978-1118334324 Chapter 13 Solution Manual Part 7

BYP 13-7 COMMUNICATION ACTIVITY

MEMO

To: Will Hardin

From: Student

Re: Statement of cash flows

The statement of cash flows provides information about the cash receipts

and cash payments of a firm, classified as operating, investing, and financing

The investing activities section of the statement reports cash flows resulting

from changes in investments and other long-term assets. The company

had a cash outflow from investing activities due to purchases of buildings

and equipment.

The financing activities section of the statement reports cash flows resulting

If you have any further questions, please do not hesitate to contact me.

BYP 13-8 ETHICS CASE

(a) The stakeholders in this situation are:

Samuel Gunkle, president of Wesley Corporation.

Gerald Rondelli, controller.

The Board of Directors.

The stockholders of Wesley Corporation.

(b) The president’s statement, “We must get that amount above $1 million,”

Controller Gerald Rondelli’s reclassification (intentional misclassification)

of a cash inflow from a long-term note (financing activity) issuance to an

“increase in payables” (operating activity) is inappropriate and unethical.

(c) It is unlikely that any board members (other than board members who are

also officers of the company) would discover the misclassification. Board

members generally do not have detailed enough knowledge of their

BYP 13-9 ALL ABOUT YOU

(a) The article describes three factors that determine how much money

you should set aside. (1) Your willingness to take risk. You need to evaluate

how willing you are to experience wide swings in your financial position.

(b) They recommend having at least three months of living expenses set

aside, and up to six months.

(c) Responses to this question will vary. What is most important is that

BYP 13–10 FASB CODIFICATION ACTIVITY

(a) Cash equivalents are short-term, highly liquid investments that have

both of the following characteristics:

a. Readily convertible to known amounts of cash

Generally, only investments with original maturities of three months or

less qualify under that definition. Original maturity means original

maturity to the entity holding the investment. For example, both a

(b) Financing activities include obtaining resources from owners and

providing them with a return on, and a return of, their investment;

(c) Investing activities include making and collecting loans and acquiring

and disposing of debt or equity instruments and property, plant, and

equipment and other productive assets, that is, assets held for or used

BYP 13-10 (Continued)

(d) Operating activities include all transactions and other events that are

not defined as investing or financing activities (see paragraph 230–10–

(e) The primary objective of a statement of cash flows is to provide

relevant information about the cash receipts and cash payments of an

entity during a period.

As indicated in the glossary at this same section, cash includes not

only currency on hand but demand deposits with banks or other

financial institutions. Cash also includes other kinds of accounts that

Thus, the basis for the statement of cash flows is cash, not broader

measures of liquidity, like working capital.

(f) Information about all investing and financing activities of an entity

IFRS EXERCISES

IFRS 13-1

Under IFRS bank overdrafts are treated as part of cash and cash

equivalents on the balance sheet. As a result, on the statement of cash

IFRS 13-2

The treatment of these items under IFRS and GAAP is as follows:

IFRS GAAP

IFRS 13-3

In the future cash equivalents will probably not be combined with cash.

Instead they will most likely be reported separately, as a type of short term

investment.

IFRS 13-4 INTERNATIONAL FINANCIAL REPORTING PROBLEM

(a) The company reports interest paid as an operating activity.

(b) Zetar’s balance in cash and cash equivalents is negative because the

(c) Under GAAP bank overdrafts are not reported in cash and cash

equivalents. Instead they are treated as a financing activity, and would

be reported on the balance sheet as a liability.

(d) The components of the “net movement in working capital” are reported

on the face of the statement of cash flows as