UNIVERSITY OF ECONOMICS HO CHI MINH CITY POSTGRADUATE EDUCATION INSTITUTE INTERNATIONAL ACCOUNTING TOPIC 6: PREPARING AND PRESENTATION OF CASH FLOW STATEMENT Instructor: Ph.D PHẠM QUANG HUY Ho Chi Minh City, July 2016 UNIVERSITY OF ECONOMICS HO CHI MINH CITY POSTGRADUATE EDUCATION INSTITUTE INTERNATIONAL ACCOUNTING TOPIC 6: PREPARING AND PRESENTATION OF CASH FLOW STATEMENT MEMBERS No Name Student Code Lý Minh Triết 7701251065A Nguyễn Lê Phượng Sang 7701250852A Trương Á Bình 7701250350A Nguyễn Ngọc Hoàng Khiêm 7701250599A Nguyễn Đỗ Ngọc Phú 7701250783A Nguyễn Thị Kim Chi 7701250368A Nguyễn Thị Thanh Định 7701250435A Lê Phương Thảo 7701250953A Ho Chi Minh City, July 2016 ACKNOWLEDGEMENTS Firstly, we would like to thank the university board that has created the best conditions for learning facilities, modern equipment to help the research process and completion of group assignments easier We also grateful to the management of library staff that has created the best conditions for us to refer to the documentations, finding information from books and from the Internet systems Especially, our deepest appreciation goes to Ph.D Phạm Quang Huy who has provided us the knowledge to this homework Sincerely, Exercise No 18 The Balance sheet for December 31, 2016, December 31, 2017, and the Income statement for the year ended December 31, 2017, for Rocket Company follows ROCKET COMPANY BALANCE SHEET December 31, 2017 and 2016 31-Dec-17 31-Dec-16 Assets Cash Account receivables, net Inventory Land Building and equipment Accumulated depreciation Total assets 25,00 60,00 80,00 50,00 130,00 (85,00 0) 260,00 20,00 70,00 100,00 50,00 115,00 (70,00 0) 285,00 30,00 4,00 5,00 50,00 110,00 61,00 260,00 35,00 3,00 3,00 60,00 100,00 84,00 285,00 Liabilities and stockholder's equity Account payable Income tax payable Wages payable Current notes payable Common stock Retained earnings Total liabilities and stockholder's equity Cash payment for building and equipment Cash paid for retirement of notes payable Cash receive from issuance of stock 15,000 10,000 10,000 ROCKET COMPANY INCOME STATEMENT For the year ended December 31, 2017 500, 000 Sales Less expenses: (330, 000) (90, 000) (5, 000) (425, 000) 75, 000 (30, 000) 45, 000 COGS Selling and administrative expenses Interest expense Total expense Income before taxes Income tax expense Net income Note: Cash dividends of $68,000 were paid during 2017 a Prepare the statement of cashflow for 2017 (indirect approach) STATEMENT OF CASHFLOW (INDIRECT METHOD) OF ROCKET COMPANY FOR THE YEAR ENDED 31 DECEMBER 2017 Profit before tax/(loss) 01 75, 000 Adjustments for: Depreciation and amortisation 02 Interest expense 06 Interest income 07 Operating profit/(loss) before adjustments to working capital 08 (Increase)/decrease in accounts receivable 09 (Increase)/decrease in inventory 10 Increase/(decrease) in accounts payable 11 15,000 5,000 95,000 10,000 20,000 (3,000) Interest paid 12 Retirement allowance paid 13 Corporate income tax paid 14 Cash generated from (used in) operating activities before corporate income tax 20 (5,000) (10,000) (29,000) 78,000 Cash flows from investing activities Purchase of fixed assets and construction in progress 21 Net cash inflows/(outflows) from investing activities 30 (15,000) (15,000) Cash flows from financing activities Cash receive from issuance of stock 31 Dividend paid to Investors 32 Net cash inflows/(outflows) from financing activities 40 Net increase/(decrease) in cash 50 Cash and cash equivalents at beginning of the period/year 60 Effects of changes in foreign exchange rates 61 Cash and cash equivalents at end of the period/year 70 10,000 (68,000) (58,000) 5,000 20,000 25,000 b Compute the ratio operating