Reporting Cash Flows ♦ 199
6. Answer the questions using the information provided in each of the following independent
situations.
a.
Net cash flow from operations for a period was $15,000. Noncash Revenues for the
period were $9,000. Noncash Expenses for the period were $11,000. What was net
income for the period?
b.
Wages Expense for a period was $35,000. Wages Payable increased during the
period by $23,000. How much cash was paid to employees during the period?
c.
Cash collected from customers for a fiscal period was $17,500. Sales Revenue for
the period was $20,000. Accounts Receivable at the beginning of the period was
$2,500. What was the balance in Accounts Receivable at the end of the period?
d.
Net income for a period was $26,000. Current assets increased during the period by
$3,000. Current liabilities increased during the period by $5,500. How much was
cash flow from operations for the period?
7. Hum-Drum Company had the following transactions during May:
1.
Collected $47,000 cash from customers.
2.
Purchased $40,000 of inventory on credit.
3.
Purchased equipment for $10,000 cash.
4.
Issued $50,000 of common stock.
5.
Made a $2,500 payment on a loan obtained last year.
6.
Payments to suppliers of merchandise totaled $28,500.
7.
Paid $11,500 for expenses.
Required:
Determine net cash flow from (a) operating activities, (b) financing activities, and (c) investing
activities for May.
Net income = $15,000 + 9,000 – 11,000 = $13,000.
b.
Cash = $35,000 – 23,000 = $12,000.
Accounts receivable = $2,500 + ($20,000 – 17,500) = $5,000.
d.
Cash from operations = $26,000 – 3,000 + 5,500 = $28,500.
200 ♦ Chapter 5
8. Levitz Corporation had the following transactions during December:
1.
Collected $210,000 cash from customers.
2.
Purchased $180,000 of inventory on credit.
3.
Purchased equipment for $50,000 cash.
4.
Issued $300,000 of common stock.
5.
Made a $16,000 payment on a loan obtained last year.
6.
Payments to suppliers of merchandise totaled $130,000.
7.
Paid $60,000 for expenses.
Required:
Determine net cash flow from (a) operating activities, (b) financing activities, and (c) investing
activities for December.
Reporting Cash Flows ♦ 201
9. Windows & Sills Company reported the following information for June:
$80,000
48,000
$16,000
Accounts receivable
Accounts payable
Beginning balance
$24,000
$18,000
Ending balance
28,000
24,000
Required:
Determine (a) the amount of cash collected during June, (b) the amount of cash paid, and (c) the
net cash flow from operating activities.
10. Sayonara Company reported the following information for June:
$140,000
116,000
$ 24,000
Accounts receivable
Accounts payable
Beginning balance
$34,000
$38,000
Ending balance
30,000
40,000
Required:
Determine (a) the amount of cash collected during June, (b) the amount of cash paid, and (c) the
net cash flow from operating activities.
(b)
Cash paid
(c)
Net cash flow from operating activities
Collected from customers
b.
Cash paid
c.
Net cash flow from operating activities
202 ♦ Chapter 5
11. Tropical Fruit Company had the following transactions during the month of August.
1.
Wages were paid to employees totaling $48,000.
2.
Sales to customers totaled $540,000. All sales are made on terms of 15-day credit.
3.
Payments to suppliers of inventory totaled $360,000.
4.
Collections from customers totaled $488,000.
5.
The $80,000 principal of a bank loan obtained last year was paid off in full.
6.
Processing equipment was purchased for $72,000 cash.
7.
Owners of the firm withdrew funds from the business totaling $132,000.
8.
Inventory was acquired during the period on credit at a cost of $336,000.
Required:
Determine each of the following amounts:
a.
Net cash flow from operating activities for the month.
b.
Net cash flow from financing activities for the month.
c.
Net cash flow from investing activities for the month.
d.
Sales revenue for the month.
$80,000;
b.
($212,000);
($72,000); Purchase of processing equipment
d.
$540,000; All sales to customers.
Reporting Cash Flows ♦ 203
12. The Biofeedback Company had the following transactions during its first month of business:
1.
