| Course | ACC-2020 Intermediate Accounting II |
|---|---|
| Module | Module 6 |
| Paper type | Written Assignment 6: a year of cash flows reconstructed and a loan rate hedged |
| Length | About 676 words, 5 pages |
| Format | APA 7 student paper |
| School | Thomas Edison State University |
| Program | Bachelor of Science in Business Administration |
| Updated | October 2026 |
Free sample paper for ACC 2020 Module 6
Barnegat Marine Supply, Inc.: A Full Year of Cash Flows and an Interest Rate Swap
Student Name
Bachelor of Science in Business Administration, Thomas Edison State University
ACC-2020: Intermediate Accounting II
Mentor Name
Month Day, Year
Barnegat Marine Supply, Inc.: A Full Year of Cash Flows and an Interest Rate Swap
Introduction
The statement of cash flows explains why cash changed, and it is the statement where the year's accrual entries are undone. Because Barnegat's 2025 transactions have been recorded across five assignments, preparing the statement is also a review of the course. Barnegat's cash rose from $142,691 to $530,000.
Part A: Statement of Cash Flows, Indirect Method
Several adjustments come directly from earlier modules. The bond discount written off during the year increased interest cost but sent no cash out the door, so it goes back in (Spiceland et al., 2020). Barnegat's share of Cape May's earnings exceeded the dividends it received, so the excess is subtracted. The deferred tax benefit reduced tax expense without cash, so it is also subtracted. Stock option expense is added because it is paid in equity, not cash. The litigation accrual is large: it lowered net income by $150,000 that has not been paid, which is why operating cash flow is so much higher than income this year, and why it may fall sharply in the year the case is settled.
Dechow et al. (1998) showed that accruals smooth cash flows into a better measure of performance, but a gap as wide as Barnegat's, driven by one accrual, deserves explanation in management's discussion.
| Operating activities | Amount |
|---|---|
| Net income | $316,000 |
| Depreciation and amortization, including the van lease asset | 120,098 |
| Amortization of bond discount | 6,891 |
| Equity method income in excess of dividends: $54,000 minus $18,000 | (36,000) |
| Deferred income tax benefit: $12,600 minus $39,480 | (26,880) |
| Stock option compensation | 48,000 |
| Increase in accounts receivable | (42,000) |
| Increase in inventory | (25,000) |
| Decrease in prepaid expenses | 3,000 |
| Increase in accounts payable | 31,000 |
| Increase in warranty liability | 38,000 |
| Increase in accrued litigation liability | 150,000 |
| Net cash provided by operating activities | $583,109 |
| Investing activities | Amount |
| Purchase of state bonds | ($200,000) |
| Investment in Cape May Canvas Co. | (450,000) |
| Purchase of equipment | (130,000) |
| Proceeds from sale of old equipment at book value | 22,000 |
| Net cash used by investing activities | ($758,000) |
| Financing activities | Amount |
| Proceeds from bond issue | $459,444 |
| Proceeds from short-term bank note | 120,000 |
| Issue of common stock | 250,000 |
| Purchase of treasury stock | (112,000) |
| Reissue of treasury stock | 46,500 |
| Dividends paid, common and preferred | (133,750) |
| Principal paid on van finance lease | (40,000) |
| Principal paid on forklift note | (27,994) |
| Net cash provided by financing activities | $562,200 |
| Net increase in cash | $387,309 |
Part B: Noncash Investing and Financing Activities
Three significant transactions involved no cash and are disclosed separately: right-of-use assets of $175,488 obtained under the van finance lease and $207,907 under the warehouse operating lease, and a forklift acquired with a $90,000 installment note. Users need these to see the full scale of investment in 2025, since much of it was financed without cash changing hands.
Part C: An Interest Rate Swap as a Cash Flow Hedge
Barnegat has a $1,000,000 bank loan drawn in 2024 with interest that resets each quarter at a market reference rate plus 2%. To fix its borrowing cost, on January 1, 2025, it entered a three-year swap with its bank: Barnegat pays a fixed 4.5% and receives the floating reference rate on $1,000,000. Together with the loan, its cost is fixed at 6.5%.