cashflow/current maturities of long term debt amd current notes payable Operating cash flow 78,000 = Current mature of long term debt and current notes payable = 1.56 50,000 c Comment on the statement of cash flows and ratio computed in (b) Operating cash flow is positive with amount of 5.000 which the company have enough finance from mainly operating to support other activites The biggest outflow is 65.000 from finance activity • If A>1 : The company has resoures from operating activity to cover its debt • If A In this case, because A=1.56>1, it means the company has finance ability for the company's operation Exercise No 19 The Balance sheet for December 31, 2016, December 31, 2017, and the Income statement for the year ended December 31, 2017, for Hartman Company follows HARTMAN COMPANY BALANCE SHEET 31-Dec-17 31-Dec-16 Assets 297,00 Cash 153,00 159,00 Receivables 117,00 150,00 Inventory 180,00 18,00 Prepaid expenses 27,00 1,260,00 Plant assets 1,050,00 (450,00 Accumulated depreciation 0) (375,00 0) 153,00 Patent 174,00 1,587,00 Total assets 1,326,00 Liabilities and stockholder's equity 153,00 Account payable 168,00 60,00 Accrued liabilities 42,00 0 - 450,00 Mortage payable 525,00 Preferred stock Additional paid-in capital - preferred 120,00 600,00 Common stock 600,00 129,00 Retained earnings Total liabilities and stockholder's equity 66,00 1,587,00 1,326,00 HARTMAN COMPANY INCOME STATEMENT For the year ended 31 December, 2017 Sales COGS Gross profit Operating expenses Net income 1,980,000 (1,089,000) 891,000 (690,000) 201,000 a Prepare a statement of cashflow (indirect method) for Hartman, Inc FY 31 Dec 17 STATEMENT OF CASHFLOW (INDIRECT METHOD) OF HARTMAN, INC FOR THE YEAR ENDED 31 DECEMBER 2017 Profit before tax/(loss) 201,000 Adjustments for: Depreciation and amortisation 96,000 Interest expense - Interest income - Operating profit/(loss) before adjustments to working capital (Increase)/decrease in accounts receivable (Increase)/decrease in inventory 297,000 (42,000) 30,000 Increase/(decrease) in accounts payable Increase/(decrease) in prepaid expenses Cash generated from (used in) operating activities before corporate income tax Cash flows from investing activities Purchase of fixed assets 3,000 9,000 297,000 ( 210,000) Proceeds from disposal of fixed assets ( 210,000) Net cash inflows/(outflows) from investing activities Cash flows from financing activities Capital contributions 645,000 ( 138,000) ( 450,000) Dividend paid to Investors Debt repayment Net cash inflows/(outflows) from financing activities 57,000 Net increase/(decrease) in cash 144,000 Cash and cash equivalents at beginning of the period/year 153,000 Effects of changes in foreign exchange rates - Cash and cash equivalents at end of the period/year 297,000 b Prepare a schedule of cash provided by operating activities using the direct method OB 117 ,000 168 ,000 Increase 1,980,0 00 1,089,0 00 Decrease (1,938,00 0) (1,104,00 0) Cash receipts from customers Cash paid to suppliers Cash paid for other operating expenses Net cash from operating activities CB 59,000 53,000 1,938,00 (1,074,00 0) (567,00 0) 297,0 00 (690,00 0) COGS Adjust expenses not paid by cash: 75,0 00 21,0 00 (18,00 0) 27,0 00 60,0 00 (42,00 0) (567,00 0) - Depreciation - Written off patent - Prepaid has not allocated - Allocation - Accrued at YE - Revert during the year 10 Exercise No 20 EUSEY, INC Net change in the BS account Cash Accounts receivable Allowance for doubtful accounts Inventory Prepaid expenses Long term investments Land Building Machinery Office equipment Acc Depre Building Acc Depre Machinery Acc Depre Office equipment Liabilities and stockholder's equity Account payable Accrued liabilities Dividends payable Preminum on