163. Maritime Marine Services
Selected data from the financial statements for the years ended December 31, 2014 and 2013, are presented
below:
(In millions)
2014
2013
Property, plant and equipment
$14,100
$12,200
Accumulated depreciation
4,900
4,700
Investments
450
240
Short-term debt
55
57
Long-term debt
1,500
1,200
Common stock
597
567
Treasury—common stock
(21)
(21)
Retained earnings
3,522
3,426
Net income
770
713
The following additional information was obtained from the company’s records:
1.
Cash additions to property, plant, and equipment during 2014 were $2,300. An additional $250 of plant assets were acquired through debt
in a noncash transaction. Depreciation expense for 2014 was $400. Gains on disposals of property, plant and equipment during 2014 were
$40.
2.
The cash proceeds from the sale of investments in 2014 was $120. There was a $30 gain on the sale of the investments.
3.
Proceeds from long-term debt issued during 2014 was $200.
4.
The issuance of common stock totaled $30 in 2014.
Refer to Maritime Marine Services. What was the amount of cash dividends paid during 2014?
164. During 2014, the operations of a shipping company provided net cash flows of $600,000. The company
made capital expenditures of $270,000 and paid dividends of $130,000.
A)
Compute the company’s free cash flow.
B)
Compute the company’s cash flow adequacy ratio assuming the average maturity value of its long-term debt over the next five years
is $650,000.
$200,000
=
$600,000
–
$270,000
–
$130,000
165. Refer to Mary Kay Cosmetics. Prepare the company’s statement of cash flows for the year ended
December 31, 2014. Use the direct method of determining net cash flows from operating activities.
Mary Kay Cosmetics
Statement of Cash Flows
For the year ended December 31, 2014
166. Merry Maids Company
Merry Maids Company began 2013 with a cash and cash equivalents balance of $7,670. Consolidated
statements of cash flows for the years ended December 31, 2014 and 2013, are presented below:
(in thousands)
2014
2013
Operating Activities:
Net income
$6,300
$6,000
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation
4,500
4,020
Amortization of software
520
980
Effect of restructuring charges
(350)
(440)
Deferred income taxes
(600)
360
Gain on the disposal of fixed assets and
other assets
(260)
(270)
Changes in assets and liabilities (net of
businesses acquired)
Accounts receivable
(2,740)
(3,730)
Inventories
75
430
Other assets
880
(1,090)
Accounts payable and accrued liabilities
362
700
Other liabilities
595
1,815
Net cash provided by
operating activities
$9,282
$8,775
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
$5,358
$7,200
Refer to Merry Maids Company. What method is used to calculate the net cash provided by operating activities?
167. Merry Maids Company
Merry Maids Company began 2013 with a cash and cash equivalents balance of $7,670. Consolidated
statements of cash flows for the years ended December 31, 2014 and 2013, are presented below:
(in thousands)
2014
2013
Operating Activities:
Net income
$6,300
$6,000
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation
4,500
4,020
Amortization of software
520
980
Effect of restructuring charges
(350)
(440)
Deferred income taxes
(600)
360
Gain on the disposal of fixed assets and other
assets
(260)
(270)
Changes in assets and liabilities (net of
businesses acquired)
Accounts receivable
(2,740)
(3,730)
Inventories
75
430
Other assets
880
(1,090)
Accounts payable and accrued liabilities
362
700
Other liabilities
595
1,815
Net cash provided by
operating activities
$9,282
$8,775
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
$5,358
$7,200
Refer to Merry Maids Company. In 2014, why are depreciation and amortization expenses added back to net income in the operating activities
section of the statement of cash flows?
168. Merry Maids Company
Merry Maids Company began 2013 with a cash and cash equivalents balance of $7,670. Consolidated
statements of cash flows for the years ended December 31, 2014 and 2013, are presented below:
(in thousands)
2014
2013
Operating Activities:
Net income
$6,300
$6,000
Adjustments to
reconcile net income to
net cash provided by
operating activities:
Depreciation
4,500
4,020
Amortization of software
520
980
Effect of restructuring charges
(350)
(440)
Deferred income taxes
(600)
360
Gain on the disposal of fixed assets and
other assets
(260)
(270)
Changes in assets and liabilities (net of
businesses acquired)
Accounts receivable
(2,740)
(3,730)
Inventories
75
430
Other assets
880
(1,090)
Accounts payable and accrued liabilities
362
700
Other liabilities
595
1,815
Net cash provided by
operating activities
$9,282
$8,775
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
$5,358
$7,200
Refer to Merry Maids Company. Give some examples of circumstances that would result in net cash used by investing activities as shown above.
169. Merry Maids Company
Merry Maids Company began 2013 with a cash and cash equivalents balance of $7,670. Consolidated
statements of cash flows for the years ended December 31, 2014 and 2013, are presented below:
(in thousands)
2014
2013
Operating Activities:
Net income
$6,300
$6,000
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation
4,500
4,020
Amortization of software
520
980
Effect of restructuring
charges
(350)
(440)
Deferred income taxes
(600)
360
Gain on the disposal of
fixed assets and other
assets
(260)
(270)
Changes in assets and
liabilities (net of
businesses acquired)
Accounts receivable
(2,740)
(3,730)
Inventories
75
430
Other assets
880
(1,090)
Accounts payable and accrued liabilities
362
700
Other liabilities
595
1,815
Net cash provided by
operating activities
$9,282
$8,775
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
$5,358
$7,200
Refer to Merry Maids Company. What is the significance of the positive amounts shown in both years for accounts payable and accrued liabilities?
