Cash Flows from Operating Activities Net income Depreciation expense Gain on sale of investments $16.000 (original cost $90.000) $12.Investments 12.000 Investments 90.Adjustments to Gains and Losses Gain on sale of investments Investments sold for $102.000 Cash 102.000) Copyright © Houghton Mifflin Company.000 90.000 Gain on Sale . 14–28 .000 (12. All rights reserved.

000 to net income -$3. All rights reserved. Plant Assets 2.000 +$5. 14–29 .000 2.000) sold for $5.000 Loss on Sale of Plant Assets 3.000 -0- $3.000 10.000 -0- Cash 5.000 Accum.000 Effect on cash flows: (Shown under investing activities) Losses do not affect cash flows from operating activities and need to be removed from this section Effect on income statement: Add $3.000 Copyright © Houghton Mifflin Company. Dep.Adjustments to Gains and Losses Loss on sale of plant assets Plant assets (original cost $10.000 Plant Assets 10.

000 Copyright © Houghton Mifflin Company.000 2.000 Cash Flows from Operating Activities Net income Depreciation expense Gain on sale of investments Loss on sale of plant assets $16.000 Cash 5. Plant Assets 2.000 10.000 Loss on Sale of Plant Assets 3. Dep.000 $37.Adjustments to Gains and Losses Loss on sale of plant assets Plant assets (original cost $10.000 (12.000) 3.000) sold for $5.000 -0Accum. All rights reserved.000 -0- $3. 14–30 .000 Plant Assets 10.

Changes in Current Assets • Decreases are added to net income • Increases are deducted from net income Copyright © Houghton Mifflin Company. 14–31 . All rights reserved.

47. Bal.000 to net income because cash received from sales was $8.$698.Adjustments to Changes in Current Assets • Example – Accounts Receivable balance decreased by $8. 55.000 End.000 706. Bal.$55.000 .000) Accounts Receivable Beg. All rights reserved.000 698.000 more than sales ($706.000 ($47.000 . 14–32 .000 Cash Receipts from Customers Sales to Customers Copyright © Houghton Mifflin Company.000) – Add $8.

Adjustments to Changes in Current Assets Beginning Accounts Receivable Ending Accounts Receivable Sales $ 55. All rights reserved.000 Sales 698.000 more than Sales because Accounts Receivable decreased $8.000 47. 14–33 .000 to net income Copyright © Houghton Mifflin Company.000 Effect on income statement: +$698.000 Cash 706.000 47.000 706.000 Cash flow in is $8.000 698.000 Effect on cash flows: +$706.000 698.000 Accounts Receivable 55.000 Add $8.

000 698. 14–34 .000 706.000) 3.000 47.000 (12.Adjustments to Changes in Current Assets Beginning Accounts Receivable Ending Accounts Receivable Sales Sales Accounts Receivable $ 55.000 Cash 698.000 Cash Flows from Operating Activities Net income Depreciation expense Gain on sale of investments Loss on sale of plant assets Decrease in accounts receivable 706.000 47.000 Copyright © Houghton Mifflin Company.000 8.000 $37. All rights reserved.000 $16.000 55.000 698.

000 34.000 Effect on income statement: None Effect on cash flows: -$34.000 $110.Adjustments to Changes in Current Assets Beginning Inventory Ending Inventory Inventory 110. All rights reserved.000 Cash flow out is $34.000 Cash 34.000 144.000 144. 14–35 .000 more because the Inventory account increased Deduct 34.000 from net income Copyright © Houghton Mifflin Company.

000 34.000 (12.Adjustments to Changes in Current Assets Beginning Inventory Ending Inventory Inventory 110.000 144. 14–36 .000 Cash 34. All rights reserved.000 8.000 $110.000) Copyright © Houghton Mifflin Company.000) 3.000 (34.000 $37.000 Cash Flows from Operating Activities Net income Depreciation expense Gain on sale of investments Loss on sale of plant assets Decrease in accounts receivable Increase in inventory $16.000 144.

All rights reserved.000 $5.000 Effect on income statement: -$6.000 1.000 Add $4. 14–37 .000 6.000 Cash flow out is $4.000 Cash 6.Adjustments to Changes in Current Assets Beginning Prepaid Expenses Ending Prepaid Expenses Insurance expense Insurance Expense Prepaid Expenses 5.000 to net income Copyright © Houghton Mifflin Company.000 2.000 1.000 less than expenses because Prepaid Expenses decreased $4.000 2.000 Effect on cash flows: -$2.000 6.