bonds Bonds payable Preferred stock ($50 par) Common stock ($10 par) Additional paid-in capital - common Retained earnings 31-Dec-17 125,600 (64,000) (14,000) 217,200 20,000 (144,000) 300,000 600,000 100,000 (28,000) (24,000) (20,000) 12,000 183,200 (72,000) (128,000) (32,000) (800,000) 60,000 (156,000) (223,200) 87,200 INCOME STATEMENT For the year ended 31 Dec 17 Income before extraordinary item Extraordinary loss: condemnation of land Net income 272,000 (132,000) 140,000 Cash dividend of 128,000 were declared Dec 15, 2017; payable Jan 15, 2018 Dr RE 128,000 Cr Dividends payable 128,000 5% of stock dividend was issued Mar 31, 2017, when the market value was $22.00 per share No of dividend share as at 31 Mar 17 36,000 (from point 7, assume that owners of preferred stocks did not receive stock dividend) Notes: - Movement of No of stock during the year 11 15,600 - Selling of additional shares 12,000 => Additional shares (stock dividend) 3,600 Check: No of shares as at 31 Mar 16 72,000 5% stock dividend 3,600 Dr RE 72,000 Cr Common stock 36,000 Cr Additional paid-in capital – common 43,200 Long term investments were sold for 140,000 Dr Cash Dr Loss on sold long term investment Cr Long term investment 140,000 4,000 Building and land Cost 480,000 Book value 300,000 Selling price 400,000 Cost of the land 20,000 Dr Cash 400,000 Dr Acc Depr of building 180,000 Cr Building Cr Land Cr Gain on disposal of building and land 144,000 460,000 20,000 100,000 Entry was made to record an exchange of old machine for new one Dr Machinery 160,000 Dr Accumulated Depreciation – Machinery 40,000 Cr Machinery 60,000 Cr Cash 140,000 Fully depreciated copier machine which cost 28,000 was written off Dr Acc depr of Copier machine 28,000 Cr Office equipment (Coppy Machine) 28,000 Preferred stock of $60,000 par value was redeemed for 80,000 Dr Preferred stock 60,000 Dr RE 20,000 Cr Cash 80,000 The company sold 120,000 shares of its common stock ($10 par) on June 15, 2017 for $25 a share There were 87,600 shares outstanding on December 31, 2017 Dr Cash 300,000 Cr Common stock 120,000 Cr Additional paid-in capital – common 180,000 Bonds were sold at 104% on December 31, 2017 12 Dr Cash 832,000 Cr Premium on Bonds 32,000 Cr Bonds Payable 800,000 10 Land that was condemned had a book value of 240,000 Dr Loss on land condemnation 132,000 Dr Cash 108,000 Cr Condemed land 240,000 STATEMENT OF CASHFLOW (INDIRECT METHOD) OF EUSEY, INC FOR THE YEAR ENDED 31 DECEMBER 2017 Profit before tax/(loss) 140,000 Adjustments for: Depreciation and amortisation 280,000 Decrease in provisions 14,000 ( 100,000) Gain from disposal of land and building Loss from disposal of long term investment Loss on condemnation of land 4,000 132,000 Operating profit/(loss) before adjustments to working capital (Increase)/decrease in accounts receivable (Increase)/decrease in inventory Increase/(decrease) in accounts payable Increase/(decrease) in prepaid expenses 470,000 64,000 ( 217,200) ( 111,200) (20,000) Cash generated from (used in) operating activities before corporate income tax 185,600 Cash flows from investing activities ( 140,000) ( Acquisition of machinery Acquisition of land 13 560,000) (1, 060,000) Acquisition of building Proceeds from disposal of land and building Proceeds from divestments in other entities Proceeds from condemnation of land Net cash inflows/(outflows) from investing activities 400,000 140,000 108,000 (1, 112,000) Cash flows from financing activities Proceeds from selling bond 832,000 Proceeds from common stock 300,000 Redeemed preferred stock (80,000) Dividend paid to Investors Net cash inflows/(outflows) from financing activities Net increase/(decrease) in cash 1, 052,000 125,600 Cash and cash equivalents at beginning of the period/year Effects of changes in foreign exchange rates Cash and cash equivalents at end of the period/year 14 125,600 [...]