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Understanding Indirect Cash Flow Statement Adjustments and Investment Analysis

This guide explores the intricacies of indirect cash flow statements focusing on operating, investing, and financing activities. It walks through key adjustments like non-cash items (depreciation), changes in assets and liabilities, and issuances of bonds payable. With practical exercises (12-14, 12-17) and examples, learners will understand how operating net income translates to cash flow, including the impact of accounts receivable, inventory changes, and interactions with current liabilities. Dive into this essential financial exercise to enhance your cash flow analysis skills.

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Understanding Indirect Cash Flow Statement Adjustments and Investment Analysis

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  1. Adj. to NI - Indirect 1. A 2. D 3. D 4. A 5. N 6. A 7. D 8. A 9. N 10. A Exercise 12-14

  2. Invest. and Fin. 1. OI 2. CE 3. IF 4. OI 5. OF 6. CE 7. I I 8. OI 9. IF 10. OF (Curr. Liab. but not part of Op.) Exercise 12-17

  3. Analysis (Note: first line on B/S is last line on SCF) Op:1.Noncash - Depr. $50,000 2.G/L - none here 3. Change in related Assets & Liab: A/R decr. $2,000 Inv. incr. 1,000 PP Rent incr. 200 A/P change -0- IT Pay incr. 500 (note: ST NP is financing) Problem 12-1A AOLS add subtract subtract add

  4. Investing P& E Increase $50,000 Purch Financing Pay on ST Notes Payable $2,500 Issue BP $ 25,000 Now SCF Problem 12-1A

  5. CF from Operating Net Income $(21,800) Depr. + 50,000 A/R decr. + 2,000 Inv. incr. - 1,000 PP Rent incr. - 200 IT Pay incr. + 500 CF from Operating $ 29,500 CF from Investing Purchase of Plant and Equip $(50,000) CF from Financing Pay on ST Notes Payable $(2,500) Issue BP 25,000$ 22,500 Net incr. in cash (from 10,000 to 12,000) $ 2,000 Problem 12-1A

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