Statement of Cash Flows

In: Business and Management

Submitted By vmrendon
Words 1864
Pages 8
MEMORANDUM
TO: SCOTT WHISENANT
FROM: VICTOR RENDON
RE: LACK OF INFORMATION
DATE: 10/30/2011

Overview
The appropriate recognition/measurement of asset retirement obligations in regard to the following situations:
1. The ten warehouses that will likely be sold before being required to remove the asbestos.
2. The two warehouses in states without special asbestos handling and disposal laws.
3. The thirteen warehouses for which the settlement date is indeterminate.
Literature
Statement 143 Paragraph 35 of FASB Concepts Statement NO. 6, Elements of Financial Statements, Characteristics of a liability
1. It embodies a duty or responsibility
2. There is little or no discretion to avoid a future transfer or use of assets to satisfy the obligation, and
3. The obligating event has already occurred.
In June 2001 the FASB issued a Statement No. 143, Accounting for Asset Retirement Obligations requiring entities to record liabilities for tangible, long-lived assets that must be retired or disposed of in a specified way by law or contract. Such liabilities are known as Asset Retirement Obligations (AROs)
ASC 410-20-25-13 If a current law, regulation, or contract requires an entity to perform an asset retirement activity when an asset is dismantled or demolished, there is an unambiguous requirement to perform the retirement activity even if that activity can be indefinitely deferred. At some time deferral will no longer be possible, because no tangible asset will last forever (except land). Therefore, the obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement.
FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, Paragraph 3, a “conditional asset retirement obligation”(CARO) is defined as: “A legal obligation to perform an asset…...

Similar Documents

Statement of Cash Flow

...Subject: Statement of Cash Flow CC: Learning Team A The Carpino Company is pleased to announce that the organization has experience an exciting first year. This memo and the attached cash flow statement summarize the important details of Carpino’s statement of cash flows for the period ending January 31, 2007. It will provide the shareholders reasons for the difference between net income and net cash used by operating, investing, and financing activities. The cash flow statements will also determine Carpino’s ability to generate future cash flows, and to pay dividends and meet obligations. Carpino’s cash flow statement shows a net loss because expenses are $30,000 higher than revenues for the end of year. However, depreciation expense of $55,000 must be subtracted from the expenses since it is not an actual cash item expense. The depreciation expense is calculated in the operating activities and result in a positive net income of $20,000. In preparing the cash flow statement, items that do not affect physical cash income must be adjusted into the original net income figure. While GAAP requires us to accrue for items in the current year, the cash flow is only a view of actual cash in and cash out. The end result is a positive aspect for Carpino Company because the company has a sufficient surplus of revenue. The primary reason Carpino has an increase in cash is based on financing activities. During the 2007 year Carpino issued $420,000 of capital stock. Cash flow from......

Words: 479 - Pages: 2

Statement of Cash Flow

...1. Statement of Cash Flow Operating Activities Net Income: 253,584 Adjustments Non-cash adjustments: Depreciation 120,000 Change in Working Capital: Change in Accounts Receivable (245,840) Change in Inventories (429,140) Change in Accounts Payable 35,800 Change in Accruals 95,040 Net Cash Provided by Operating Activities (544,120) Investing Activities Cash Used to Acquire Fixed Assets (17,050) Change in Short Term Investments 51, 632 Net Cash Provided by Investing Activity 34,582 2. Free Cash Flow 502,640(1-0.4) = 502,640 (0.6) = 301,584 NOPAT FCF = NOPAT - NOWC - Long Term Capital 301,584 - (14,000 + 878,000 + 1716480 ) - (359,800 + 380,000) = -1,567,096 3. Uses of Free Flow for 2011 1. Pay interest to debtholders. 80(1-.40) = 48 2. Repay debt holders. (359,800+10000000)-(500,000-720,000)= 1139800 3. Pay dividends to debtholders. 250,000*.220=55,000 4. Repurchase stock from shareholders. 460,000-1680936=1220936 5. Buy short-term investments. 71,632-20,000=51,632 4. For 2011 Find the Following- Current Ratio: current assets/current liabilities = 2680112/1039800 = 2.6 Debt Ratio: liabilities/assets = 1539800/3516952 = .44 Profit Margin on Sales: Income/sales = 253,584/7035600 = 0.036 Return on Total Assets: 235,584/3,516,952 = 0.072 Price/earnings: 12.17/1.01 = 12.049 Earnings per Share: net income/# of shares outstanding = 253,584/250,000 = 1.014 Financial......

