Preparing and interpreting the statement of cash flows using a columnar work sheet. The accounting records of

Question:

Preparing and interpreting the statement of cash flows using a columnar work sheet. The accounting records of The GAP, a clothing retailer, for Year 6 and Year 7 indicate the following changes in its balance sheet accounts (amounts in millions):

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a. Prepare a columnar work sheet for the statement of cash flows for Year 6 and Year 7 (see the upper panel of Exhibit 4.4 for the desired format). The GAP sold marketable securities during Year 7 at their book value (that is, at no gain or loss). The firm did not sell property, plant, and equipment during either year. Treat changes in other noncurrent assets as an investing activity.

b. Prepare a statement of cash flows for Year 6 and Year 7 using the indirect method for computing cash flow from operations. The balance in cash was $\$ 486$ at the end of Year 6 and $\$ 914$ at the end of Year 7.

c. Compute cash flow from operations for Year 6 and Year 7 using the direct method (see the lower panel of Exhibit 4.4 for the desired format). The GAP includes depreciation in selling and administrative expenses. Your analysis should show how much cash The GAP collected from customers and how much cash The GAP paid to merchandise suppliers, to governments for income taxes, and to other providers of goods and services.

d. Comment on the pattern of cash flows from operating, investing, and financing activities.

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