000 6.000 (12. 14–38 .000 6.000 2.000 Cash 6.000 $37.000 8.000) 4.000 2.000 Copyright © Houghton Mifflin Company.000 $5. All rights reserved.000 1.Adjustments to Changes in Current Assets Beginning Prepaid Expenses Ending Prepaid Expenses Insurance expense Insurance Expense Prepaid Expenses 5.000) 3.000 1.000 Cash Flows from Operating Activities Net income Depreciation expense Gain on sale of investments Loss on sale of plant assets Decrease in accounts receivable Increase in inventory Decrease in prepaid expenses $16.000 (34.

14–39 . All rights reserved.Changes in Current Liabilities • Increases are added to net income • Decreases are deducted from net income Copyright © Houghton Mifflin Company.

Bal.000 554.000 . Bal. 43.000) – Add $7.000) Cash Paid to Suppliers Accounts Payable 547.$43.000 ($50.000 End. All rights reserved.000 Purchases Copyright © Houghton Mifflin Company.000 less than what appears on the income statement ($554.000 Beg.000 . 50.Adjustments to Changes in Current Liabilities • Example – Accounts Payable balance increased by $7.$547.000 to net income because cash paid for purchases was $7. 14–40 .

14–41 .000 less because Accounts Payable decreased Add $7.000 Effect on cash flows: -$513.000 Accounts Payable 43.000 $43.000 Effect on income statement: -$520.000 513.000 Cash 513.000 50. All rights reserved.000 to net income Copyright © Houghton Mifflin Company.000 520.000 520.Adjustments to Changes in Current Liabilities Beginning Accounts Payable Ending Accounts Payable Cost of Goods Sold Cost of Goods Sold 520.000 50.000 Cash flow out is $7.

000 (12.000 50.000 50.000) 4.000 7.000 (34.000 Cash 513.000 520.Adjustments to Changes in Current Liabilities Beginning Accounts Payable Ending Accounts Payable Cost of Goods Sold Cost of Goods Sold 520. 513.000 8. All rights reserved.000 $16.000 Cash Flows from Operating Activities Net income Depreciation expense Gain on sale of investments Loss on sale of plant assets Decrease in accounts receivable Increase in inventory Decrease in prepaid expenses Increase in accounts payable Copyright © Houghton Mifflin Company.000 $37.000 520.000) 3.000 $43.000 Accounts Payable 43.000 14–42 .

14–43 .000 554.000 43.000 more than expenses (-$34.000 Cash 110. All rights reserved.000 .000) $7.000) $34.000 Effect on income statement: -$520.000 $110.000 Ending Accounts Payable 520.000 554.000 .000 Beginning Accounts Payable 144.000 144.000 554.000 + $7.$110.000 Cash flow out is $27.Relationship of Inventory and Accounts Payable Accounts Beginning Inventory Ending Inventory Cost of goods sold Cost of Goods Sold 520.000 50.000 520.000 added to net income for increase in Accounts Payable ($50.$43.000 547.000 deducted from net income for increase in Inventory($144.000) Copyright © Houghton Mifflin Company.000 Effect on cash flows: -$547.000 Purchases Inventory Accounts Payable $43.000 50.000 547.

000 50.000 144.000 Purchases Inventory Accounts Payable 43.000 7.000) 3.000 554.000 Beginning Accounts Payable 144.000 8.000 554.000 520. All rights reserved.000 $37.000 $16.000 $43.Relationship of Inventory and Accounts Payable Accounts Beginning Inventory Ending Inventory Cost of goods sold Cost of Goods Sold 520.000 (34.000 Cash 110.000 14–44 . $110.000 (12.000 Cash Flows from Operating Activities Net income Depreciation expense Gain on sale of investments Loss on sale of plant assets Decrease in accounts receivable Increase in inventory Decrease in prepaid expenses Increase in accounts payable Copyright © Houghton Mifflin Company.000 Ending Accounts Payable 520.000) 4.000 554.000 647.000 50.000 647.

All rights reserved.000 12.000 Effect on cash flows: None Cash flow out is $3.Adjustments to Changes in Current Liabilities Beginning Accrued Liabilities Ending Accrued Liabilities Accrued Expenses 3.000 $ 9. 14–45 .000 less than expenses Add $3.000 Accrued Liabilities 9.000 12.000 Effect on income statement: -$3.000 to net income Copyright © Houghton Mifflin Company.000 3.

000 12.000) 4. All rights reserved.000 $37.000 (12.Adjustments to Changes in Current Liabilities Beginning Accrued Liabilities Ending Accrued Liabilities Accrued Expenses 3.000 $ 9.000 7.000 3.000 Accrued Liabilities 9.000 8. $16.000 Cash Flows from Operating Activities Net income Depreciation expense Gain on sale of investments Loss on sale of plant assets Decrease in accounts receivable Increase in inventory Decrease in prepaid expenses Increase in accounts payable Increase in accrued liabilities Copyright © Houghton Mifflin Company.000 (34.000) 3.000 14–46 .000 3.000 12.

