A-AS Level (CIE) Business Studies Paper-2: Specimen Questions with Answers 43 - 44 of 52

Passage

Case Study-4

Meta company is consistently using indirect method for preparing its statement of cash flows. The comparative balance sheet and some additional information of the company are given below:

Balance Sheets

Additional Information

  • Net income for the year: .
  • Cash dividend declared and paid during the year: .
  • Depreciation expenses for the year:
  • Sold marketable securities for ; the cost was .
  • Acquired plant assets for . paid in cash and a mortgage note payable was issued for the balance.

Question 43 (1 of 5 Based on Passage)

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Short Answer▾

Explain the term Cash and Cash equivalents.

Explanation

‘Cash Equivalents’ in the Cash Flow Statement Indicates

  • Cash equivalents in one entity might not be a cash equivalent in another.
  • Depends on the respective cash-management programs adopted- bank and non-bank bills (highly liquid investments) typically meet the definition of cash.
  • Accounts items such as accounts receivable, accounts payable any borrowings subject to a term facility or equity securities would be excluded.

‘Cash’ in the cash flow statement indicates the money in the form of currency. Which includes bills, coin, and currency notes. Both cash and cash equivalents refer to the line item on balance sheet that depicts the value of a company՚s assets that are converted into cash.

Question 44 (2 of 5 Based on Passage)

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Short Answer▾

Calculate cash flow from operating activities.

Explanation

Cash Flows from Operating Activities

Cash Flows from Operating Activities
Net income$ 50,000
+ Depreciation Expense$ 120,000
+ Increase in inventory$ 10,000
+ Increase in accounts payable$ 20,000
-increase in accounts receivable ($ 20,000)
-Decrease in accrued expenses payable ($ 30,000)
-Gain on saleable marketable securities ($ 40,000)$ 60,000
Net cash provided by operating activities$ 560,000

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