Computation of Cash Flows
an Analysis of Changes in Selected

question 82

Essay

Computation of cash flows
An analysis of changes in selected statement of financial position accounts of Tam Corporation shows the following for the current year:
$\begin{array}{|l|l|}\hline \text { Equity Securities account } & \\\hline \text { Debit entries } & \$ 1,600,000 \\\hline \text { Credit entries } & \$ 1,000,000 \\\hline \text { Property, Plant, and Equipment accounts: } & \\\hline \text { Debit entries to asset accounts } & \$ 3,600,000 \\\hline \text { Credit entries to asset accounts } & \$ 2,800,000 \\\hline \text { Debit entries to accumulated depreciation accounts } & \$ 1,300,000\\\text { (resulting from sale of PPE assets) }\\\hline \begin{array}{c}\text { Credit entries to accumulated depreciation accounts } \\\text { (representing depreciation for the current year) }\end{array} & \$ 500,000 \\\hline\end{array}$ The income statement for the current year included the following items relating to the transactions summarized above:
$\begin{array}{|l|l|}\hline \text { Loss on sale of equity securities } & \$ 350,000 \\\hline \text { Gain on sale of property, plant, and equipment } & \$ 650,000\\\hline\end{array}$ All payments and proceeds relating to these transactions were in cash. Using this information, compute the following cash flows for the current year:
$$\begin{array} { | l | l | } \hline \text { (a) Purchases of equity securities } & \$ \\\hline \text { (b) Proceeds from sale of equity securities } & \$ \\\hline \text { (c) Purchases of property, plant, and equipment } & \$ \\\hline \text { (d) Proceeds from sale of property, plart, and equipment } & \$ \\\hline\end{array}$$

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Definitions:

Discount Rate

The interest rate used to discount future cash flows to their present value, often used in capital budgeting and investment valuation.

Earnings Before Interest And Taxes (EBIT)

A measure of a firm's profit that includes all incomes and expenses except interest and income tax expenses.

Sales Volume

refers to the number of units sold within a reporting period, used as a measure of business performance and market demand.

Variable Costs

Expenses that change in proportion to the production output or sales of a company, such as raw materials and direct labor costs.