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Cash Flow Statement for the Year Ended December 31, 20X2 ($ in millions)

c/f from Operating Activities:

$ $

NI 260

Adj for non-cash:

Depreciation 50 D/ND

Gain on sale of equipment (39) D

Increase in AR (70) (D)

Increase in inventory (98) (D)

Increase in prepaid insurance (4) (ND)

Decrease in AP (3) (D)

Decrease in accrued liabilities (5) (ND)

c/f from operating activities: 91

c/f from investing (400-240): (260-100) (160)

c/f from financing:

issuance of common stock 0

issuance of NP 62

issuance of Bonds payable 160

dividends paid to shareholders (217) 5

(29+260-72)

Net decrease in cash (86)

Cash Jan 1 110

Cash dec 31 24

Depreciation could either be discretionary or non-discretionary depending on the accounting allocation.

Gain on sale of equipment- D- Reflects accounting gain/loss.

Increase in Account Receivable is If the company decides to give clients more credit, this could lead to higher sales but also financial liabilities.

Increase in Inventory - This may be discretionary if the business purposefully lowers its inventory levels, which may result in stockouts but also allow for cash flow.

Increase in Prepaid insurance- ND – reflects repayments.

Dr in Account payable- D- is due to the company's ability to choose when it pays its creditors.

DR in Accrued liabilities- ND- There was not much information in the statement. However, ND can be acceptable.

 2. 

For long-lived assets (apart from goodwill), U.S. GAAP applies the Financial Accounting Standards Board's (FASB) Accounting Standards Codification (ASC) 360, "Property, Plant, and Equipment." When triggering events or circumstances occur that suggest the asset's carrying value may not be recoverable, the frequency of impairment tests is established. Usually, these tests are carried out when there are signs of impairment.

An impairment test may be required in response to several circumstances, such as a substantial decline in the asset's market value, a substantial modification in its intended use, or a substantial unfavorable change in the asset's influencing legal or commercial environment.

Under U.S. GAAP, an impairment test is performed by comparing the carrying value of an asset to its expected undiscounted future cash flows. The difference between the carrying amount and the asset's fair value is recorded as an impairment loss if the carrying amount is greater than the projected undiscounted cash flows.

Under U.S. GAAP, impairment losses cannot be reversed. Even if the asset's fair value rises, an impairment loss once recorded cannot be undone in later periods.