Financial statements for mba 8e - module 11
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Financial Accounting (Georgia State University)
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StuDocunisnnotnsponsorednornendorsednbynanyncollegenornuniversity
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,Module 11 n
Cash Flows n
QUESTIONS
Q11-1.n Cashnequivalentsnarenshort-
term,nhighlynliquidninvestmentsnthatnfirmsnacquirenwithntemporarilynidlencashntonearnninter
estnonnthesenexcessnfunds.nTonbenclassifiednasnancashnequivalent,nanninvestmentnmustnb
en(1)neasilynconvertiblenintonanknownncashnamountnand
(2)nclosenenoughntonmaturitynsonthatnitsnmarketnvaluenisnnotnsensitiventoninterestnratencha
ngesn(generally,ninvestmentsnwithninitialnmaturitiesnofnthreenmonthsnornless).nThreenexa
mplesnofncashnequivalentsnarenTreasurynbills,ncommercialnpapern(short-
termnnotes),nandnmoneynmarketnfunds.
Q11-
2.n Cashnequivalentsnarenincludednwithncashninnanstatementnofncashnflowsnbecausenthen
purchasenandnsalenofnsuchninvestmentsnarenconsideredntonbenpartnofnanfirm'snoverallnma
nagementnofncashnrathernthannansourcenornusenofncash.nSimilarly,nasnstatementnusersneva
luatencashnflows,nitnmaynmatternverynlittlentonthemnwhethernthencashnisnonnhand,ndeposite
dninnanbanknaccount,norninvestedninncashnequivalents.
Q11-3. Operatingnactivities:
Inflow:nCashnreceivednfromncustomers
Outflow:nCashnpaidntonsuppliersnandnservicenproviders
Investingnactivities:
Inflow:nSalenofnequipmentnorninvestmentsnsuchnasnstocksnandnbonds
Outflow:nPurchasenofnequipmentnornstocksnandnbonds
Financingnactivities:
Inflow:nIssuancenofnstocknorndebt
Outflow:nPaymentnofndividends,nrepurchasenofnstock,nornrepaymentnofndebt
©CambridgenBusinessnPublishers,n2021
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,SolutionsnManual,nModulen11 11-1
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, Q11-4. a.n Investing;noutflow
b. Investing;ninflow
c. Financing;noutflow
d. Operatingn(directnmethod,nnotnshownnseparatelynundernindirectnmethod);ninflow.
e. Financing;ninflow
f. Operatingn(directnmethod,nnotnshownnseparatelynundernindirectnmethod);ninflow.
g. Operatingn (directn method,n shownn asn supplementaln informationn undern indirectn
method);noutflow.
h. Operatingn(directnmethod,nnotnshownnseparatelynundernindirectnmethod);ninflow.
Q11-
5.n n Thisnisnannoncashninvestingnandnfinancingnevent.nItnmustnbenreportedninnansuppleme
ntarynschedulentonthenstatementnofncashnflows.
Q11-
6.n Noncashninvestingnandnfinancingntransactionsnarendisclosednasnsupplementaln infor
mationntonanstatementnofncashnflowsnbecausenansecondarynobjectivenofncashnflownreport
ingnisntonpresentninformationnaboutninvestingnandnfinancingnactivities.nNoncashninvestin
gnandnfinancingntransactionsngenerallynaffectnfuturencashnflows.nIssuingnbondsnpayablen
tonacquirenequipment,nfornexample,nrequiresnfuturencashnpaymentsnforninterestnandnprin
cipalnonnthenbonds.nOnnthenothernhand,nconvertingnbondsnpayablenintoncommonnstockneli
minatesnfuturencashnpaymentsnrelatedntonthenbonds.nKnowledgenofnthesentypesnofnevent
s,ntherefore,nshouldnbenhelpfulntonusersnofncashnflowndatanwhonwishntonassessnanfirm'snfut
urencashnflows.
