Number 1

Based on your workbook submission, I would like to provide you with a further explanation and some examples regarding the calculations on the Cash Flow Analysis tab.

Net cash generated by operating activities/Net cash used in investing activities/Net cash provided by financing activities” (highlighted with yellow color) should equal the sum of all the numbers under the area of “Operating Activities/Long-Term Investing Activities/Financing Activities,” respectively. So, the sign (either positive or negative for each number) matters. The positive (plus) sign stands for the source of cash and the negative (minus) sign stands for the use of cash.

Sources of cash meaning:

· Cash inflow – occurs when we “sell” something and “receive” cash

· Decrease in asset account such as Accounts receivable, inventory, and net fixed assets between two years

· Increase in liability or equity account such as Accounts payable, other current liabilities, and common stock between two years

 Uses of cash meaning:

· Cash outflow – occurs when we “use” cash to “buy” something

· Increase in asset account such as Cash and other current assets

· Decrease in liability or equity account such as Notes payable and long-term debt

Example 1: Changes on ‘Sale of common stock’ account in year 2020

Sale of common stock (in 2020) = (Common stock in 2020 + Additional paid-in capital in 2020) – (Common stock in 2019 +Additional paid-in capital in 2019) = (490+2439) – (487+2222) = 220.

The result indicates that the value of common stock in year 2020 is increased by 220 relatives to the year 2019. LGI received (cash inflow) of 220 by selling more stocks.

Example 2: Changes on ‘Payment of cash dividends’ in year 2020

Payment of cash dividends (in 2020) = Net Income in 2020 – Addition to Retained earnings in 2020 = Net Income in 2020 - (Retained earnings in 2020 - Retained earnings in 2019) = 114 – (270 – 179) = 114 – 91 = 23, which is cash outflow (-23) on the cash flow statement.

Thanks for your efforts in this class.