Words: 446 - Pages: 2

Statement of Cash Flows

...steps of the accounting process. We explained the importance of proper revenue and expense recognition and described the closing process. We also showed how to prepare financial statements from a work sheet. Larson−Wild−Chiappetta: Fundamental Accounting Principles, Seventeenth Edition 5. Accounting for Merchandising Operations Text © The McGraw−Hill Companies, 2004 Learning Objectives CAP Conceptual Analytical Procedural merchandising activities C1 Describeincome components for aand A1 Compute the acid-test ratio and explain its use to assess liquidity. identify merchandising company. (p. 178) (p. 193) P1 Analyze and record transactions a for merchandise purchases using perpetual system. (p. 180) perpetual system. (p. 185) C2 Identify and explain the inventory asset of a merchandising company. ( p. 179) both perpetual and C3 Describeinventory systems. ( p. 179) periodic C4 Analyze and interpret costaflows and operating activities of merchandising company. ( p. 187) A2 Compute the gross margin ratio and P2 Analyze and record transactions for merchandise sales using a explain its use to assess profitability. (p. 193) P3 Prepare adjustments and close accounts for a merchandising company. (p. 188) P4 Define and prepare multiple-step and single-step income statements. (p. 190) Decision Feature Dada, Dada, Dada . . . EL SEGUNDO, CA—Dwayne Lewis and Michael Cherry had a dream—a dream to own and run a company. With one lone product (a......

Words: 23377 - Pages: 94

Cash Flow Statement

...Statement of cash flows Statement of cash flows helps users in at least 4 ways. • It can help users predict whether a firm will have positive future net cash flows • It can help users determine a firm’s need for external financing and its ability to pay debts and dividends. It gives users information about current cash flow, possible future cash needs, and borrowed cash that must be repaid in the future • The statement also helps users assess a firm’s overall financial health. The combination OT, INV., FIN cash flows can help a user predict whether a firm will experience growth or whether it is in decline. • The statement focuses the user on cash by reconciling the firm’s accrual net income to the change in the cash balance Operating activities • Activities that a business performs from day to day in its primary profit seeking activity. They generate revenues and result in expenses, and use the company’s current assets and current liabilities. Investing activities • Consist of the long-term assets purchases or sold by a company Financing activities • Include all changes in external financing (e.g. issuing debt, obtaining bank loans, issuing common stock) Direct and Indirect method • Are different ways of preparing the cash flow statement’s operating activities Direct Method • Requires the accountant to compute all operating cash inflows and outflows, and to provide a supplemental schedule that is the cash flows statement indirect method......

Words: 454 - Pages: 2

Statement of Cash Flows

...jointly to establish a global standard that will guide the organization and presentation of information in the financial statements. The boards goal is to improve the usefulness of the financial information to the users of its’ financial statements and to help users in making their decision. The key financial statement that this paper will focus on is the statement of cash flows. One of the key benefits of the statement of cash flows is its’ comparability. This is due to the fact that although there are differences in accounting frameworks in the world cash flow statements are produced on almost the same basis. When preparing the statement of cash flows under IFRS and U.S. GAAP there are some differences, however most of the content and format is similar. The following comparison will focus on the similarities and significant differences between U.S. GAAP and IFRS related to the statement of cash flows. A cash flow statement is a financial report that describes the sources of a company’s cash and how that cash was spent over a specified time period. It is useful for determining the short-term viability of a company, particularly its’ ability to pay bills and is generally required by IFRS and U.S. GAAP. One similarity between IFRS and U.S. GAAP in creating the statement of cash flows are both utilize the same format choices and categories. The cash flow statement may be prepared using either the direct or indirect methods. They also utilize the same three categories:......