000 2.Current Liabilities Beginning Income Taxes Payable Ending Income Taxes Payable Income Taxes Payable 5.000 Cash flow out is $2.000 from Net Income Copyright © Houghton Mifflin Company.000 Effect on income statement: None Effect on cash flows: -$2. All rights reserved.000 Cash $5.000 3.000 more because Income Taxes Payable decreased Deduct $2. 14–47 .000 3.000 2.

000) 4.000 8.000 (12.000 Cash Flows from Operating Activities Net income Depreciation expense Gain on sale of investments Loss on sale of plant assets Decrease in accounts receivable Increase in inventory Decrease in prepaid expenses Increase in accounts payable Increase in accrued liabilities Decrease in income taxes payable Copyright © Houghton Mifflin Company.000 3.000 2.000 (34.000 (2.000 7. All rights reserved. $5.000) 14–48 .000) 3.000 3.000 Cash 2.000 $16.Adjustments to Changes in Current Liabilities Beginning Income Taxes Payable Ending Income Taxes Payable Income Taxes Payable 5.000 3.000 $37.

Schedule of Cash Flows from Operating Activities: Indirect Method .

All rights reserved.Effects of Items on the Income Statement That Do Not Affect Cash Flows Add to or Deduct from Net Income Add Add Add Add Deduct Depreciation expense Amortization expense Depletion expense Losses Gains Copyright © Houghton Mifflin Company. 14–50 .

14–51 . All rights reserved.Adjustments for Increases and Decreases in Current Assets Add to Net Income Current assets Accounts receivable (net) Inventory Prepaid expenses Current liabilities Accounts payable Accrued liabilities Income taxes payable Decrease Decrease Decrease Increase Increase Increase Deduct from Net Income Increase Increase Increase Decrease Decrease Decrease Copyright © Houghton Mifflin Company.

14–52 . All rights reserved.Preparing the Statement of Cash Flows: Investing Activities • Objective 4 – Determine cash flows from investing activities Copyright © Houghton Mifflin Company.

14–53 .Cash Flows from Investing Activities • Analyze increases and decreases in the Investments account to determine effects on Cash account • Objective – Explain the change in each account balance from one year to the next • Focus – Long-term assets (balance sheet) – Short-term investments (current asset section of the balance sheet) – Investment gains and losses (income statement) Copyright © Houghton Mifflin Company. All rights reserved.

000 12.000 115.000 Effects on cash flows: Purchase of investment Sale of investment –$78.000) Gain on Sale .000 Cash 78.000 ($78.000 102.000 78.000 +$102.000 Cash Flows from Investing Activities Purchase of investments Sale of investments Copyright © Houghton Mifflin Company. All rights reserved.000) 102.Investments Investments 127.Accounting for Investments Beginning Investments Ending Investments Purchase of investments Sale of investments (which cost $90.000 78.000 115. 14–54 .000 90.000 102.000 $127.

14–55 .Plant Assets • Explain changes in both the asset and related accumulated depreciation accounts – Purchases increase plant assets – Sales decrease plant assets • Accumulated depreciation is – Increased by the amount of depreciation expense – Decreased by the removal of accumulated depreciation associated with plant assets that are sold Copyright © Houghton Mifflin Company. All rights reserved.

000 14–56 Cash Flows from Investing Activities Purchase of investments Sale of investments Purchase of plant assets Sale of plant assets Copyright © Houghton Mifflin Company.000 10. Plant Assets 68.000 715.Accounting for Plant Assets Beginning Plant Assets Ending Plant Assets Purchase of plant assets Sale of plant assets Loss on Sale Plant Assets 8.000 (120.000 5.000 $505.000 715. .000 Plant Assets 505.000 37.000 +$5.000 Effects on cash flows: Purchase of plant assets Sale of plant assets –$120. Dep.000 120.000 2. All rights reserved.000 Accum.000 120.000) 5.000 ($78.000 5.000 103.000) 102.000 Cash 120.

000 $505.000 5. Plant Assets 68.000 ??? 715.000 8.Accounting for Plant Assets Beginning Plant Assets Ending Plant Assets Purchase of plant assets Sale of plant assets Loss on Sale Plant Assets Plant Assets 505.000 10. Dep.000 5. All rights reserved.000 37.000 120.000 103.000 All items affecting the Plant Assets account have not been accounted for Copyright © Houghton Mifflin Company. 14–57 .000 120.000 715.000 2.000 Cash 120.000 Accum.

