Acct 221 Chapter 5 SCF questions and Answers Latest Update Fully Solved 100%

What information is needed in order to prepare the SCF? - comparative balance sheet, the current income statement, and the selected transaction data What is the purpose of the SCF? - to provide relevant information about the cash receipts and cash payments of an enterprise during a period Why is the SCF useful? - it provides answers to the following important questions What questions does the SCF provide answers to? - 1. Where did cash come from during the period? 2. What was cash used for during the period? 3. What was the change in the cash balance during the period? What are the three actives in the SCF? - operating activities, investing activities, and financing activities Operating activities: - involve the cash effects of transactions that enter into determination of net income Investing activities: - include making and collecting loans, purchasing and selling investments (both debt and equity) and property, planet, and equipment. generally it involves the purchases and sales of non-current assets Financing activities: - generally involve long-term liability and stockholders' equity items and include (a) obtaining resources from owners (selling stock) and providing them with a return on their investment (paying cash dividends) and (b) borrowing money from creditors and repaying that amounts borrowedWhat is the basic format of the SCF? - Cash flows from Operating, Cash flows from investing, cash flows from financing, net increase(decrease) in cash, cash at the beginning of the year, and cash at the end of the year (should agree w/ amt. shown on BS) What are four steps in the preparation - - determine the cash provided (or used in) operating activities - determine the cash provided by (or used in) investing and financing activities - determine the change (increase or decrease) in cash during the period - reconcile the change in cash with the beginning and the ending cash balance What are the differences in the indirect and direct methods of presenting operating activities? - Both methods will arrive at the same amount for net cash provided by operating activities. The methods only differ in how they arrive at the amount. Out of indirect and direct methods, which is most commonly used/heavily favored? Why? - the indirect method because it is easier and less costly to prepare and it focuses on the differences between net income and net cash flows from operating activities Out of the indirect and direct methods, which does the FASB prefer? - the direct method What is Significant Noncash Activities? - Examples of Significant Noncash Activities? - 1. issuance of common stock to purchase assets 2. conversion of bonds into common stock 3. issuance of debt to purchase assets 4. exchanges of long-lived assets Where are Significant Noncash Activities shown? - all significant non-cash investing and financing activities must be reported in either a separate schedule at the bottom of the statement or in separate notes, in order to satisfy the full disclosure principleWhat are contigencies? - an existing situation involving uncertainty as to possible gain or loss that will ultimately be resolved when one or more future events occur or fail to occur (material events that have an uncertain outcome) Examples of contingencies are: - gain contingencies and loss contingencies