Q11-
7.n Anstatementnofncashnflowsnhelpsnexternalnusersnassessnthenamount,ntiming,nandnunc
ertaintynofnfuturencashnflowsntonthenenterprise.nThesenassessmentsnhelpnusersnevaluaten
theirnownnfuturencashnreceiptsnfromntheirninvestmentsnin,nornloansnto,nthenfirm.nAnstatemen
tnofncashnflowsnshowsnthenperiodicncashneffectsnofnanfirm'snoperating,ninvesting,nandnfinan
cingnactivities.nDistinguishingnamongnthesendifferentncategoriesnofncashnflowsnhelpsnuse
rsncompare,nevaluate,nandnpredictncashnflows.nWithncashnflowninformation,ncreditorsnan
dninvestorsnarenbetternablentonassessnanfirm'snabilityntonsettlenitsnliabilitiesnandnpaynitsndivid
ends.nOverntime,nthenstatementnofncashnflowsnpermitsnusersntonobservenandnanalyzenma
nagement'sninvestingnandnfinancingnpolicies.nAnstatementnofncashnflowsnalsonprovidesninf
ormationnusefulninnevaluatingnanfirm'snfinancialnflexibilityn(whichnisnitsnabilityntongeneratenc
ashntonrespondntonunanticipatednneedsnandnopportunities).
Q11-
8.An Thendirectnmethodnpresentsnthennetncashnflownfromnoperatingnactivitiesnbynshowing
nthenmajorncategoriesnofnoperatingncashnreceiptsnandncashnpaymentsn(suchnasncashnrecei
vednfromncustomers,ncashnpaidntonemployeesnandnsuppliers,ncashnpaidnforninterest,nandnc
ashnpaidnfornincomentaxes).nThenindirectn(ornreconciliation)nmethod,ninncontrast,npresentsn
thennetncashnflownfromnoperatingnactivitiesnbynapplyingnanseriesnofnadjustmentsntonthenac
crualnnetnincomentonconvertnitntonancashnbasis.
DownloadednbynJacksonnBoylen()
n n n n n n n
Financial Accounting (Georgia State University)
n n n n
StuDocunisnnotnsponsorednornendorsednbynanyncollegenornuniversity
DownloadednbynJacksonnBoylen()
,Module 11 n
Cash Flows n
QUESTIONS
Q11-1.n Cashnequivalentsnarenshort-
term,nhighlynliquidninvestmentsnthatnfirmsnacquirenwithntemporarilynidlencashntonearnninter
estnonnthesenexcessnfunds.nTonbenclassifiednasnancashnequivalent,nanninvestmentnmustnb
en(1)neasilynconvertiblenintonanknownncashnamountnand
(2)nclosenenoughntonmaturitynsonthatnitsnmarketnvaluenisnnotnsensitiventoninterestnratencha
ngesn(generally,ninvestmentsnwithninitialnmaturitiesnofnthreenmonthsnornless).nThreenexa
mplesnofncashnequivalentsnarenTreasurynbills,ncommercialnpapern(short-
termnnotes),nandnmoneynmarketnfunds.
Q11-
2.n Cashnequivalentsnarenincludednwithncashninnanstatementnofncashnflowsnbecausenthen
purchasenandnsalenofnsuchninvestmentsnarenconsideredntonbenpartnofnanfirm'snoverallnma
nagementnofncashnrathernthannansourcenornusenofncash.nSimilarly,nasnstatementnusersneva
luatencashnflows,nitnmaynmatternverynlittlentonthemnwhethernthencashnisnonnhand,ndeposite
dninnanbanknaccount,norninvestedninncashnequivalents.
