a) Prepare a statement of cash flows for 2021 using the indirect method. 

b) Which of the following statements is wrong

1. An increase in prepaid expenses decreases operating cash flow relative to net income

2. A decrease in accounts payable decreases operating cash flow relative to net income

3. A purchase of inventory on account has no impact on operating cash flow (relative to net income)

4. A loss from the sale of equipment increases the investment cash flow

  

3. Cash dividends of €50,000 were declared and paid.
4. Bonds payable amounting to €100,000 were redeemed for cash €100,000. New bonds were issued for €20,000 in cash.
5. “Share capital – ordinary” changed due to an issue of ordinary shares in exchange for cash. 6. Land was sold for its book value of €5,000.

 

Transcribed Image Text:

Below you find the comparative statements of financial position for the company Cloudy Ltd. Note that the table shows values for 2020 first! 2020 2021 Assets € 90 000 € 85 000 € 195 000 -€ 50 000 € 7 000 € 170 000 € 90 000 € 68 000 Land Equipment € 200 000 Accumulated depreciation - equipment -€ 35 000 Prepaid expenses € 4 000 € 180 000 € 70 000 Inventory Accounts receivable Cash € 36 000 Total € 545 000 € 565 000 Equity and Liabilities Share capital - ordinary (EUR 1 par) Retained earnings € 180 000 € 216 000 € 160 000 € 229 000 € 70 000 Bonds payable Accounts payable € 150 000 € 55 000 € 50 000 Total € 545 000 € 565 000 Additional information: 1. Net income for 2021 was €119,000. 2. New equipment was purchased for €10,000. In addition, old equipment which cost €15,000 and had accumulated depreciation of €12,500 was sold for €7,000. Below you find the comparative statements of financial position for the company Cloudy Ltd. Note that the table shows values for 2020 first! 2020 2021 Assets € 90 000 € 85 000 € 195 000 -€ 50 000 € 7 000 € 170 000 € 90 000 € 68 000 Land Equipment € 200 000 Accumulated depreciation - equipment -€ 35 000 Prepaid expenses € 4 000 € 180 000 € 70 000 Inventory Accounts receivable Cash € 36 000 Total € 545 000 € 565 000 Equity and Liabilities Share capital - ordinary (EUR 1 par) Retained earnings € 180 000 € 216 000 € 160 000 € 229 000 € 70 000 Bonds payable Accounts payable € 150 000 € 55 000 € 50 000 Total € 545 000 € 565 000 Additional information: 1. Net income for 2021 was €119,000. 2. New equipment was purchased for €10,000. In addition, old equipment which cost €15,000 and had accumulated depreciation of €12,500 was sold for €7,000.

Answer rating: 100% (QA)

Solution Cash flow statements are prepared to explain the cash movements between two points of time Cash flows during the period are classified as Ope... View the full answer