Chapter 12
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223. Ultra-lite Corp. began operations on January 1, 2017. The statement of cash flows for the first year reported
dividends paid of $180,000. The balance sheet at the end of the first year reported $60,000 in dividends payable and
$600,000 in ending retained earnings. Determine Ultra-lite’s net income for its first year of operations.
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224. Use the selected data from the consolidated statements of cash flows for Vancouver Corporation for the years ended
December 31, 2018 and 2017, to answer the questions that follow.
(in thousands) 2018 2017
Operating Activities:
Net income $ 6,328 $ 6,093
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 4,475 4,018
Amortization of software 517 983
Effect of restructuring charges (355) (445)
Deferred income taxes (606) 358
Gain on the disposal of fixed assets and other assets (261) (273)
Changes in assets and liabilities (net of businesses acquired)
Accounts receivable (2,736) (3,727)
Inventories 73 432
Other assets 880 (1,087)
Accounts payable and accrued liabilities 362 699
Other liabilities 596 1,814
Net cash provided by operating activities $ 9,273 $ 8,865
Net cash used by investing activities $(6,131) $(6,155)
Net cash provided by financing activities $(4,993) $(3,090)
Cash and cash equivalents at end of year $ 5,375 $ 7,106
Required
(A) What method does Vancouver use to calculate the net cash provided by operating activities?
(B) In 2018, why are depreciation and amortization expenses added back to net income in the Operating Activities section
of the statement of cash flows?
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225. Twilight Corp. began the year with a balance in its Income Taxes Payable account of $13,000. The year-end balance
in the account was $18,000. The company uses the indirect method in the Operating Activities section of the statement of
cash flows. Therefore, it presents the amount of income taxes paid at the bottom of the statement as a supplemental
disclosure. The amount of taxes paid during the year was $15,000.
Required
What amount of income tax expense will appear on Twilight’s income statement?
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226. Singer Corp. began the year with a balance in its Income Taxes Payable account of $10,000. The year-end balance in
the account was $15,000. The company uses the indirect method in the Operating Activities section of the statement of
cash flows. Therefore, it presents the amount of income taxes paid at the bottom of the statement as a supplemental
disclosure. The amount of taxes paid during the year was $12,000. What amount of income tax expense will appear
on Singer’s income statement?
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227. Fort Corp. began the year with a balance in its Income Taxes Payable account of $23,000. The year-end balance in
the account was $28,000. The company uses the indirect method in the Operating Activities section of the statement of
cash flows. Therefore, it presents the amount of income taxes paid at the bottom of the statement as a supplemental
disclosure. The amount of taxes paid during the year was $25,000. What amount of income tax expense will appear
on Fort’s income statement?
228. A company generated $1,830,000 from its operating activities and spent $1,200,000 on additions to its plant and
equipment during the year. The total amount of debt that matures in the next five years is $900,000. Compute the
company’s cash flow adequacy ratio for the year.
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229. On its most recent statement of cash flows, a company reported net cash provided by operating activities of
$16,000,000. Its capital expenditures for the same year were $6,000,000. A note to the financial statements indicated that
1. Compute the company’s cash flow adequacy ratio.
2. If you were a banker considering loaning money to this company, why would you be interested in knowing its cash
flow adequacy ratio? Would you feel comfortable making a loan based on the ratio you computed in (1)? Explain your
answer.
2. The cash flow adequacy ratio gives the user an indication of whether or not the company is generating sufficient cash
from its operations to repay its debts, after taking into consideration the need to make necessary expenditures on new
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Page 101
230. On its most recent statement of cash flows, a company reported net cash provided by operating activities of
$12,000,000. Its capital expenditures for the same year were $2,000,000. A note to the financial statements indicated that
1. Compute the company’s cash flow adequacy ratio.
2. If you were a banker considering loaning money to this company, why would you be interested in knowing its cash
flow adequacy ratio? Would you feel comfortable making a loan based on the ratio you computed in part (1)? Explain
your answer.
2. The cash flow adequacy ratio gives the user an indication of whether or not the company is generating sufficient cash
from its operations to repay its debts, after taking into consideration the need to make necessary expenditures on new
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231. On its most recent statement of cash flows, a company reported net cash provided by operating activities of
$29,000,000. Its capital expenditures for the same year were $5,000,000. A note to the financial statements indicated that
1. Compute the company’s cash flow adequacy ratio.
2. If you were a banker considering loaning money to this company, why would you be interested in knowing its cash
flow adequacy ratio? Would you feel comfortable making a loan based on the ratio you computed in part (1)? Explain
your answer.
2. The cash flow adequacy ratio gives the user an indication of whether or not the company is generating sufficient cash
from its operations to repay its debts, after taking into consideration the need to make necessary expenditures on new
232. A friend of yours says: “Its easy to look at the statement of cash flows and see that a company has been profitable,
because positive cash flows are equal to profitability.” Is your friend right? Explain.
233. Which category of cash flows—operating, investing, or financing activities—do you think is most likely to have a
net cash outflow over a number of years? Explain.
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235. Is it logical that interest paid is classified as a cash outflow in the Operating Activities section of the statement of
cash flows but that dividends paid are included in the Financing Activities section? Explain.
236. Why do accounting standards require a company to separately disclose income taxes paid and interest paid if it uses
the indirect method?
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237. Use the selected data from the consolidated statements of cash flows for College Corporation for the years ended
December 31, 2018 and 2017, to answer the questions that follow.
(in thousands) 2018 2017
Operating Activities:
Net income $ 6,328 $ 6,093
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 4,475 4,018
Amortization of software 517 983
Effect of restructuring charges (355) (445)
Deferred income taxes (606) 358
Gain on the disposal of fixed assets and other assets (261) (273)
Changes in assets and liabilities (net of businesses acquired)
Accounts receivable (2,736) (3,727)
Inventories 73 432
Other assets 880 (1,087)
Accounts payable and accrued liabilities 362 699
Other liabilities 596 1,814
Net cash provided by operating activities $ 9,273 $ 8,865
Net cash used by investing activities $(6,131) $(6,155)
Net cash provided by financing activities $(4,993) $(3,090)
Cash and cash equivalents at end of year $ 5,375 $ 7,106
Required
(A) What is the significance of the positive amounts shown above, for both years, for accounts payable and accrued
liabilities?
(B) At the end of each year, College’s cash balance was approximately $5 to $7 million. What does this indicate about
College’s cash management techniques?
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238. Use the selected information from the statement of cash flows for three actual companies for the last three years to
answer the questions that follow.
All amounts are in millions of dollars
2019 2018 2017
Company X
Net cash provided by operating activities $ 4,625 $ 3,510 $ 2,808
Net cash used by investing activities $(13,464) $(2,288) $(2,887)
Net cash provided by (used by) financing
activities $ 8,040 $ ( 332) $ (97)
Company Y
Net cash provided by operating activities $ 1,871 $ 1,416 $ 808
Net cash used by investing activities $ (2,244) $(1,366) $ (700)
Net cash provided by (used by) financing
activities $ 370 $ (27) $ (98)
Company Z
Net cash provided by operating activities $ 287 $ 214 $ 129
Net cash used by investing activities $ (515) $ (202) $ (106)
Net cash provided by (used by) financing
activities $ 242 $ 11 $ 6
Required
Ignoring the differences in magnitude, comment on the similarities and differences in the cash flows of the three
companies.