Words: 712 - Pages: 3

Cash Flow Statements

...Cash Flow Statements Robert Morgan ACC206 Stacy Hiles August 1, 2014 Cash Flow Statements Please complete the following 5 exercises below in either Excel or a word document (but must be single document). You must show your work where appropriate (leaving the calculations within Excel cells is acceptable). Save the document, and submit it in the appropriate week using the Assignment Submission button. 1. Critical Thinking Question: Answer the following questions: Why are noncash transactions, such as the exchange of common stock for a building for example, included on a statement of cash flows? How are these noncash transactions disclosed? There are occasions when certain transactions occur without actually generating cash. Examples can include an exchange of stock for real-estate or, conversion of debt to equity or acquisition property by default on a note-payable (i.e. repos and foreclosures). These transactions do not actually generate an inflow or out flow of cash but, they do highlight significant changes to investing and financing activities. When this occurs there are essentially two ways to report it on a cash flow statement. Recommended by the Financial Accounting Standards Board, “For the resulting operating cash receipts and payments to be accurate, the effects of all noncash entries to accounts receivable and payable, inventory, and other balance sheets accounts used in the......

Words: 1035 - Pages: 5

Explanation of Statement of Cash Flows

...College of NJ Explanation of Statement of Cash Flows GAC 515 Professor Frank Longo Sandra Rambert August 7, 2014 Statement of Cash Flows has two main purposes firstly, deliver data about a business’ cash receipts and payments. Secondly, statement of cash flows records changes as a product of operations, investments and financial activities during a period on a cash basis. (Weil, 2014) Information in a statement of cash flows can be useful to investors, creditors and any other interested parties. Individuals or entities reviewing the cash flow statement can determine the optimal time to implement future business strategies, payout dividends and invest money back into the company. Cash flow statement identifies the net income and net cash flows from operating activity. Statement of cash flows is usually prepared using two methods the indirect method and the direct method. “The indirect method also known as reconciliation method starts with net income and converts it to net cash flow from operating activities.” (Explanation, 2011) The indirect method records net income for transactions that relates to net income but not cash. To calculate net cash flow from operating activity charges that are non-cash in the income statement are added back to net income and non –cash credits are deducted from net income. (Weil, 2014) The greatest advantage of the indirect method is it concentrates on the difference between net income and net cash flow from operating......

Words: 1284 - Pages: 6

Cash Flow Statement

...that the aim of cash flow reporting is to explore ways in which the underlying liquidity of a reporting entity can be revealed in accounting terms. Profit is regarded as an indicator of financial success, but, as anyone running a business will tell you, cash is king. The measurement of profit is usually based on a mixture of factual transactions and unavoidable subjective accounting judgments. “The stock market prefers the fantasy of smooth growth to the reality of fluctuating operational performance. It falls to the creative accountant to ensure that those fluctuations are removed by hoarding profits in years of plenty for release in years of famine... Just like sin, cash flow will eventually find a company out.” So wrote Ian Griffiths in his bestseller Creative Accounting . The Financial Analysis paper comes as a bit of a shock to some candidates, especially the area of consolidations. From time to time there is no balance sheet or income statement to prepare, but a group cash flow statement may be required. Sometimes cash Francis Braganza explains how to prepare a cash flow statement, using November 2005’s question as an example, with dates advanced two years. Financial analysis Group adjustments 1 A dividend received from an associate by a parent is an inflow (investing activities: second category). 2 A dividend paid to a minority interest by a subsidiary is an outflow (financing activities: third category). 3 Net cash paid out to......