Owners contributed $30,000 to start the firm.
2.
Inventory costing $16,000 was purchased for cash.
3.
The first month’s rent of $4,000 was paid in cash.
4.
One-half of the inventory was sold to customers on credit for $12,400.
5.
Advertising was run costing $3,600. It will be billed and paid for during the second
month.
6.
Additional inventory costing $14,000 was purchased for cash and sold to customers
for $22,000 cash.
7.
At month end the employees were paid $5,000 in cash and an additional $1,600 of
wages was owed to them, but had not been paid.
8.
On the last day of the month, equipment costing $11,000 was purchased for cash.
Required:
Prepare a schedule that shows how cash flow from operations for the first month is determined.
13. Fran’s Fancy Flowers had the following business events during the month of April. She began the
month with $12,000 in cash that was her only asset. She had no liabilities at that time.
1.
Purchased inventory costing $6,000. Paid cash.
2.
Sold inventory that had cost $800 for a retail price of $1,000 cash.
3.
Paid April’s rent on the store of $800.
4.
Sold goods costing $1,400 to customers at a price of $1,900 on credit.
5.
Bought $100 of supplies (on credit) which were used up during the month.
6.
Sold goods to customers for $3,600 cash that had originally cost $2,600.
Required:
Prepare a schedule to determine the net cash flow for the period.
204 ♦ Chapter 5
14. On which financial statement would you expect to find each of the following reported? Indicate
your answer with a check mark in the appropriate column. Some items may require a check mark
in more than one column. (For the statement of cash flows, assume the INDIRECT method is
used.)
Income
Statement
Balance
Sheet
Statement of
Cash Flows
Statement of
Stockholders’
Equity
a.
Dividends declared/paid
b.
Gross profit
c.
Total stockholders’ equity
d.
Prepaid insurance
e.
Cash
f.
Net income
g.
Sales revenue
h.
Total liabilities
i.
Accumulated depreciation
j.
Depreciation expense
k.
Earnings per share
l.
Retained earnings
Cash received from customers
Less: Cash paid for inventory
August’s rent
Net cash flow
Reporting Cash Flows ♦ 205
15. The BBQ Barn went into business on January 1, 2007. The following selected information is
available at December 31, 2007. There are no other payables other than wages at December 31,
2007.
$300,000
8,000
50,000
15,000
190,000
8,000
195,000
25,000
?
Determine the correct amount for each of the following:
a.
What is the amount of net income?
b.
What is the amount of cash paid for expenses during the year?
c.
What is the net cash flow from operating activities for the year?
$105,000
(Sales of $300,000 less expenses of $195,000)
b.
$180,000
(Expenses of $195,000 less $15,000 balance of wages payable)
expenses of $180,000)
206 ♦ Chapter 5
16. Sportsmans’, Inc., has the following account balances. Identify the future cash flow implications
of each account balance. The first one is completed as an example.
Account Balance
Implication for Future Cash Flow
a.
Accounts receivable,
$40,000
$40,000 of cash should be received from customers during
the next fiscal year.
b.
Wages payable, $6,000
c.
Retained earnings, $9,000
d.
Inventory, $45,000
e.
Buildings, $95,000
f.
Unearned revenue, $7,500
Reporting Cash Flows ♦ 207
17. Motorcross Company reported the following statement of cash flows for the month ended
September 30, 2007:
Motorcross Company
Statement of Cash Flows
For the Month Ended September 30, 2007
Cash collected from customers
$470,000
Payments:
To suppliers of merchandise
$290,000
To employees
96,000
For income taxes
44,000
(430,000)
40,000
Purchase of equipment
(116,000)
Sales of investments
100,000
(16,000)
Proceeds for issuing common stock
200,000
Payment of dividends
(30,000)
170,000
$194,000
Required:
Determine (a) cash flow from operating activities, (b) cash flow from financing activities, (c) cash
flow from investing activities, and (d) net increase (decrease) in cash.
