Corrected Statement of Cash Flows
1. Bailey paid wages of $16,700 with Treasury Stock.
2. Bailey issued a stock dividend worth $9,600.
3. Bailey received a donated building worth 24,000
4. Bailey purchased buildings worth $21,900 in return for notes payable. The last payment of $8,000 (excluding interest) was not due yet. .
5. Bailey entered into a three-year capital lease on a building with a present value of $8,400.
6. Bailey received $5,000 from the matured U.S. Treasury. Because the 6-month T-bill had been treated as a cash equivalent since it was acquired on September 1, 20x1, the maturation had on effect on cash.
7. Bailey had a permanent impairment loss on investment in Annie and wrote it down by $2,400.
8. Bailey reported the decline in a value as an extraordinary item of $10,000, net of $1,000 in tax savings.
You will read the explanations of each item in the corrected cash flow statement in the form of three sections — operating, financing and investing. Afterwards, you can also see the explanations for the appendix about ‘Reconciliation of Net Income to Net Cash provided by Operating Activities’ and the footnote, which presents noncash transactions.
First of all, all titles of the existing items except Dividends and interest, net) were correctly recorded under this section .This is with reference to Section 230-45-25 of
Accounting Standards Codification (ASC). Though all titles of existing items are correct, only the figures of ‘Pay suppliers’ and ‘Pay Wages’ are accurate.
‘Collections from customers’ has incorrectly excluded two figures, which cause inaccuracy of the final amount. Both figures of $4,800 and $28,900 represent collections from credit sales, which are related to Transaction 4 and 6. They should be included in ‘Collections from Customers’, which give 44,700 as the correct amount.
‘Dividends and interest, net’ should be recorded as ‘Dividends and interest’ instead. This is because $2,100 represents dividend payment. ASC specifies that cash outflows for financing activities include ‘[p]ayments of dividends or other distributions to owners, including outlays to reacquire the entity's equity instruments’ (230-45-25-a). Besides, figures of $1,100 and $800 represent interest earned, which are derived from Transaction 6 and 17, respectively. Therefore, ‘Dividends and interest’ should entrail both the amounts.
‘Pay interests’ should exclude $200 as interest paid to factor does not involve actual cash transaction. Interest paid to factor should be revealed in noncash transactions instead. ASC has clearly stated that ‘[i]nformation about all investing and financing activities of an entity during a period that affect recognized assets or
Liu P.5 liabilities but that do not result in cash receipts or cash payments in the period shall be disclosed’ (230-50-3).
Moreover, ‘Pay Interests’ should rule out $600, which is due to capitalized interest. With respect to ASC, ‘[p]ayments at the time of purchase or soon before or after purchase to acquire property, plant, and equipment and other productive assets, including interest capitalized as part of the cost of those assets’(230-45-13-c) is part of cash outflows for investing activities so this should be moved to investing section instead. In addition, missing amounts of $1,400(Transaction13), $700(Transaction 14), $800(Transaction 29) and $800(Transaction 33) represent interest payments. This is consistent with ‘[c]ash payments to lenders and other creditors for interest’ (230-45-17-d) mentioned in ASC. It follows that a total of $3,700 should be added back.
To start with, ’Purchase Building’ should be replaced with ‘Renovate Building’. Plus, the amount should be revised to 5,600, which incorporates the renovation cost and capitalized interest. These two costs are capitalized as part of the building’s value.