Question

Problem 1-4 Presented below is selected financial information for Oriole Company for December 31, 2017. Inventory Cash paid to suppliers Buildings Common stock Cash dividends paid Cash at beginning of period $ 24,100 Cash paid to purchase equipment 104,100 Equipment 200,700 Service revenue 49,000 Cash received from customers 7,600 Cash received from issuing common stock 8,000 $ 12,100 40,900 106,400 131,000 21,500

Answer 1

Oriole Company Statement of Cash Flows For the Year Ended December 31, 2017 Cash flow from operating activities: $131,000 Cash received from customers Cash paid to suppliers $104,100 $26,900 Net cash flow from operating activities Cash flow from investing activities: Cash paid to purchase equipment Net cash flow from operating activities -$12,100 -$12,100 Cash flow from financing activities: Cash received from issuing common stock Cash dividends paid $21,500 -$7,600 $13,900 Net cash flow from financing activities Net increase in cash balance during the year $28,700 [$26900 - $12100 + $13900] $8,000 Cash balance at beginning of period Cash balance at end of period $36,700 [$28700 + $8000]

Explanation: Statement of cash flows is prepared for a reporting period for analyzing reasons for change in cash balance between two reporting periods. It is broadly categorised into operating activities, investing activities and financing activities. Out of the three, operating activities specifically helps to analyze reason for change in cash balance due to operating activities of the business. There are two methods to prepare operating activities block such as direct and indirect method. Under direct method, operating activities block contains data of cash received from sale of goods or services and cash paid to suppliers, vendors for services, interest expense and income taxes. It means that non-cash incomes or expenses and net income reported for the period are not considered under direct method while preparing statement of cash flows. Similarly, cash flow from investing activities contain data related to cash received from sale of assets and cash paid to purchase assets. Other data in terms beginning or ending balance of assets, etc. are not considered in the statement of cash flows, unless they are required to calculate cash receipt or cash paid for assets. Cash flow from financing activities contain data related to cash received from issuing fresh common stock or preferred stock or debt instruments, etc. and cash paid to discharge debt instruments or firm's treasury stock or cash dividends. Other data in terms beginning or ending balance of common stock, etc. are not considered in the statement of cash flows, unless they are required to calculate cash receipt or cash paid for as mentioned above.