... income tax 185,600 Cash flows from investing activities ( 140,000) ( Acquisition of machinery Acquisition of land 13 560,000) (1, 060,000) Acquisition of building Proceeds from disposal of land and building Proceeds from divestments in other entities Proceeds from condemnation of land Net cash inflows/(outflows) from investing activities 400,000 140,000 108,000 (1, 112,000) Cash flows from financing... on December 31, 2017 12 Dr Cash 832,000 Cr Premium on Bonds 32,000 Cr Bonds Payable 800,000 10 Land that was condemned had a book value of 240,000 Dr Loss on land condemnation 132,000 Dr Cash 108,000 Cr Condemed land 240,000 STATEMENT OF CASHFLOW (INDIRECT METHOD) OF EUSEY, INC FOR THE YEAR ENDED 31 DECEMBER 2017 Profit before tax/(loss) 140,000 Adjustments for: Depreciation and amortisation 280,000... common stock 300,000 Redeemed preferred stock (80,000) Dividend paid to Investors Net cash inflows/(outflows) from financing activities Net increase/(decrease) in cash 1, 052,000 125,600 Cash and cash equivalents at beginning of the period/year Effects of changes in foreign exchange rates Cash and cash equivalents at end of the period/year 14 125,600 ... Building and land Cost 480,000 Book value 300,000 Selling price 400,000 Cost of the land 20,000 Dr Cash 400,000 Dr Acc Depr of building 180,000 Cr Building Cr Land Cr Gain on disposal of building and land 144,000 460,000 20,000 100,000 5 Entry was made to record an exchange of old machine for new one Dr Machinery 160,000 Dr Accumulated Depreciation – Machinery 40,000 Cr Machinery 60,000 Cr Cash 140,000... cost 28,000 was written off Dr Acc depr of Copier machine 28,000 Cr Office equipment (Coppy Machine) 28,000 7 Preferred stock of $60,000 par value was redeemed for 80,000 Dr Preferred stock 60,000 Dr RE 20,000 Cr Cash 80,000 8 The company sold 120,000 shares of its common stock ($10 par) on June 15, 2017 for $25 a share There were 87,600 shares outstanding on December 31, 2017 Dr Cash 300,000 Cr Common... Gain from disposal of land and building Loss from disposal of long term investment Loss on condemnation of land 4,000 132,000 Operating profit/(loss) before adjustments to working capital (Increase)/decrease in accounts receivable (Increase)/decrease in inventory Increase/(decrease) in accounts payable Increase/(decrease) in prepaid expenses 470,000 64,000 ( 217,200) ( 111,200) (20,000) Cash generated... (223,200) 87,200 1 INCOME STATEMENT For the year ended 31 Dec 17 Income before extraordinary item Extraordinary loss: condemnation of land Net income 272,000 (132,000) 140,000 2 Cash dividend of 128,000 were declared Dec 15, 2017; payable Jan 15, 2018 Dr RE 128,000 Cr Dividends payable 128,000 5% of stock dividend was issued Mar 31, 2017, when the market value was $22.00 per share No of dividend share as... owners of preferred stocks did not receive stock dividend) Notes: - Movement of No of stock during the year 11 15,600 - Selling of additional shares 12,000 => Additional shares (stock dividend) 3,600 Check: No of shares as at 31 Mar 16 72,000 5% stock dividend 3,600 Dr RE 72,000 Cr Common stock 36,000 Cr Additional paid-in capital – common 43,200 3 Long term investments were sold for 140,000 Dr Cash. ..Exercise No 20 EUSEY, INC Net change in the BS account Cash Accounts receivable Allowance for doubtful accounts Inventory Prepaid expenses Long term investments Land Building Machinery Office equipment Acc Depre Building Acc Depre Machinery Acc Depre Office equipment Liabilities and stockholder's equity Account payable Accrued liabilities Dividends payable Preminum