Problem 1 -
The Fashion Retailers, Inc., Inc.
Additional information:
- The company sold equipment for $2 million that had originally cost $4 million. Accumulated depreciation on the equipment that was sold through the date of sale was $1 million.
- The company declared a dividend of $400,000 payable to shareholders of record on January 16, 20X9 (note that the dividend was declared in 20X8 but will not be paid until 20X9).
- In an effort to be less heavily long-term debt leveraged, the company paid off significant portions of notes and bonds payable principal for cash and issued additional common stock at par for cash.
a. Prepare a statement of cash flows (indirect method) for The Fashion Retailers, inc. for the year ended December 31, 20X8.
b. Calculate the following cash flow ratios for 20X8:
(1) Operating cash flow ratio.
(2) Cash flow to total debt ratio.
(3) Operating cash flows to sales ratio.
(4) Cash flow yield ratio.
Problem 2 -
Answer the items listed below using the information provided in problem 1 as needed.
a. Prepare a statement of cash flows (direct method) for The Fashion Retailers, Inc. for the year ended December 31, 20X8.
b. Which approach to the preparation of the statement of cash flows, direct method or indirect method, would you argue is easiest for users of the statement of cash flows to comprehend?
c. Which approach to the preparation of the statement of cash flow, direct method or indirect method, is the preferred approach under U.S. generally accepted accounting principles?
Attachment:- Problem 1.rar