531 a : The Statement of Cash Flows 531 Accounting Practice Discussion Questions 1. What are some of the reasons why a statement of cash flows may be important to users of financial statements? 2. A company used cash to build a new factory and received cash when it sold off the machines in the old factory. In which section of the statement of cash flows would the cash flows from these activities be reported? 3. A company used cash to pay employees and received cash from performing services. In which section of the statement of cash flows would the cash flows from these activities be reported? 4. A company issued bonds during the year. Would this be reported as a source or use of cash on the statement of cash flows? In which section would it be reported? 5. Why is net income a good place to start when attempting to determine the cash flows from operating activities using the indirect method? Why is it not the same as the net cash flow from operating activities? 6. When using the indirect method, why are gains on the sale of fixed assets subtracted from net income in the operating activities section of the statement of cash flows? Why are losses on the sale of fixed assets added to net income? 1. Assuming the indirect method is used, how does an increase in accounts receivable during the year affect the statement of cash flows (if at all)? Why? 8. Why would a decrease in accounts payable be shown as a decrease in cash when using the indirect method of calculating the cash flows from operating activities? 9. How would the sale of treasury stock that was acquired three years ago appear in the statement of cash flows (if at all)? 10. A company's cash conversion cycle increased from 55 days in year 1 to 68 days in year 3. What are the implications of this increase? What do you think happens to the cash con 1 version cycles of companies during a recession? >