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Chapter 12
Reporting Cash Flows
QUESTIONS
1. The purpose of the cash flow statement is to report all major cash receipts (inflows) and
cash payments (outflows) during a period. It helps users to answer questions such as:
2. On a statement of cash flows, investing activities include cash outflows from purchases
of long-term investments such as stocks and bonds, from purchases of plant assets
the cash inflows from the sales are also reported as investing activities.
3. On a statement of cash flows, financing activities include cash inflows such as those
that result from issuing preferred or common stock, and from borrowing by issuing
4. The direct method of reporting cash flows from operating activities itemizes the major
expenses.
5. On a statement of cash flows prepared according to the direct method, operating
activities generally include cash receipts from the sale of goods and services, cash
6. The indirect method of reporting cash flows from operating activities begins with net
7. Payments of cash dividends should be reported on the statement of cash flows as
financing activities.
8. The amount of the land purchase that was paid for in cash ($400,000) should be reported
on the statement of cash flows as an investing activity. Also, a schedule of noncash
9. Since this cash inflow results from borrowing money, it is reported on the statement of
cash flows as a financing activity.
10. Yes; even though a company reports positive net income for the year, it may still show a
net cash outflow from operating activities. When net income is reconciled to the net
11. Depreciation is not a source or a use of cash, even though it must be added to net
12. (a) Indirect method. (b) The increase in accounts (trade) receivable represents an
amount by which the company had cash tied up in accounts (trade) receivable versus
13. Google’s statement of cash flows shows several major financing activities for the year
ended December 31, 2013 ($ millions):
Net proceeds (payments) from stock-based award activities................................ $ (781)
Excess tax benefits from stock-based award activities......................................... 481
14. Samsung’s net cash (all is KRW millions) from operating activities is 46,707,440; its₩
15. Samsung’s investing activities yielding cash outflows and inflows for the year ended
December 31, 2013, follow. Its cash outflows are listed in parentheses ( in millions):₩
Net decrease (increase) in short-term financial instruments................................. (19,391,643)₩
Net decrease (increase) in short-term available-for-sale financial assets............ 33,663
Disposal of property and equipment......................................................................... 377,445
Purchases of property and equipment..................................................................... (23,157,587)
Disposal of intangible assets..................................................................................... 4,562
forwarded, distributed, or posted on a website, in whole or part.
Financial and Managerial Accounting, 6th Edition
676
QUICK STUDIES
Quick Study 12-1 (10 minutes)
1. Investing 6. Financing
5. Financing 10. Operating
* For the “indirect” method, the loss is reported as an adjustment (add-
back) to net income in the operating section.
Quick Study 12-2 (20 minutes)
Statement of cash flow items in sequential order 1 through 13 on left OR
textbook order on right:
1. d 8. k 6 a. 5 h.
2. f 9. j 3 b. 11 i.
Quick Study 12-3 (20 minutes)
Cash Flows from Operations (Indirect) Case X Case Y Case Z
Net Income............................................................ $ 4,000 $100,000 $72,000
Adjustments to reconcile net income to net
cash provided by operations
Income statement items not affecting cash
Depreciation expense........................................30,000 8,000 24,000
forwarded, distributed, or posted on a website, in whole or part.
Financial and Managerial Accounting, 6th Edition
Quick Study 12-4 (10 minutes)
Cash flows from operating activities
Net income................................................................................... $18,200
Adjustments to reconcile net income to operating cash flow
Income statement items not affecting cash
Depreciation expense............................................................$36,000
Changes in current operating assets and liabilities
Accounts receivable decrease.............................................. 7,000
Net cash provided from operating activities............................ $59,850
Quick Study 12-5 (10 minutes)
a. Reconstructed journal entry for equipment sale:
Cash............................................................................... 37,000
Loss on Sale of Equipment.......................................... 3,000
b. We reconstruct the T-account for Accumulated Depreciation—Equipment
to determine its Depreciation Expense of $60,000.
Accumulated Depreciation—Equipment
Bal., 2014 210,000
c. We reconstruct the T-account for Equipment to determine its purchases of
equipment of $120,000.
Equipment
Financial and Managerial Accounting, 6th Edition
Quick Study 12-6 (10 minutes)
a. Reconstructed journal entry for building sale:
Cash............................................................................... 130,000
Accumulated Depreciation— Building........................ 230,000
To record sale of building.
Company received $130,000 cash from sale.
b. We reconstruct the T-account for Accumulated Depreciation—Building to
determine its Depreciation Expense of $45,000.
Accumulated Depreciation—Building
Bal., 2014 285,000
Sale 230,000
c. We reconstruct the T-account for Building to determine its purchases of
buildings of $280,000.
Building
Bal., 2014 400,000
Sale 300,000
Quick Study 12-7 (10 minutes)
Computation of cash inflow from sale of furniture
Cost of furniture sold (given)..................................................... $52,500
Accumulated depreciation at beginning of year (given)..........$110,700
Increase from depreciation expense (given)............................. 18,000
Total “expected” accumulated depreciation............................. 128,700
Quick Study 12-8 (15 minutes)
Investing Activities
Cash provided by investing activities........................................................$ 1,000
Quick Study 12-9 (10 minutes)
Part 1
Computation of cash received from the sale of common stock
Increase in Common stock ($105,000 - $100,000)........................................$ 5,000
Part 2
Computation of cash paid for dividends
Beginning retained earnings.......................................................................$287,500
Net income.................................................................................................... 48,000
Quick Study 12-10 (15 minutes)
Financing Activities
Additional short-term borrowings..............................................................$20,000
Financial and Managerial Accounting, 6th Edition
Quick Study 12-11 (10 minutes)
Cash flows from operating activities
Net income................................................................................... $30,000
Adjustments to reconcile net income to operating cash flow
Income statement items not affecting cash
Depreciation expense............................................................$37,600
Changes in current operating assets and liabilities
Accounts receivable decrease.............................................10,000
Inventory decrease................................................................10,000
Prepaid expense increase..................................................... (1,200)
Quick Study 12-12 (15 minutes)
Computation of cash inflow from sale of furniture
Cost of furniture sold (given).................................................. $55,000
Accumulated depreciation at beginning of year (given).......... $ 9,000
Increase from depreciation expense (given)............................. 37,600
Quick Study 12-13 (15 minutes)
1. Computation of cash paid for dividends
Beginning retained earnings............................................ $ 8,400
Net income.......................................................................... 30,000
2. Computation of cash payments for notes
Beginning notes payable................................................... $69,000
Increases to notes (given)................................................. 0
Total “expected” notes payable........................................ 69,000
Quick Study 12-14B (10 minutes)
1. Cash received from customers = Sales + Accounts receivable decrease
Quick Study 12-15B (10 minutes)
1. Cash paid for inventory
= Cost of goods sold - Inventory decrease + Accounts payable decrease
2. Cash paid for other expenses
= Other expenses (which exclude depreciation)
+ Prepaid expenses increase - Wages payable increase
Quick Study 12-16B (10 minutes)
Cash flows from operating activities
Receipts from sales to customersa...................................... $ 498,000
Payments for inventoryb....................................................... (310,000)
Financial and Managerial Accounting, 6th Edition