Accounting for Noncash Investing and Financing Transactions
Issue of bonds in exchange for plant assets $100,000

Plant Assets 505,000 120,000 10,000 ??? 100,000 715,000

Bonds Payable

Cash

100,000

Effects on cash flows:

None

Schedule of Noncash Investing and Financing Activities Issue of Bonds Payable for Plant Assets $100,000

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14–58

Accounting for Cash Flows from Investing Activities

Cash Flows from Investing Activities Purchase of investments Sale of investments Purchase of Plant Assets Sale of Plant Assets Net cash flows from investing activities

($78,000) 102,000 (120,000) 5,000 (91,000)

Copyright © Houghton Mifflin Company. All rights reserved.

14–59

Accounting for Noncash Investing and Financing Transactions

Schedule of Noncash Investing and Financing Activities Issue of bonds payable for plant assets

$100,000

Copyright © Houghton Mifflin Company. All rights reserved.

14–60

Cash Flows from Financing Activities • Analysis similar to investing activities. 14–61 . All rights reserved. including treatment of related gains or losses • Focus – Short-term borrowings – Long-term liabilities – Stockholders’ equity accounts • Cash dividends from the statement of stockholders’ equity must also be considered Copyright © Houghton Mifflin Company.

All rights reserved.000 100.000 50.000 100.000 Cash Flows from Financing Activities Repayment of bonds ($50.000 Effects on cash flows: Repayment of bonds -$50.000 Cash $245.Accounting for Cash Flows from Financing Activities Beginning Bonds Payable Ending Bonds Payable Issue of bonds payable for plant assets Repayment of bonds at face value maturity Income Taxes Payable 245.000 50. 14–62 .000 295.000 50.000 295.000) Copyright © Houghton Mifflin Company.

000 Cash Paid-in Capital .000 175.000 189. Common Ending Paid-in Capital in Excess of Par.000 Copyright © Houghton Mifflin Company.000 189.000) 175.000 175.Accounting for Cash Flows from Financing Activities Beginning Common Stock Ending Common Stock Beginning Paid-in Capital in Excess of Par.Common 115.000 $200.000 276.000 76. Common Issue of common stock Common Stock 245.000 115.000 Cash Flows from Financing Activities Repayment of bonds Issue of common stock ($50. All rights reserved.000 Effects on cash flows: Issue of common stock +$175.000 99.000 295. 14–63 .

000 $132.000 16.000 8.000) 14–64 .000 (8.000 16.000 140.000 8.000 Cash Effects on cash flows: Paid dividends -$8.000 Cash Flows from Financing Activities Repayment of bonds Issue of common stock Dividends paid Copyright © Houghton Mifflin Company.000 8.000) 175.Accounting for Cash Flows from Financing Activities Beginning Retained Earnings Ending Retained Earnings Dividends paid Net income Income Summary Retained Earnings 132.000 16. All rights reserved. ($50.000 140.

000 Treasury Stock 25.000 (8.Accounting for Cash Flows from Financing Activities Purchase of treasury stock 25.000 Effects on cash flows: Purchase of treasury stock -$25.000 Cash Flows from Financing Activities Repayment of bonds Issue of common stock Dividends paid Purchase of treasury stock Copyright © Houghton Mifflin Company. All rights reserved.000) 14–65 .000) 175.000) (25. ($50.000 Cash 25.

000) $92.Accounting for Cash Flows from Financing Activities Cash Flows from Financing Activities Repayment of bonds Issue of common stock Payment of dividends Purchase of treasury stock Net cash flows from financing activities ($50. 14–66 .000 (8.000) 175.000 Copyright © Houghton Mifflin Company.000) (25. All rights reserved.

Statement of Cash Flows: Indirect Method .

Discussion Q. 14–68 . Using the indirect method to prepare the statement of cash flows. All rights reserved. tell whether each of the following items would appear a) b) c) d) As cash flows from operating activities As cash flows from investing activities As cash flows from financing activities In the schedule of noncash investing and financing transactions e) Not at all Copyright © Houghton Mifflin Company.

5. 6. c e a b a d c a 14–69 Copyright © Houghton Mifflin Company. 3. 5.Discussion (cont’d) a) b) c) d) As cash flows from operating activities As cash flows from investing activities As cash flows from financing activities In the schedule of noncash investing and financing transactions e) Not at all 1. Dividends paid Cash receipts from sales Decrease in accounts receivable Sale of plant assets Gain on sale of investment Issue of stock for plant assets Issue of common stock Net income 1. 8. . 7. 2. 4. All rights reserved. 3. 8. 2. 7. 6. 4.