Q11-3. Operatingnactivities:
Inflow:nCashnreceivednfromncustomers
Outflow:nCashnpaidntonsuppliersnandnservicenproviders
Investingnactivities:
Inflow:nSalenofnequipmentnorninvestmentsnsuchnasnstocksnandnbonds
Outflow:nPurchasenofnequipmentnornstocksnandnbonds
Financingnactivities:
Inflow:nIssuancenofnstocknorndebt
Outflow:nPaymentnofndividends,nrepurchasenofnstock,nornrepaymentnofndebt
©CambridgenBusinessnPublishers,n2021
DownloadednbynJacksonnBoylen()
,SolutionsnManual,nModulen11 11-1
DownloadednbynJacksonnBoylen()
, Q11-4. a.n Investing;noutflow
b. Investing;ninflow
c. Financing;noutflow
d. Operatingn(directnmethod,nnotnshownnseparatelynundernindirectnmethod);ninflow.
e. Financing;ninflow
f. Operatingn(directnmethod,nnotnshownnseparatelynundernindirectnmethod);ninflow.
g. Operatingn (directn method,n shownn asn supplementaln informationn undern indirectn
method);noutflow.
h. Operatingn(directnmethod,nnotnshownnseparatelynundernindirectnmethod);ninflow.
Q11-
5.n n Thisnisnannoncashninvestingnandnfinancingnevent.nItnmustnbenreportedninnansuppleme
ntarynschedulentonthenstatementnofncashnflows.
Q11-
6.n Noncashninvestingnandnfinancingntransactionsnarendisclosednasnsupplementaln infor
mationntonanstatementnofncashnflowsnbecausenansecondarynobjectivenofncashnflownreport
ingnisntonpresentninformationnaboutninvestingnandnfinancingnactivities.nNoncashninvestin
gnandnfinancingntransactionsngenerallynaffectnfuturencashnflows.nIssuingnbondsnpayablen
tonacquirenequipment,nfornexample,nrequiresnfuturencashnpaymentsnforninterestnandnprin
cipalnonnthenbonds.nOnnthenothernhand,nconvertingnbondsnpayablenintoncommonnstockneli
minatesnfuturencashnpaymentsnrelatedntonthenbonds.nKnowledgenofnthesentypesnofnevent
s,ntherefore,nshouldnbenhelpfulntonusersnofncashnflowndatanwhonwishntonassessnanfirm'snfut
urencashnflows.
Q11-
7.n Anstatementnofncashnflowsnhelpsnexternalnusersnassessnthenamount,ntiming,nandnunc
ertaintynofnfuturencashnflowsntonthenenterprise.nThesenassessmentsnhelpnusersnevaluaten
theirnownnfuturencashnreceiptsnfromntheirninvestmentsnin,nornloansnto,nthenfirm.nAnstatemen
tnofncashnflowsnshowsnthenperiodicncashneffectsnofnanfirm'snoperating,ninvesting,nandnfinan
cingnactivities.nDistinguishingnamongnthesendifferentncategoriesnofncashnflowsnhelpsnuse
rsncompare,nevaluate,nandnpredictncashnflows.nWithncashnflowninformation,ncreditorsnan
dninvestorsnarenbetternablentonassessnanfirm'snabilityntonsettlenitsnliabilitiesnandnpaynitsndivid
ends.nOverntime,nthenstatementnofncashnflowsnpermitsnusersntonobservenandnanalyzenma
nagement'sninvestingnandnfinancingnpolicies.nAnstatementnofncashnflowsnalsonprovidesninf
ormationnusefulninnevaluatingnanfirm'snfinancialnflexibilityn(whichnisnitsnabilityntongeneratenc
ashntonrespondntonunanticipatednneedsnandnopportunities).
Q11-
8.An Thendirectnmethodnpresentsnthennetncashnflownfromnoperatingnactivitiesnbynshowing
nthenmajorncategoriesnofnoperatingncashnreceiptsnandncashnpaymentsn(suchnasncashnrecei
vednfromncustomers,ncashnpaidntonemployeesnandnsuppliers,ncashnpaidnforninterest,nandnc
ashnpaidnfornincomentaxes).nThenindirectn(ornreconciliation)nmethod,ninncontrast,npresentsn
thennetncashnflownfromnoperatingnactivitiesnbynapplyingnanseriesnofnadjustmentsntonthenac
crualnnetnincomentonconvertnitntonancashnbasis.
DownloadednbynJacksonnBoylen()
