As discussed in the chapter, there are two methods for presenting the information in the operating activities
Question:
Presented below are two statements of cash flows for Kralovec Company. In the first one, the operating activities section is presented using the direct method; in the second statement, the indirect method is used.
KRALOVEC COMPANY
Statement of Cash Flows
For the year ended December 31, 2011
(1) Direct Method
(2) Indirect Method
Question Continue In Next Page.
Required:
a. As discussed in Chapter 1, understandability is an important qualitative characteristic of financial statements. With this in mind, compare the two statements above and comment on the understandability of the direct versus the indirect method of presen¬tation in the operating activities section. Which approach do you think most users of financial statements would prefer?
b. Looking only at the first statement (presented using the direct method), analyze the cash flow data for Kralovec Company and note any significant points that can be observed from it, regarding the company's operations during the year. Then repeat this process, looking only at the second statement (presented using the indirect method).
c. Based on your experience in working through part "b," which method of presentation do you find more useful for analyzing the cash flow data, understanding the company's operations, and identifying points to be investigated further?
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Step by Step Answer:
Financial Accounting A User Perspective
ISBN: 978-0470676608
6th Canadian Edition
Authors: Robert E Hoskin, Maureen R Fizzell, Donald C Cherry