21
Statement of
1. The three main sections of the statement of cash flows are: cash flows from
2. Net income from operations
+ Depreciation Expense
3. In the direct method, we list each major group of operating cash flows including cash
4. Disagree. Issuance of stock to our stockholders is a financing activity. (Note: The
purchase of ANOTHER company’s stock is an investing activity).
5. Creditors look at net cash flows from operating activities to see the amount of net
cash generated by operations, which should be a company’s main source of cash.
6. Financing activities are those transactions involved with raising the money necessary
7. Depreciation is added because it was subtracted on the income statement to
8. The question in this case is whether Debbie Kreiger should release the statement of
cash flows to the public. Although the cash flow statement might hurt the reputation
SOLUTIONS TO CONCEPT CHECKS
1.
a.
Added
b.
Subtracted
c.
Not included
d.
Added
2.
Cash Flows from Operating Activities (indirect method):
Net Income
$2,670
Add (Deduct) Items to Convert Net Income from Accrual Basis
to Cash Basis:
Depreciation Expense
690
Increase in Merchandise Inventory
(1,900)
Increase in Accounts Receivable
(260)
Decrease in Prepaid Insurance
325
Decrease in Accounts Payable
(255)
Increase in Salaries Payable
250
Net Cash Provided by Operating Activities
$1,520
3.
Cash Flows from Operating Activities (direct method):
Cash received from customers
$8,540
Cash paid for inventory
$(4,525)
Cash paid for salaries
(2,030)
Cash paid for insurance
(125)
Cash paid for miscellaneous expenses
(340)
Total cash paid for operating activities
(7,020)
Net Cash Provided by Operating Activities $1,520
Copyright © 2016 Pearson Education, Inc.
21-4
CONCEPT CHECKS (CONTINUED)
4.
Cash Flows From Financing Activities:
Issuance of Common Stock
$6,500
Issuance of Long-Term Note Payable
16,000
Dividend Payment
(14,000)
Net Cash Provided by Financing Activities
$8,500
5.
Net Change in Cash:
Net Cash Flows Provided by Operating Activities
$6,700
Net Cash Flows Used by Investing Activities
(2,100)
Net Cash Flows Provided by Financing Activities
1,200
Net Increase in Cash
$5,800
SOLUTIONS TO SET A EXERCISES
21A–1.
Increase in Accounts Receivable
Subtract from Cash Flow from Operations
Increase in Prepaid Insurance
Subtract from Cash Flow from Operations
21A-2.
Cash Flows from Operating Activities:
Net Income
$17,600
Add(Deduct) Items to Convert Net Income from Accrual Basis to Cash
Basis:
Depreciation Expense
4,300
Increase in Accounts Receivable
(2,500)
Decrease in Prepaid Insurance
54
Increase in Accounts Payable
607
Increase in Salaries Payable
900
Net Cash Provided by Operating Activities
$20,961
EXERCISES (CONTINUED)
21A–3.
Cash Flows from Operating Activities:
Cash Received from Customers
$9,160
Cash Paid for Inventory
(4,513)
Cash Paid for Salaries
(1,170)
Cash Paid for Insurance
(630)
Cash Paid for Other Expenses
(990)
Net Cash Provided by Operating Activities
$1,857
21A-4.
a.
1.
OA
b.
2.
IA
c.
2.
IA
d.
3.
FA
e.
1.
OA
f.
4.
NC