Words: 647 - Pages: 3

Statement of Cash Flow

...1998 Statements of Cash Flows: Three Examples John Stacey, a sales engineer for Aldhus Corporation, was worried. A flight delay had caused him to miss last week’s accounting class in the evening MBA program in which he had enrolled at the suggestion of the personnel director at Aldhus, a growing manufacturer of computer peripherals. The class he had missed had been devoted to a lecture and discussion of the statement of cash flows, and he was sure the material he had missed would be covered in the weekly quiz that was part of each class session. A classmate had faxed Stacey some notes distributed by their instructor, but they were too cryptic to be understood by anyone who had missed the class. In desperation, John called Lucille Barnes, the assistant controller at Aldhus, to ask if she could take a few minutes to point him in the right direction toward understanding the statement of cash flows. She seemed delighted by the request, and they agreed to meet that afternoon. The Meeting At 2:00 P.M. John Stacey went to the office of Lucille Barnes with his notes and questions. After they had exchanged greetings, Lucille handed John three cash flow statements from the annual reports of other high-technology companies (Exhibits 1, 2, and 3). John was worried that Lucille would ask him to explain them, and that she would see how confused he still was about some aspects of accounting; instead, Lucille began explaining. Lucille Barnes (Assistant Controller): The statement of......

Words: 3995 - Pages: 16

Cash Flow Statement

...In financial accounting, a cash flow statement, also known as statement of cash flows or funds flow statement,[1] is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. Essentially, the cash flow statement is concerned with the flow of cash in and cash out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet.[1] As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills. International Accounting Standard 7 (IAS 7), is the International Accounting Standard that deals with cash flow statements. People and groups interested in cash flow statements include: * Accounting personnel, who need to know whether the organization will be able to cover payroll and other immediate expenses * Potential lenders or creditors, who want a clear picture of a company's ability to repay * Potential investors, who need to judge whether the company is financially sound * Potential employees or contractors, who need to know whether the company will be able to afford compensation * Shareholders of the business. Contents [hide] * 1 Purpose * 2 History & variations * 3 Cash flow activities o 3.1 Operating activities o 3.2......

Words: 2959 - Pages: 12

Statement of Cash Flows

...Reformulated Cash Flow Statement Throughout the reformulation of Procter and Gamble’s Statement of Cash Flows, multiple adjustments or assumptions had to be made along the way. One of the first of these assumptions was made regarding the net cash interest. The cash interest payments are disclosed in the supplemental disclosure at the foot of the cash flow statement for $686 million, and were also disclosed in the notes. However, the cash interest receipts were not reported and the accrual number of $100 million in the income statement had to be used to calculate the net interest payments before tax. Taxes were then calculated using the statutory rate of 35%, found in Note 10 (Income Taxes), to get the net interest payments after tax of $380.9 million. Next, as discussed in the previous write up on the reformulated balance sheets and income statement, a detailed breakdown of the cash and cash equivalents account was not disclosed in the notes to the financial statements. Therefore, we classified the entire amount as a financial asset. In regards to the cash flow statement, this means that Procter and Gamble had zero investment in operating cash, and the full amount of $2611 million was included in the financing activities section of the reformulated SCF as investments in cash equivalents. However, there was a $39 million dollar effect of exchange rate changes on the cash equivalents so the number reported in the reformulated statement is $2572 million (net of this......

Words: 462 - Pages: 2

Statement of Cash Flows

...esACTG3110 Chapter 5: Statement of Cash Flows Introduction Objectives of the SCF •Companies are required to include statement of cash flows (SCF) as part of their F/S. •Historical CF are often used as indicator of amount, timing, and uncertainty of future CF. •The objective of the SCF is to disclose the historical cash flows of the enterprise during the reporting period for both feedback and predictive purposes. Classification and Organization The SCF is classified on the basis of the type of cash flow: •Operating activities are the principal revenue-producing activities of the enterprise and the related expenditures. * Cash inflow from operations is measured as cash received from customers or clients. * Cash outflows are those disbursements for operating activities, such as cash paid for inventories, wages and salaries, income taxes, and rent and other overhead costs. * Operating activities relate to net earnings (rev. + exp.), not comprehensive income. * If the company has recognized specific amounts that are part of other comprehensive income, these transactions or events are not included in operating activities. * Therefore, net earnings is the reference point for operating activities on the SCF. •Investing activities are those activities that relate to long-term assets and investments. * The acquisition and disposal of property, plant, and equipment; intangible assets; other assets; and investments are all included in this......

