【正文】 121 122 STATEMENT OF CASH FLOWS Financial Accounting, Sixth Edition 12 123 1. Indicate the usefulness of the statement of cash flows. 2. Distinguish among operating, investing, and financing activities. 3. Explain the impact of the product life cycle on a pany’s cash flows. 4. Prepare a statement of cash flows using the indirect method. 5. Use the statement of cash flows to evaluate a pany. Study Objectives 124 Usefulness Classifications Significant noncash activities Format Corporate life cycle Preparation Indirect and direct methods Step 1: Operating activities Step 2: Investing and financing activities Step 3: Net change in cash Free cash flow Assessing liquidity and solvency The Statement of Cash Flows: Usefulness and Format Preparing the Statement of Cash Flows—Indirect Method Using Cash Flows to Evaluate a Company Statement of Cash Flows 125 SO 1 Indicate the usefulness of the statement of cash flows. Provides information to help assess: 1. Entity’s ability to generate future cash flows. 2. Entity’s ability to pay dividends and obligations. 3. Reasons for difference between ine and cash provided (used) by operating activities. 4. Cash investing and financing transactions during the period. Usefulness and Format Usefulness of the Statement of Cash Flows 126 Classification of Cash Flows SO 2 Distinguish among operating, investing, and financing activities. Usefulness and Format Ine Statement Items Operating Activities Changes in Investments and LongTerm Asset Items Investing Activities Changes in LongTerm Liabilities and Stockholders’ Equity Financing Activities 127 Usefulness and Format SO 2 Distinguish among operating, investing, and financing activities. Illustration 121 Typical receipt and payment classifications Classification of Cash Flows 128 Usefulness and Format SO 2 Distinguish among operating, investing, and financing activities. Illustration 121 Typical receipt and payment classifications Classification of Cash Flows 129 1. Issuance of mon stock to purchase assets. 2. Conversion of bonds into mon stock. 3. Issuance of debt to purchase assets. 4. Exchanges of plant assets. Companies report noncash activities in either a ? separate schedule (bottom of the statement) or ? separate note to the financial statements. Usefulness and Format SO 2 Distinguish among operating, investing, and financing activities. Significant Noncash Activities 1210 1211 Order of Presentation: 1. Operating activities. 2. Investing activities. 3. Financing activities. Direct Method Indirect Method Usefulness and Format SO 2 Distinguish among operating, investing, and financing activities. Format of the Statement of Cash Flows 1212 SO 2 Distinguish among operating, investing, and financing activities. Illustration 122 Format of the Statement of Cash Flows 1213 Illustration: Classify each of these transactions by type of cash flow activity. Format of the Statement of Cash Flows SO 2 Distinguish among operating, investing, and financing activities. 1. Issued 100,000 shares of $5 par value mon stock for $800,000 cash. 2. Borrowed $200,000, signing a 5year note bearing 8% interest. 3. Purchased two semitrailer trucks for $170,000 cash. 4. Paid employees $12,000 for salaries and wages. 5. Collected $20,000 cash for services provided. Financing Financing Investing Operating Operating 1214 Usefulness and Format SO 3 Explain the impact of the product life cycle on a pany’s cash flows. Impact of product life cycle on cash flows. Illustration 123 The Corporate Life Cycle 1215 1216 Three Sources of Information: 1. Comparative balance sheets 2. Current ine statement 3. Additional information Usefulness and Format SO 3 Explain the impact of the product life cycle on a pany’s cash flows. Preparing the Statement of Cash Flows 1217 Usefulness and Format Three Major Steps: Illustration 124 SO 3 Explain the impact of the product life cycle on a pany’s cash flows. Preparing the Statement of Cash Flows 1218 Usefulness and Format Three Major Steps: Illustration 124 SO 3 Explain the impact of the product life cycle on a pany’s cash flows. Preparing the Statement of Cash Flows 1219 Usefulness and Format Three Major Steps: Illustration 124 SO 3 Explain the impact of the product life cycle on a pany’s cash flows. Preparing the Statement of Cash Flows 1220 Companies favor the indirect method for two reasons: 1. Easier and less costly to prepare. 2. Focuses on differences between ine and cash flow from operating activities. Usefulness and Format SO 3 Explain the impact of the product life cycle on a pany’s cash flows. Indirect and Direct Methods 1221 SO 4 Prepare a statement of cash flows using the indirect method. Preparing the Statement of Cash Flows Illustration – Indirect Method Illustration 125 1222 SO 4 Prepare a statement of cash flows using the indirect method. Preparing the Statement of Cash Flows Illustration 125 1223 SO 4. Preparing the Statement of Cash Flows Illustration 125 Additional information for 2022: 1. Depreciation expense was prised of $6,000 for building and $3,000 for equipment. 2. The pany sold equipment with a book value of $7,000 (cost $8,000, less accumulated depreciation $1,000) for $4,000 cash. 3. Issued $110,000 of longterm bonds in direct exchange for land. 4. A building costing $120,000 was purchased for cash. Equipment costing $25,000 was also purchased for cash. 5. Issued mon stock for $20,000 cash. 6. The pany declared and paid a $29,000 cash dividend. 1224 Step 1: Operating Activities Determine cash provided/used