CHAPTER 13

Statement of Cash Flows

Final exam ACCT 217, 15th of April 2019, from 7-10pm in KN GOLD
Exam Details:
The breakdown of the exam is as follows:
 40 multiple-choice questions (40 points) and
 5 written answer questions (60 points).
Multiple-choice questions will be cumulative (on all chapters that we have covered) with equal weight to chapters covered before
Midterm 2 (Chapters 1 – 8) and after Midterm 2 (Chapter 9, 10, 13, and 14.). The short answer questions will focus mainly on
topics covered in Chapters 9, 10 and 13 and 14.

Exam Procedures:
 Please go to exam room KN GOLD. Please arrive 15 minutes early.
 Students will not be allowed to sit for the exam without a photo ID.
 Calculators are allowed, however, we discourage the use of programmable/graphing calculators. If you only have a
programmable/graphing calculator, the memory must be cleared before the start of the exam and proof of this must be shown to a
proctor.
 During the last 15 minutes of the examination period, students must remain at their seats until the end of the exam.
 Once the exam ends, students must remain seated while the proctors collect the exams. Your proctors will announce when they
have collected and counted all of the exams, then you are free to leave.

Drop In Tutorial: The tutorial on April 12, 2019 will be focusing on the cash flow statement and ration analysis and also on any
specific questions (a drop-in part of the tutorial) you might have. Feel free to stop by any of the tutorial hours. More than one TA
will be in the room to answer any questions you may have about the final exam.

Good luck! 2

Chapter 10
Reporting and Analyzing
Liabilities
• Account for Current
Liabilities.
• Account for Instalment
Notes Payable.
• Identify the Requirements
for the Financial
Statement Presentation
and Analysis of Liabilities.
• Appendix 10A: Account
for Bonds Payable.
Milestones
Chapter 13 Chapter 14
Statement of Cash Flows Statement of Cash Flows
• Describe the Content and
Format of the Statement
of Cash Flows.
• Prepare the Operating
Activities Section of a
Statement of Cash Flows
Using the Indirect
Method.
• Prepare the Investing and
Financing Activities
Sections and Complete
the Statement of Cash
Flows.
• Use the Statement of
Cash Flows to Evaluate a
Company.
• Explain and Apply
Comparative Analysis.
• Calculate and Interpret
Ratios That Are Used to
Analyze Liquidity.
• Calculate and Interpret
Ratios That Are Used to
Analyze Solvency.
• Calculate and Interpret
Ratios That Are Used to
Analyze Profitability.
• Understand the
Limitations of Financial
Analysis.
3
4
 Dividends and Interest

Transaction Type of Activity Cash inflow/outflow

Cash Dividends Received Operating (can be investing) Receipt or inflow
Interest Received Operating (can be investing) Receipt or inflow
Interest Paid Operating (can be financing) Payment or outflow
Cash Dividends Paid Financing…why?(can be operating) Payment or outflow

5
Comparing IFRS and ASPE

6
 Journal Entries for Dividends

• Journal entry when dividends of $10,000 are declared

Dividends $10,000
Dividends Payable $10,000
• Dividends are not expense, hence not reported on income statement.
• Dividends are distributed from corporations’ earnings, therefore, reported in the retained
earnings portion of statement of changes in equity.
• Dividends account has a normal debit balance

• Journal entry when dividends are paid

Dividends Payable $10,000
Cash $10,000

7
Preparing Statement of Cash Flows
Investing Activities

8
 Investing Activities

• Measure cash flows relating to non-current asset accounts such as

• Long-term investments (debt and equity investments)
• Property, plant and equipment (land, land improvement, building, and equipment)
• Intangible assets (patents, copyrights, R&D, and Goodwill)
• Cash outflow:
• Asset acquisitions
• Cash inflow:
• Disposals (proceeds of disposition)
• Most current assets (working capital) accounts are classified as operating activities, but
accounts receivables from lending funds is classified as investing activity.
Net Cash Provided (Used) by Investing Activities

10
Preparing Statement of Cash Flows
Financing Activities

11
 Financing Activities

• Determine the net cash provided (used) by financing activities by analyzing changes in
non-current liability and equity accounts
• Changes to notes, loans, and bonds payable are analyzed to determine cause of change
• Amortization of premium or discount (if any) are noncash charges and have no effect
• Analyze share capital and retained earnings accounts for changes and their cause
• Profit is reported in the operating activities section
 13-3b Financing Activities
• Selected financial information for La Tuque Ltd. at December 31 is shown below.
  2018 2017
Current liabilities    
Dividends payable $  2,000 $  1,000
Current portion of bank loan 5,000 4,000
Non-current liabilities    
Bank loan payable 55,000 48,000
Shareholders' equity    
Common shares 121,000 103,000
Retained earnings 72,000 57,000

• During the year, the company had net income of $27,000. It received bank loans of $17,000 and
repaid a portion of other outstanding bank loans. It issued new common shares and did not reacquire
any. Calculate and present the net cash provided by financing activities for 2018. 13
Completing Statement of
Cash Flows

14
 Completing the Statement of Cash Flows
• Complete the statement of cash flows
• Determine increase (decrease) in cash
• Ensure ending cash balance agrees to that reported on statement of financial position
• Identify any noncash disclosures

15
16
 Use the statement of cash
flows to evaluate a company

17
 Using Cash Flows to Evaluate a Company

• Corporate Life Cycle and Cash Flows

• Four phases:
• Introductory
• Growth
• Maturity
• Decline

• These stages can help in the understanding of a

company’s cash flow from its operating,
investing and financing activities

18
 Free Cash Flow
• Measures
  discretionary cash flow remaining from operating activities available to use to
expand operations, reduce debt, go after new opportunities, or pay additional dividends,
among other alternatives

• Net Capital (investing) Expenditure = Acquisitions of PP&E – Proceeds from disposals

Higher is better

19
Free Cash Flows

20
13-4 Corporate Life Cycle and Free Cash Flows

Speyside Inc. reported the following selected information:

  2018 2017 2016

Net cash provided by $43,000  $ 69,000  $ (2,000)
operating activities
Net capital expenditures (9,000) (17,000) (5,000)
Cash dividends (6,000) (4,000) -0- 
Receipt (repayments) of (4,000) (1,000) 15,000 
long-term debt

In each of the years shown above, what phase of the corporate life cycle do you think the company is in?

21
E13-6A Preparing the Statement of Cash Flows
• Let’s solve this problem together…

22