1. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Student Version o Repetition is an important component, a key part of learning. In memory, the more times patterns of thought are repeated, the more likely you will be able to recall information. o These PowerPoint slides have been modified from the lecture decks by making them fill-in-the-blank. Why? So that you get an opportunity to repeat a visual cue (from the lecture or the book) via completing text here. o In addition, most text book exhibits have been removed as they are available in your text directly.

2. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Statement of Cash Flows Chapter 13

3. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Describe the cash flow activities reported in the statement of cash flows. 1

4. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Reporting Cash Flows o The statement of ________ ________ reports a firm’s major cash ________ and ________ for a period. It provides useful information about a company’s ability to do the following:  Generate ________ from ________  ________ and ________ its operating ________  Meet its ________ ________  Pay ________

5. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Reporting Cash Flows o The ________ of ________ ________ reports cash flows from three types of activities:  Cash flows from ________ ________ are cash flows from transactions that affect ________ ________.  Cash flows from ________ ________ are cash flows from transactions that affect investments in the ________ ________ of the company.  Cash flows from ________ ________ are cash flows from transactions that affect the ________ and ________ of the company.

6. R EPORTING C ASH F LOWS

7. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Cash Flows from ________ ________ o The direct method reports ________ cash inflows (________) and cash ________ (payments) as follows: The primary ________ cash inflow is cash ________ from ________.

8. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Cash Flows from ________ ________ o The primary operating cash outflows are ________ payments for ________, ________ ________, ________, and ________ ________ payments.

9. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Reporting Cash Flows o The indirect method reports the operating cash flows by beginning with ________ ________ and adjusting it for ________ and ________ that do not involve the ________ or ________ of cash as follows:

10. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Reporting Cash Flows o The primary advantage of the indirect method is that it ________ the differences between ________ ________ and ________ ________ flows from ________. Also, the ________ method is ________ costly to use than the ________ method.

11. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Reporting Cash Flows o Whether the ________ or ________ method is used, the amount of ________ ________ ________ from operating activities will be the same. This is illustrated in Exhibit 2.

12. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Cash Flows from ________ Activities o Cash inflows from investing ________ normally arise from ________ ________ ________, ________, and ________ ________. o Cash outflows from ________ activities normally include ________ to acquire ________ ________, ________, and ________ ________.

13. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Cash Flows from ________ Activities o Cash ________ from financing activities normally arise from issuing ________ - ________ ________ or ________ ________. o Cash outflows from ________ activities normally include paying ________ ________, ________ ________ - ________ ________, and acquiring ________ ________.

14. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. ________ Investing and Financing Activities o Noncash investing and financing activities are transactions that _____ not ________ affect ________. The effect of such transactions is recorded in a ________ schedule that appears at the ________ of the ________ of ________ ________.

15. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. No Cash Flow Per ________ o Cash flow per share should ________ be reported on a company’s ________ ________ for the following reasons:  Users may misinterpret _____ ________ per ________ as the per- ________ amount ________ for ________.  Users may ________ cash flow per ________ as equivalent to ________ per ________.

16. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Prepare a statement of cash flows, using the indirect method. 2

17. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. The ________ Method o The indirect method of reporting cash flows from ________ ________ uses the logic that a change in any balance sheet account (including ________) can be analyzed in ________ of ________ in ________ balance sheet accounts. o Any change in the cash account can be determined by analyzing ________ in ________, ________ ________, and noncash ________ accounts.

18. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Adjustments to Net Income Cash flows from operating activities: Net income $ ________ Adjustments to reconcile net income to net cash flow from operating activities: Rundell Inc. This phrase beginning with “ ________ …” is added to indicate that ________ ________ ________ ________ is being ________ to arrive at cash flows from ________.

19. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Step 1 o Expenses that do not affect cash are ________. Such ________ ________ net income, but do not involve ________ payments and, thus, are ________ to net income. Examples include ________ of fixed assets and ________ of ________ ________.

20. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Step 2 o ________ and ________ on disposal of assets are ________ or ________. The ________ (sale) of ________ is an ________ activity, rather than an ________ activity. Losses on ________ of assets are ________ ________ to net income. ________ on disposal of ________ are ________ from ________ ________.

21. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Step 3 o Changes in current ________ ________ and ________ are ________ or ________ as follows:  Increases in noncash current operating assets are ________.  Decreases in ________ current operating assets are ________.  Increases in current operating liabilities are ________.  Decreases in current operating liabilities are ________.

22. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. (continued) Adjustments to Net Income o Accounts receivable (net): The $9,000 increase is ________ from net income. This is because the $9,000 ________ in ________ ________ indicates that sales on account were $9,000 ________ than the cash ________ from customers. Thus, sales (and ________ ________) includes $9,000 that was not received in ________ during the year.

23. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. (continued) Adjustments to Net Income o Inventories: The $8,000 ________ is ________ to net income. This is because the $8,000 ________ in inventories indicates that the cost of ________ sold ________ the cost of ________ ________ during the year by $8,000. o Accounts Payable (merchandise creditors): The $3,200 ________ is ________ from net income. This is because a ________ in ________ ________ indicates that the ________ payments to ________ ________ exceed the ________ purchased on ________ by $3,200.

24. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Adjustments to Net Income o Accrued expenses payable (operating expenses): The $2,200 ________ is ________ to net income. This is because an ________ in accrued expenses indicates that ________ expenses reported on the ________ statement exceed the ________ payments for ________ expenses by $2,200. o Income Taxes Payable: The $500 decrease is ________ from ________ ________. This is because a ________ in income taxes payable indicates that ________ paid ________ the amount of ________ incurred during the year by $500.

25. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Dividends o Cash dividends of $ ________ were ________ during 2014. o However, as can be seen from the ________ ________ account, only $ ________ was paid.

26. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Common Stock o Rundell Inc.’s ________ ________ account ________ by $8,000 during 2014. o The ________ - ________ capital in ________ of ________ —________ stock account ________ by $40,000 during the year.

27. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Bonds Payable ________ ________ decreased by $50,000 during 2014, due to ________ the bonds. A check of Rundell’s income statement shows that there was no ________ or ________ on the retirement.

28. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Building o The ________ account ________ by $60,000.

29. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Land o The $45,000 ________ in the ________ account was from two transactions.

30. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Land o Earlier, as part of Step 2 in preparing the ________ ________ section, the $ ________ ________ was ________ from net income.

31. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Land o The October 12 transaction is the ________ of land for ________ of $ ________. This transaction is reported as an outflow of cash in the ________ ________ section.

32. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Preparing the Statement of Cash Flows o The completed statement of cash flows for Rundell Inc. using the indirect method is shown in Exhibit 6. The increase in cash shown on the statement ($ ________ ) should ________ the ________ in cash in Rundell Inc.’s ________ account.

33. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Prepare a statement of cash flows, using the direct method. 3

34. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. The Direct Method o The ________ method reports cash flows from ________ ________ as follows:

35. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. The ________ Method o The final amount reported in the Cash Flows from ________ ________ section will be the ________ whether the ________ or ________ method is used. The methods differ in how the data are ________, ________, and ________.

36. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. The ________ Method o Under the direct method, the income statement is adjusted to cash flows from operating activities as follows:

37. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. The Direct Method o ________ expense is ________ ________ or ________ as part of cash flows from ________ activities. This is because depreciation ________ does ________ involve a ________ ________.

38. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. The Direct Method o ________ and ________ are also not ________, because the cash flow from ________ activities is determined ________, rather than by reconciling ________ ________. Proceeds from the sale of land, which include ________ gains or losses, are reported as an ________ _______.

39. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. ________ Received from Customers o Rundell Inc. reports sales of $1,180,000 for 2014. To determine the cash ________ ________ ________, sales are ________ by any ________ or ________ in accounts receivable.

40. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Cash Payments for ________ o Rundell Inc. reports cost of ________ sold of $790,000. To determine the cash ________ ________ ________, the $790,000 is adjusted for any ________ or ________ in inventories and ________ ________ (assuming the accounts payable are owed to ________ ________).

41. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Cash Payments for Operating Expenses o Rundell Inc. reports total ________ ________ of $203,000, which includes ________ expense of $7,000. To determine cash ________ ________ ________ ________, the other ________ expenses (excluding ________ ) of $196,000 are adjusted for any ________ or ________ in ________ expenses ________.

42. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Interest ________ o Rundell Inc. reports ________ expense of $8,000. To determine the cash payments for ________, the $8,000 is adjusted for any ________ or ________ in ________ ________.

43. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Cash Payments for ________ ________ o Rundell Inc. reports income tax expense of $83,000. To determine the ________ ________ ________ ________ ________, the $83,000 is adjusted for any ________ or ________ in income ________ ________.

44. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Describe and illustrate the use of free cash flow in evaluating a company’s cash flow. 4

45. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Free Cash Flow o ________ ________ ________ measures the ________ cash flow available for a company to use ________ ________ the ________, ________, and ________ (PP&E) necessary to ________ current ________ ________.

46. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. ________ Cash Flow Cash flow from ________ activities Less: Investments in ________ assets to ________ current ________ Free ________ ________ Free ________ ________ o ________ free cash flow is considered favorable. A company that has free cash flow is able to fund ________ ________, retire ________, pay ________, and enjoy ________ ________.

47. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Appendix Spreadsheet (Work Sheet) for Statement of Cash Flows ­ The Indirect Method Spreadsheet (Work Sheet) for Statement of Cash Flows ­ The Indirect Method

48. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Statement of Cash Flows The End