Words: 1644 - Pages: 7

Statement of Cash Flows

...Statement of Cash Flows It was the fall of 2011 and I was reporting sales close to $10,000 for the month of November, thanks in part, to the holiday rush. On the surface, it was pretty good for a first-year online “micro” business selling custom tableware and home decor, run by one person on a part-time basis. As I was caught up on the selling-to-customers aspect of my business, I neglected to pay attention to the inflows and outflows of cash until it was time to file tax returns the following spring. I learned that the sales revenue generated did not necessarily mean that I had that amount of cash to spend. Had I realized this sooner, I would not have signed a 6 month lease on a laser cutter I found to have trouble paying for in the following months. It was trial by fire and I learned the importance of closely monitoring cash flows. As a small business owner, one can imagine that the importance on cash flow are orders of magnitude greater for businesses where millions or even billions of dollars are on the line. The Statement of Cash Flows allow companies to understand the “why’s” and the “how’s” of the amount of cash at the beginning of the period came to be the amount at the end of the period. The cash flow statement has three main areas. Cash Flows from Investing Activities are those cash flows that are involved in activities that finance the business, such as a purchase or sale of investment in securities. The Cash Flows from Financing Activities are the cash flows...

Words: 975 - Pages: 4

Understanding the Statement of Cash Flows

...Interpretation of Statement of Cash Flows Cash Flows from Operating Activities Net Income/Loss: Cash flow from operating activities is positively affected by accrual profit and affected negatively by losses. “Add-backs” to Net Income: Depreciation and Amortization: Expenses from depreciation and amortization are added back to net income when calculating operating cash flow. Such expenses are classified as “non-cash items or expenses” because companies do not “cut checks” for these expenses. Depreciation and amortization expenses represent a reduction of asset valuation due to usage or depletion of that asset. If asset acquisitions increase during the period, depreciation expense will increase and thereby decreasing net income. If assets are completely depreciated, the resulting depreciation expense will decrease and thus increase net income. In all, the result on operating cash flow could be a “wash” since the amounts are added back to period-ended income. Deferred Compensation: The deferred compensation account represents accruals and payments for specialized compensation agreements. For example, the future payments and accruals for highly compensated personnel, whose salary and bonus may be based on company performance, are typically captured here. As accruals for future compensation increase cash flow will also increase. Naturally, as payments are made cash flow decreases. Share-based Compensation Expense: Like depreciation, share-based compensation is...

Words: 1918 - Pages: 8

Statement of Cash Flows

...Statement of Cash Flows Paper ”What is the purpose of the statement of cash flows? What information does it provide”(Kieso, Weygandt, & Warfield, p. 1253)? Companies provide four statements to abide by the Generally Accepted Accounting Principles (GAAP). These financial statements are the income statement, equity statement, the balance statement, and the statement of cash flows. Each statement provides different types of information necessary to make a knowledgeable decision about a investing in company. The statement of cash flows is useful because it ” provides information on a cash basis about an organization operating, investing, and financing activities” (Kieso, Weygandt, & Warfield, p. 1213). Each of these methods is important to users and provides different information. It also provides information on the inflow and outflow of cash during an accounting period. The statement of cash flows presents this information in either the indirect method or the direct method. The statement of cash flows uses is to provide information about its ability to generate cash in the future. This information may come from three sources the income statement, the balance sheet, and select cash transaction data. The income statement provides the operating activities cash flow. The balance sheet provides the changes in assets, liabilities, and equities. It also shows how the company pays dividends and meets it financial obligations to creditors and investors. Select cash transactions......

Words: 784 - Pages: 4