Because the swap is a qualifying cash flow hedge, changes in its fair value are held in other comprehensive income and moved into earnings as the hedged interest payments affect income. Without hedge accounting, the $18,000 gain would hit net income now while the higher interest it offsets would appear later, making earnings swing for reasons unrelated to operations. Zhang (2009) found that firms changed their risk management after derivative rules required fair value recognition, with some reducing speculative positions, evidence that the accounting shapes behavior.
| 2025 event | Accounting |
|---|---|
| Swap designated as a cash flow hedge at inception, with documentation | Fair value of zero; no entry |
| Net settlements received during 2025 because the floating rate averaged 4.9% | $4,000 reduces interest expense |
| Fair value of the swap at December 31, 2025 | Asset of $18,000; credit other comprehensive income $18,000 |
References
Dechow, P. M., Kothari, S. P., & Watts, R. L. (1998). The relation between earnings and cash flows. Journal of Accounting and Economics, 25(2), 133-168. https://doi.org/10.1016/S0165-4101(98)00020-2
Spiceland, J. D., Nelson, M. W., & Thomas, W. B. (2020). Intermediate accounting (10th ed.). McGraw-Hill Education.
Zhang, H. (2009). Effect of derivative accounting rules on corporate risk-management behavior. Journal of Accounting and Economics, 47(3), 244-264. https://doi.org/10.1016/j.jacceco.2008.11.007
Reading the ACC 2020 Module 6 assignment instructions
The sixth homework set ends the course with cash flows and hedging. The numbered items come from the cash flow and derivatives chapters, and the statement's every line needs a source you can point to. Cash flow items typically ask you to prepare a complete statement by the indirect method, sometimes with a direct method operating section, using a spreadsheet or T-account approach, and to disclose noncash investing and financing activities. Derivative items usually cover fair value and cash flow hedges, including interest rate swaps and forward contracts. The problems here are original, built from the transactions in the earlier assignments so the statement ties together.
How this ACC 2020 Module 6 example is built
Part A presents the full statement of cash flows in three tables, one for each section, and then explains the adjustments that come from earlier modules, including why the litigation accrual drives operating cash flow above income. A research finding puts the gap in context. Part B lists the noncash transactions and explains why they matter. Part C describes the swap's terms and purpose, shows its accounting for the year in a table and explains the logic of cash flow hedge accounting, with a research finding on how derivative rules affect behavior. Using figures from all five earlier assignments makes the statement a review of the course.
ACC 2020 Module 6 rubric: what earns full marks
The cash flow set is the last of six that together make up a third of the grade, and complete working is again a condition of full credit. On cash flows, mentors check that each item lands in the right section, that noncash adjustments carry the right sign, that working capital changes run in the correct direction, that gains and losses are removed from operating activities and that noncash transactions are disclosed rather than included. On derivatives, they look for correct designation, fair value measurement and placement of changes in other comprehensive income or earnings. A statement whose net change agrees with the change in the cash balance is the clearest proof of accuracy. A brief note on what the cash flow pattern says about the company also adds value.
ACC 2020 Module 6 help from the desk
The statement of cash flows rewards a systematic approach. List every balance sheet change and account for each one in exactly one section, or as a noncash disclosure. Common errors include treating dividends declared rather than paid as a cash outflow, adding back equity method income instead of subtracting the undistributed portion and placing lease principal payments in operating rather than financing activities for finance leases. For hedges, check whether the derivative hedges a recognized item's fair value or a future cash flow before choosing where changes go. Send the balance sheet data from your assigned problem and a writer will build the full statement, free for a first request.
Write yours, or have the desk draft it
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ACC 2020 Module 6 questions, answered
Where can I find a free ACC 2020 Module 6 sample paper?
On this page, the last ACC-2020 set in full: Barnegat's whole 2025 cash flow statement, its noncash investing and financing list and the swap on its bank loan.
Why is equity method income subtracted in the indirect method?
The investor recorded its share of earnings without receiving that cash; only dividends received are cash, so the undistributed share is removed.
Where are finance lease payments reported in the cash flow statement?
Principal payments are financing activities and interest payments are usually operating activities.
What is a cash flow hedge?
A derivative that offsets variability in future cash flows, such as a pay-fixed swap on a variable-rate loan, with fair value changes held in other comprehensive income.
What are noncash investing and financing activities?
Significant transactions such as acquiring assets with debt or under leases that involve no cash and are disclosed separately from the statement.