Quiz 3 Ch 14 15 16 17 - Your Name Lyneshea Marshall_____ (also include your name in the file name) Q1 Will the income statement include cash dividends declared and paid in the reporting period? Yes or No? • No Q2 Explain the effect on Cash Received and Interest Expense Recognized when A. Bonds are issued at Face Value – This refers to monies received by the bond holder once it reaches maturity. B. Bonds are issued at a discount - This refers to a bond selling below its face value. C. Bonds are issued at a premium – This refers to a bond selling above its face value. (Hint: your answer for each independent situation [A, B, and C] should include the phrases “Credit to Bonds Payable” and “Contract Interest Rate”) When bonds are issued at …show more content…
That is, how do you prepare a statement of cash flows using the indirect method? Don’t use numbers but explain the mathematical calculations and line items. Indirect method of preparing cash flow statements: refers to adjusting the net profit value of the company, as reported by Income Statement, to reflect the cash generated by the company. So first step is to adjust the Income Statement to reflect cash generated from operating activities. All the operational expenses which do not result in cash outflow are added back to net profit value like depreciation and interest expense. Likewise there are few items which are not expenses for the period but they result in cash outflow like interest payment, increase in inventory etc. These items are also adjusted to show the cash generated from operational activities. Then cash flows from investing and financing activities are included to calculate the net cash generated in the period. Q5 What do we learn by using the vertical analysis process for a company when analyzing the income statement and the balance sheet? That is, how would you explain to someone what you learn about a company by completing a vertical analysis of their SEC 10K income statement and balance