Financial Accounting : Question and Answer

Running head: FINANCIAL ACCOUNTING
Financial Accounting
Name of the Student
Name of the University
Author Note

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FINANCIAL ACCOUNTING
Table of Contents
Answer to Question 3...................................................................................................................2
Answer to Question 4...................................................................................................................2
References....................................................................................................................................3

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FINANCIAL ACCOUNTING
Answer to Question 1
The five items which are added to and subtracted from the net income of the business are
the depreciation of revenue earning equipment, depreciation of property and equipment,
amortization of other intangible assets, stock based compensation charges and gain on sale of
property and equipment. These items are adjusted against the net income to calculate the net
operating cash generated from business activities. The main purpose of preparing a cash flow
statement is to calculate the net cash generated by a business for a particular period. Hence, net
income is taken as a starting point. However, items like depreciation and amortisation do not
involve any cash flow and hence are adjusted against the net income of the business. While gain
on an equipment is an inflow, it is recorded in the inflow from the sale of asset. To avoid double
recording and to obtain accurate value of cash flow, these items are added back to the net
income.
Answer to Question 2
The receivables increased from the end of 2011 to the end of 2012 by an amount of
$157732. The accrued liabilities, on the other hand, decreased by $22554 from the end of 2011
to the end of 2012.
Answer to Question 3
Hertz does not pay any amount to the investors either in the form of dividends or in the
form of repurchases for the year 2012 as per the cash flow statements of the entity.
Answer to Question 4
The largest asset in the books of Hertz Global Holdings Inc. for the year 2012 is the
revenue earning equipment after the deduction of the accumulated depreciation of the asset. The
gross value of the equipment is $15831227. After deducting the depreciation from the asset, the

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net value of the equipment is $12908336. As the asset is the main revenue earning equipment of
the entity, it will be used for a period of more than 1 year as a part of the business. The
accumulated depreciation suggests that the entity will not sell this asset on an immediate basis
and plans to keep it for the longer run as a part of the business. Hence, this can be constituted to
be a part of the long term assets held by the company.
Answer to Question 5
a) The largest cash inflow is recorded of $(1904649) is recorded in the cash flows from
investing activities of the business.
b) All of Coinstar, Aaron’s and Men’s Wearhouse record the purchase of the equipment
related to their businesses in the cash generated from the investing activities of the
business.
c) Yes, I think Hertz reports the equipment in the correct section of the cash flow statement.
This is because the equipment may either be sold within a year or may be at a later date.
However, as the average holding period of the equipment is 15 months, it can be
constituted to be a non-current asset of the company due to the time period. However, as
the cash inflows from it are certain, it can be considered to be the investing activity
undertaken by a company.
Answer to Question 6
The under-depreciation of the assets would result in an understatement of the operating
cash flows generated by the entity. This is because depreciation is added back to the net income
of the business to obtain the net cash from operating activities. Similarly, a decrease in the
amount of bad debt means a lower amount of change in the debtors. This results in an
overstatement of the cash flow from operating activities of the business.

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Answer to Question 7
The book value of the assets that Hertz sold during the year is $7125096.
Answer to Question 8
The cash flows would be recorded under the head of cash flow from operating activities
as a part of the business.

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References
Boral.com. (2020) Retrieved 11 January 2020, from
https://www.boral.com/sites/corporate/files/media/field_document/ID-18056-BLD-Boral-
FY19-Annual-Report-FINAL.pdf
Asx.com.au. (2020). Retrieved 11 January 2020, from https://www.asx.com.au/asx/share-price-
research/company/BLD