You Are on a Team Responsible for Addressing Cash Flow

question 76

Essay

You are on a team responsible for addressing cash flow problems with other managers in your corporate division. Your accounting department has provided your team with the statement of cash flows prepared using the indirect method. At your first meeting, some of the managers have expressed concerns about the statement’s understandability and do not view the statement as anything other than a “rearranged income statement”. The managers have requested that your team explain to them how the statement is constructed.

Required:

Answer the following questions posed by the managers relating to the investing and financing sections of the statement of cash flows.

a. What types of items are reported in the investing section of the statement of cash flows?

b. What about the book value of an asset? How is it shown on the statement of cash flows?

c. What types of items are reported in the financing section of the statement of cash flows?

d. What about interest received and dividends received. Why are these items not shown in the investing section of the statement of cash flows?

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Definitions:

Federal Legislation

Laws passed by the federal government of a country, which apply to all regions and citizens within that country.

Mobile Refrigerant

A substance used in mobile air conditioning systems, such as those in vehicles, to absorb and release heat, thus cooling the interior.

Clean Air Act

Legislation impacting on highway A/C systems. Introduced in 1992 and modified since, it staged the progressive elimination of chlorofluorocarbons from refrigerants.

Heat Energy

Heat Energy is a form of energy transferred between systems or objects with different temperatures, flowing from the higher temperature object to the lower temperature object.