Assignment Is Worth A Maximum Of 25 Points Please Use The In ✓ Solved

Assignment Is Worth a Maximum Of 25 Points Please use the information in the following tabs to complete a direct method and indirect method statement of cash flows

This assignment requires you to create a statement of cash flows using both the direct and indirect methods, based on provided financial statements and supplementary data. You should not simply input numbers; instead, utilize formulas, cell references, and appropriate calculations to generate an accurate and dynamic statement. The completed statement must articulate the changes in cash and reconcile with the changes on the balance sheet. If the statement does not match the net change in cash from the balance sheet, then it indicates an error in your calculation or approach. Collaboration is permitted with groups of four or fewer students. This assignment is due electronically by midnight on Monday, May 18.

Use the given financial statements, including the income statement, statement of equity, and balance sheet, along with additional notes, to prepare comprehensive cash flow statements. You should analyze operating activities (including adjustments for non-cash items and working capital changes), investing activities (such as asset sales and investment transactions), and financing activities (including issuance and repurchase of stock, debt transactions, and dividend payments).

Sample Paper For Above instruction

The preparation of a statement of cash flows provides critical insights into a company's liquidity, financial flexibility, and overall financial health. Efficiently translating net income into cash flows requires a thorough understanding of the company's operations, investments, and financing activities, as well as adjustments for non-cash transactions.

Introduction

The objective of this paper is to prepare both the direct and indirect methods of the statement of cash flows for Washington Irving, Inc., based on the provided financial reports for the year ending January 31, 2018. The statement aims to reflect the actual cash inflows and outflows, reconcile net income with net change in cash, and highlight the company's cash management and financial strategy. The analysis incorporates multiple data points, including operating incomes, non-cash expenses, investing and financing transactions, and changes in working capital.

Analysis of Operating Activities

Operating activities represent core business functions that generate revenue and expenses. The indirect method begins with net income, which is then adjusted for non-cash items and changes in working capital. In this case, net income is a loss of $159,377.50, which is adjusted for depreciation ($425,000) and amortization ($60,872.40). Additionally, gains and losses on the sale of assets, such as the sale of property ($12,500 loss) and securities, are included in the adjustments. Changes in accounts receivable, inventory, and accounts payable also impact cash flows.

The direct method involves listing major operating cash receipts and payments. Cash received from customers for sales is derived from net sales adjustments, accounting for sales returns and the change in accounts receivable. Cash paid for operating expenses, including salaries, rent, and taxes, are estimated based on operating expenses and changes in related accounts. Notably, non-cash charges are excluded, focusing solely on actual cash movements.

Analysis of Investing Activities

The investing activities section reflects cash flows from acquiring or disposing of long-term assets. Notable transactions include the sale of property, plant, and equipment for $289,500, resulting in cash inflows. Purchases of investments and fixed assets, as well as sales of investments, such as the sale of securities for $85,000, are incorporated into this section. The sale of TS investments resulted in a gain, but it must be adjusted to reflect actual cash proceeds and how they affect the cash position.

Investment activities also include purchases of property and equipment, calculated from changes in property, plant, and equipment and the sale proceeds. The changes in investments and other assets are considered, factoring in purchases and disposals for the year.

Analysis of Financing Activities

Financing activities involve transactions related to funds obtained from or returned to owners and lenders. During the year, there are no new long-term debts issued, but existing debts show a net decrease. Stock issuance generates cash inflows, while stock repurchases and dividend payments generate cash outflows. The issuance of common stock and stock repurchases are explicitly documented, affecting the cash balance accordingly.

Dividends paid, as indicated, reduce retained earnings and cash. Contributions to pension plans and other long-term obligations are also included, augmenting the overall view of financing activities.

Reconciliation and Finalization

After calculating net cash flows from all three activities, the sum should match the change in cash from the beginning to the end of the period based on the balance sheet. The cash at end of period increases from $469,037.50 to $754,535.50, indicating a net increase of $285,498.00. Ensuring the sum of all cash flows matches this figure validates the accuracy of the statement.

Using formulas and references, this process becomes dynamic; if input data such as sales or expenses changes, the cash flow statement updates in real time, reflecting the impact accurately. This iterative process demonstrates the importance of integrating operational, investing, and financing activities into a comprehensive view of cash management.

Conclusion

Creating accurate and reliable cash flow statements using both the direct and indirect methods offers vital insights for managers, investors, and analysts. The detailed adjustments for non-cash items, working capital changes, and investment and financing transactions provide a clear picture of how cash is generated and used during the period. Correct application of formulas and cell references ensures the statements remain consistent and adaptable, ultimately enhancing financial decision-making.

References

• Brigham, E. F., & Ehrhardt, M. C. (2016). Financial Management: Theory & Practice. Cengage Learning.
• Higgins, R. C. (2012). Financial Markets and Corporate Strategy. Thomson South-Western.
• Gibson, C. H. (2013). Financial Reporting and Analysis. Cengage Learning.
• Wild, J. J., Subramanyam, K. R., & Halsey, R. F. (2014). Financial Statement Analysis. McGraw-Hill Education.
• White, G. I., Sondhi, A. C., & Fried, D. (2003). The Analysis and Use of Financial Statements. Wiley.
• Revsine, L., Collins, D., Johnson, W., & Mittelstaedt, F. (2015). Financial Reporting and Analysis. Pearson.
• Penman, S. H. (2012). Financial Statement Analysis and Security Valuation. McGraw-Hill Education.
• Case, B., & Fair, R. (2018). Principles of Economics. Pearson.
• Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial Accounting Theory and Analysis. Wiley.
• Healy, P. M., & Palepu, K. G. (2012). Business Analysis & Valuation: Using Financial Statements. Cengage Learning.