18. Los Gatos Company had the following cash flows and other activities for the quarter ended March
31, 2007:
$ 24,000
75,000
540,000
42,000
180,000
45,000
27,000
840,000
600,000
30,000
Required:
Determine (a) net cash flow from operating activities, (b) net cash flow from investing activities,
and (c) net cash flow from financing activities.
Cash flow from operating activities
$ 40,000
b.
Cash flow from financing activities
170,000
Cash flow from investing activities
(16,000)
d.
Net increase in cash
194,000
208 ♦ Chapter 5
19. Sound Electronics reported the following statement of cash flows for the year ended April 30,
2007:
Sound Electronics
Statement of Cash Flows
For the Year Ended April 30, 2007
Cash collected from customers
$200,000
Payments:
To suppliers of merchandise
$75,000
To employees
30,000
For income taxes
16,000
(121,000)
79,000
Purchase of equipment
(25,000)
Sales of investments
15,000
(10,000)
Proceeds for issuing common stock
75,000
Payment of dividends
(13,000)
62,000
$131,000
Required:
Determine (a) cash flow from operating activities, (b) cash flow from financing activities, (c) cash
flow from investing activities and (d) net increase (decrease) in cash.
Cash flow from operating activities
b.
Cash flow from financing activities
62,000
Cash flow from investing activities
(10,000)
d.
Net increase in cash
131,000
b.
Net cash flow from investing activities
($45,000) = $30,000 – 75,000
Net cash flow from financing activities
$555,000 = 600,000 – 45,000
Reporting Cash Flows ♦ 209
20. Melchor Company had the following cash flows and other activities for the quarter ended March
31, 2007
$195,000
75,000
5,000
6,000
17,500
140,000
8,500
35,000
12,500
6,000
Required:
Determine (a) net cash flow from operating activities, (b) net cash flow from investing activities,
and (c) net cash flow from financing activities.
21. The following information is available for Point Of View Company for January 2007:
Revenues
$50,000
Expenses
36,000
Decrease in accounts receivable
4,000
Increase in inventory
2,000
Increase in accounts payable
3,000
Decrease in wages payable
1,600
Depreciation expense
2,400
Required:
Determine the cash flow from operating activities for January, 2007 using the indirect format.
activities
35,000 – 6,000
210 ♦ Chapter 5
22. Selected financial statement information is reported below for Femenique Corporation:
For the year ended June 30, 2007
Sales
$500,000
Cost of goods sold
250,000
Operating expenses
136,000
Net income
114,000
Dividends paid
50,000
At June 30
2007
2006
Cash
$16,000
$ 28,000
Accounts receivable
40,000
30,000
Inventory
28,000
36,000
Accounts payable
30,000
34,000
Wages payable
18,000
10,000
Required:
Operating expenses include depreciation expense of $14,000. Determine the cash flow from
operating activities for the year, using the indirect format.
Net income
Adjusted for:
Increase in accounts receivable
Decrease in inventory
Decrease in accounts payable
(4,000)
Increase in wages payable
Depreciation expense
Cash flows from operating activities
Net income
Adjusted for:
Decrease in accounts receivable
Increase in inventory
(2,000)
Increase in accounts payable
Decrease in wages payable
(1,600)
Depreciation expense
Cash flows from operating activities
Reporting Cash Flows ♦ 211
23. The following information is available for Spacey Company for January 2007
$12,500
9,000
1,000
500
750
400
600
Required:
Determine the cash flow from operating activities for the month, using the indirect format.
24. Selected financial statement information is reported below for Bonaventure Corporation:
For the year ended June 30, 2007
Sales
$175,000
Cost of goods sold
125,000
Operating expenses
39,000
Net income
11,000
Dividends paid
7,500
At June 30
2007
2006
Cash
$5,000
$8,000
Accounts receivable
9,500
8,500
Inventory
6,000
6,500
Accounts payable
8,000
9,500
Wages payable
7,000
4,000
Required:
Operating expenses include depreciation expense of $2,500. Determine the cash flow from
operating activities for the year, using the indirect format.
