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Chapter 12: The Statement of Cash Flows
186. Use the selected data from the consolidated statements of cash flows for College Corporation for the years
ended December 31, 2016 and 2015, to answer the questions that follow.
(in thousands)
2016
2015
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?
Chapter 12: The Statement of Cash Flows
187. 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
2016
2015
2014
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.
Chapter 12: The Statement of Cash Flows
188. 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
2016
2015
2014
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:
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?
Chapter 12: The Statement of Cash Flows
189. Explain where to find the information needed to determine a company’s cash flow adequacy.
Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a
statement of cash flows if the operating activities section is prepared using the direct method.
a. Inflow from operating activity
b. Outflow from operating activity
c. Inflow from investing activity
d. Outflow from investing activity
e. Inflow from financing activity
f. Outflow from financing activity
g. Noncash investing and financing activity
h. Not reported on statement of cash flows
190. Purchased computer equipment for cash.
191. Issued preferred stock.
192. Paid employee salaries and wages.
193. Repaid a long-term bank loan.
194. Received payments from credit sales.
195. Issued common stock to acquire land and a building.
196. Declared cash dividends.
197. Paid the cash dividends declared in (g) above.
198. Recorded depreciation for the year.
Chapter 12: The Statement of Cash Flows
199. Paid interest on bonds.
Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be
reported on a statement of cash flows if the operating activities section is prepared using the indirect method.
a. Operating activity—add to net income
b. Operating activity—deduct from net income
c. Inflow from investing activity
d. Outflow from investing activity
e. Inflow from financing activity
f. Outflow from financing activity
g. Noncash investing and financing activity
h. Not reported on statement of cash flows
200. Purchased store equipment for cash.
201. Issued twenty-year bonds.
202. Increased the accounts receivable balance.
203. Reissued treasury stock.
204. Increased the accounts payable balance.
205. Issued stock to retire bonds.
206. Declared cash dividends.
207. Paid the cash dividends declared above.
208. Received cash from the sale of securities.
209. Recognized a gain on the sale of the securities above.
210. Recorded depreciation expenses for the year.
Chapter 12: The Statement of Cash Flows
211. Obtained a long-term bank loan.
For each of the following items, indicate whether it would appear on a statement of cash flows prepared
using the Direct method (a) or the Indirect method (b).
a. Direct
b. Indirect
212. Cash sales
213. Gain on early retirement of bonds
214. Depreciation expense
215. Decrease in accounts payable
216. Payments on accounts payable
217. Collections on accounts receivable
218. Increase in accounts receivable
219. Net income
Assuming the indirect method for preparing the statement of cash flows is used, indicate whether these items
should be added to net income (A), deducted from net income (D), or not be reported in the operating section
of the statement under the indirect method (NR).
a. Added (A)
b. Deducted (D)
c. Not reported (NR)
220. Decrease in prepaid insurance
221. Decrease in accounts payable
222. Purchase of new factory equipment
223. Depreciation expense
Chapter 12: The Statement of Cash Flows
224. Increase in accounts receivable
225. Exchange of a note for equipment
ANSWER: c
Flannery Company uses a worksheet to prepare its statement of cash flows. The company also uses the
indirect method for the Operating Activities section of its statement. For each of the following changes in the
balance sheet, indicate what activity it affects and whether it is an addition or deduction.
a. Deducted from Operating activity
b. Added to Operating activity
c. Deducted from Investing activity
d. Added to Investing activity
e. Deducted from Financing activity
f. Added to Financing activity
226. Accounts Receivable increased
227. Land increased
228. Inventory decreased
229. Accounts payable decreased
230. Income taxes payable increased
231. Capital stock increased
232. Craft Corp. began operations on January 1, 2015. The statement of cash flows for the first year reported
dividends paid of $160,000. The balance sheet at the end of the first year reported $40,000 in dividends
payable and $580,000 in ending retained earnings. Determine Craft’s net income for its first year of
operations.
Chapter 12: The Statement of Cash Flows
233. Ultra-lite Corp. began operations on January 1, 2015. 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 Ultralite’s net income for its first year of
operations.
234. 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?
235. 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?
Chapter 12: The Statement of Cash Flows
236. 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 the total amount of debt that would mature over the next five years was $20,000,000.
REQUIRED:
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.
237. 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 the total amount of debt that would mature over the next eight years was $96,000,000.
REQUIRED:
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.
Chapter 12: The Statement of Cash Flows
238. Most experts now agree that there has been a tendency to rely far too heavily on net income and its companion,
earnings per share, and in many cases to ignore a company’s cash flows.
a. True
b. False
239. It is not possible for Cash to decrease from Yr. 1 to Yr. 2 if income rises over this period.
a. True
b. False
240. The investment in stock of another company is considered a significant activity and thus is reported on
the statement of cash flows.
a. True
b. False
