[mindy86]

Hi there, I am doing an accounting question involving cash flow statement.. using indirect method. So, Im almost done doing this question... but I'm confused about a few things, like where to put them and if they should be in the cash flow statement. These are what I'm confused about:

Balance Sheet:

- Property, plant and equipment : 2008 = 290,000 ; 2007 = 205,000
- Accumulated amortization: 2008 = (49,500) ; 2007 = (40,000)
- Common Shares: 2008 = 250,000 ; 2007 = 200,000
- Retained Earnings: 2008 = 175,600 ; 2007 = 121,790

Income Statement:

- Loss on sale of available-for-sale securities : 7,500
- Gain on sale of equipment: 8,750


other stuff:

- available for sale securities were sold for $15,000m resulting in a relaized loss of $7500. There were no unrealized gains or losses in 2008.
-new equipment costing $141,000 was purchased for $71,000 cash and $70,000 note payable


I just wanted to know how these would be added to the cash flow statement as I know how to add accounts receievable, accounts payable, etc. I am just lost where to add these and how. Nothing is provided in the textbook nor online clearly. Much help would be appreciated. Thank you. Takecare

[rehmanvohra]

There are quite a few items of information missing. This will be apparent when you consider my comments.

There is a disposal of PPE with a cost of $56k: $207k+141k-290k, but the accumulated depreciation of the disposed asset is not available. This is needed to calculate current depreciation.

Investing activities will report acquisition at $71,000 as cash paid. Note payable will not be considered for the change in movement in working capital as it does not involve cash flow.

Increase in common stock $50,000 will be reported in Financing activities, if it is against cash payment. If it is stock dividend then retained earnings will be adjusted instead.

Retained earnings have increased by $53,810. This will be adjusted for any dividends and stock dividends, if any. This will be the profit after tax. Loss on sale of AFS securities and gain on disposal will be adjusted from this figure as well as current depreciation.

Receipts from sale of AFS securities as well as disposal of PPE will be reported in the Investing activities.

It would have helped if you had stated the full problem as well as your attempted solution for a proper guidance. However, it is hoped that you have got the help you needed.

[morgaine300]

I have some additional comments:

Not only is there information missing, but it seems like you are not understanding a majority of the cash flow statement. Most beginner-level ones do not include all that many items, and this is a pretty good chunk of it. The fact that you have not included the gain/loss information also tells me that you have not completed the operating section yet. It looks like perhaps you have only done the current asset/current liability adjustments.

There is a disposal of PPE with a cost of $56k: $207k+141k-290k, but the accumulated depreciation of the disposed asset is not available. This is needed to calculate current depreciation.

The current depreciation may be presented elsewhere in the problem, but we can't tell since you haven't included the entire problem.

Increase in common stock $50,000 will be reported in Financing activities, if it is against cash payment. If it is stock dividend then retained earnings will be adjusted instead.

It can also be an exchange. It's not really relevant whether it came from a stock dividend. The problem should explicitly state whether this was an exchange of something, and should also explicity state what the dividends are. Most beginner-level problems will not involve stock dividends since they just complicate stuff.

Retained earnings have increased by $53,810. This will be adjusted for any dividends and stock dividends, if any. This will be the profit after tax. Loss on sale of AFS securities and gain on disposal will be adjusted from this figure as well as current depreciation.

Since the numbers presented are already end-of-year numbers, retained earnings should already have net income and dividends already closed to it, so that's an untrue statement. There shouldn't be anything to "adjust" to retained earnings. However, it is true that there's nothing to tell us what is net income versus what is dividends. Net income less dividends gives us the net increase in retained earnings. The 53,810 is the net increase but doesn't tell us what is what. This information has to be given in the problem in some form or other.

It would have helped if you had stated the full problem as well as your attempted solution for a proper guidance.

Absolutely! Cash flows are too complicated and have too much information flying around to go around leaving info out. There are two many pieces that relate to each other, and no one can really help when only seeing bits and pieces of stuff.

I did just notice it makes comment about unrealized gains and losses, perhaps meaning this is a not-so-beginning-level cash flow, though I don't see anything terribly unusual about it. In that case, this should not be a totally new subject. (Meaning you should already know what goes in and out of retained earnings, just for example.)

There are some other threads where I've given some info on cash flow statements. You can go through those if you like.

https://www.askmehelpdesk.com/accoun...ws-187709.html
https://www.askmehelpdesk.com/accoun...ow-112486.html
https://www.askmehelpdesk.com/accoun...od-348245.html