Net income
Adjusted for:
Decrease in accounts receivable
Increase in inventory
Increase in accounts payable
Decrease in wages payable
Depreciation expense
Cash flows from operating activities
212 ♦ Chapter 5
25. Soontag Enterprises reported the following statement of cash flows for 2007:
Statement of Cash Flows
For the Year Ended December 31, 2007
Operating Activities
Net income
$24,000
Adjusted for:
Increase in accounts receivable
(30,000)
Increase in inventory
(38,000)
Increase in accounts payable
4,000
Increase in wages payable
6,000
Depreciation expense
16,000
Cash flows from operating activities
($18,000)
Investing Activities
Sale of machinery
$12,000
Sale of equipment
8,000
$20,000
Increase in cash
$ 2,000
Required:
a.
Which format did Soontag use to prepare the operating activities section?
b.
What amount of cash in/out flow did the company have as a result of depreciation?
c.
Does the company appear to be facing a cash problem? Explain.
b.
$0
Net income
$11,000
Adjusted for:
Increase in accounts receivable
Decrease in inventory
Decrease in accounts payable
Increase in wages payable
3,000
Depreciation expense
2,500
Cash flows from operating activities
$14,500
Reporting Cash Flows ♦ 213
ESSAY
1. What is the relationship between “net income” reported on the income statement and “net cash
flow from operating activities” reported on the statement of cash flows?
2. What does the income statement have in common with the “cash flows from operating activities”
section of the statement of cash flows? Discuss this similarity and the reason(s) that both financial
statements are required, even though this similarity exists.
3. Some transactions can occur that would be classified as both financing and investing activities,
and yet have no “net” impact (effect) on cash flows. Give an example of such a transaction and
describe where such transactions should be disclosed on a statement of cash flows.
214 ♦ Chapter 5
4. Gold Mining Company is preparing its statement of cash flows. Interest paid out to the bank on
the firm’s various loans totaled $7,539 for the period. Explain where this should be reported on the
statement of cash flows and why it is reported there.
5. Clearly distinguish the differences between (1) operating activities, (2) financing activities, and (3)
investing activities. Be sure to include an example of each.
Reporting Cash Flows ♦ 215
6. Either the direct method or indirect method may be used to prepare the operating activities section
of the statement of cash flows. Clearly differentiate between them and explain how they are
fundamentally different approaches. Do not merely show the different formats, but explain the
very different approach each method uses to get to the same result.
7. As the Financial Officer for your company, you firmly believe that your firm should report the
statement of cash flows using the direct approach. Why? What is the benefit of using the direct
approach over the indirect approach?
216 ♦ Chapter 5
8. As CEO for your company, you firmly believe that your firm should report the statement of cash
flows using the indirect approach. Why? What is the benefit of using the indirect approach over
the direct approach?
9. Assume you are interested in the cash flow information of a specific firm. You have your choice
of having the statement of cash flows PREPARED FOR YOU under either the direct approach or
indirect approach. Would you have a preference for either format? Discuss.
Reporting Cash Flows ♦ 217
10. Senegal Corporation had the following three events occur during the year just ended. For each
item, indicate where it would be reported on the statement of cash flows and why. If it would not
be reported on the statement of cash flows, state where it would be reported.
1.
The firm paid $13,000 of interest to owners of its bonds payable that were
outstanding during the year.
2.
The company traded 2,000 shares of common stock (having a fair value of $23,000)
for computer equipment that could have been purchased for $23,000 cash.
3.
Dividends of $18,500 were paid to owners during the year.
11. You have been provided with the following partial statement of cash flows that has been prepared
using the indirect format:
Cash Flow from Operating Activities:
Net income
$13,000
Adjustments to convert Net Income to Net
Cash Flow from Operating Activities:
Depreciation expense
3,000
Decrease in accounts receivable
7,000
Decrease in wages payable
(3,000)
Net cash flow from operating activities
$20,000
Carefully explain (1) why depreciation expense is added to net income, (2) why the decrease in
accounts receivable is added to net income, and (3) why the decrease in wages payable is
subtracted from net income.
however, involve both a financing activity (issue of stock) and an investing activity
3.
Dividends paid to owners of the company’s stock is a financing activity and should
218 ♦ Chapter 5