170. Merry Maids Company
Merry Maids Company began 2013 with a cash and cash equivalents balance of $7,670. Consolidated
statements of cash flows for the years ended December 31, 2014 and 2013, are presented below:
(in thousands)
2014
2013
Operating Activities:
Net income
$6,300
$6,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation
4,500
4,020
Amortization of software
520
980
Effect of restructuring charges
(350)
(440)
Deferred income taxes
(600)
360
Gain on the disposal of fixed
assets and other assets
(260)
(270)
Changes in assets and liabilities
(net of businesses acquired)
Accounts receivable
(2,740)
(3,730)
Inventories
75
430
Other assets
880
(1,090)
Accounts payable and accrued liabilities
362
700
Other liabilities
595
1,815
Net cash provided by
operating activities
$9,282
$8,775
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
$5,358
$7,200
Refer to Merry Maids Company. At the end of each year, the company’s cash balance was approximately $5 to $7 million. What does this indicate
about its cash management techniques?
171. Merry Maids Company
Merry Maids Company began 2013 with a cash and cash equivalents balance of $7,670. Consolidated
statements of cash flows for the years ended December 31, 2014 and 2013, are presented below:
(in thousands)
2014
2013
Operating Activities:
Net income
$6,300
$6,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation
4,500
4,020
Amortization of software
520
980
Effect of restructuring charges
(350)
(440)
Deferred income taxes
(600)
360
Gain on the disposal of fixed assets
and other assets
(260)
(270)
Changes in assets and liabilities
(net of businesses acquired)
Accounts receivable
(2,740)
(3,730)
Inventories
75
430
Other assets
880
(1,090)
Accounts payable and accrued liabilities
362
700
Other liabilities
595
1,815
Net cash provided by
operating activities
$9,282
$8,775
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
$5,358
$7,200
Refer to Merry Maids Company. Describe the link(s) between a statement of cash flows, the balance sheet, and the income statement if a company
uses the indirect method to prepare the operating activities section of the statement of cash flows.
172. McCullow Investment Group
One of the firm’s financial analysts is assessing the performance of three particular companies whose cash flow
statements for the last three years are presented below:
All amounts are in millions of dollars
2014
2013
2012
Company A
Net cash provided by operating activities
$ 5,000
$4,000
$2,800
Net cash used by investing activities
($13,000)
($2,300)
($2,900)
Net cash provided by (used by) financing activities
$ 8,000
($ 300)
($ 100)
Company B
Net cash provided by operating activities
$ 2,000
$1,500
$1,000
Net cash used by investing activities
($ 2,200)
($1,400)
($ 700)
Net cash provided by (used by) financing activities
$ 400
($ 30)
($ 100)
Company C
Net cash provided by operating activities
$ 290
$ 210
$ 130
Net cash used by investing activities
($ 500)
($ 200)
($ 100)
Net cash provided by (used by) financing activities
$ 250
$ 10
$ 5
Refer to McCullow Investment Group. Ignoring the differences in magnitude, comment on the similarities and differences in the cash flows of the
three companies.
173. McCullow Investment Group
One of the firm’s financial analysts is assessing the performance of three particular companies whose cash flow
statements for the last three years are presented below:
All amounts are in millions of dollars
2014
2013
2012
Company A
Net cash provided by operating activities
$ 5,000
$4,000
$2,800
Net cash used by investing activities
($13,000)
($2,300)
($2,900)
Net cash provided by (used by) financing activities
$ 8,000
($ 300)
($ 100)
Company B
Net cash provided by operating activities
$ 2,000
$1,500
$1,000
Net cash used by investing activities
($ 2,200)
($1,400)
($ 700)
Net cash provided by (used by) financing activities
$ 400
($ 30)
($ 100)
Company C
Net cash provided by operating activities
$ 290
$ 210
$ 130
Net cash used by investing activities
($ 500)
($ 200)
($ 100)
Net cash provided by (used by) financing activities
$ 250
$ 10
$ 5
Refer to McCullow Investment Group. What is meant by the term “cash flow adequacy”? What other financial information would be necessary in
order to make a determination of the cash flow adequacy for these three companies?
174. “You Decide” Essay
You are financial news reporter for the Wall Street Journal. During a recent press conference with the Chief
Financial Officer of Lackluster Video, Inc. the executive stated that the company’s financial health was
excellent and that she expected their recent history of successful and strategic growth to continue to generate
significant profits in the future as they expanded their video stores into several new major geographical
markets.
To corroborate the CFO’s statements, you examined the statement of cash flows and found that the company
has reported negative operating cash flows, positive investing cash flows, and positive financing cash flows for
each of the last five years.
Does the statement of cash flows support the CFO’s statements?
175. “You Decide” Essay
You are the Controller for McBride & Associates. Your accounting intern from the local university has been
assigned the task of preparing your company’s statement of cash flows. The intern has come to you with a
question. She is not sure how to report some dividends the company had received during the year. She explains
that on first thought, it seems like dividends represent a financing activity since they are related to shares of
stock that companies issue to finance their businesses. But she is having second thoughts. Explain to your
intern how dividends (both received and paid) should be classified on the cash flow statement.