Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition

SOLUTION TO EXERCISE 13-4

TIP: Examine the statement and notice the major reasons for inflows and outflows of cash during the period.

Approach: Glance through the balance sheet data and additional information to get a feel for the facts given. Set up the format for the statement of cash flows by placing the major headings for the three activity classifications approximately where they go. Leave space to fill in the details later (allow about one-fourth page for investing activities, about one-fourth page for financing activities, and approximately one-half page for the operating activities section). Then take each fact in order and process it by placing it where it belongs on the statement of cash flows.

1. Find the net change in cash by comparing the balance of Cash at the end of the period with the balance of Cash at the beginning of the period. Use the net change in cash to reconcile beginning and ending cash balances.
2. Analyze every change in every balance sheet account other than Cash. Reconstruct the journal entries for the transactions that caused the balance sheet accounts to change. Examine each entry to identify if (a) there is an inflow of cash (debit to Cash) or an outflow of cash (credit to Cash) or no effect on cash; (b) if the transaction involves an operating, investing, or financing activity, and (c) where it goes on the statement of cash flows.
3. To help identify ...