Quick Study 12-17 (10 minutes)
1. Moore is probably in the strongest position of the three competing companies
on the basis of the statement of cash flows. Moore’s cash flows from
2. Sykes’s cash flow on total assets ratio is slightly stronger than that for Moore.
Quick Study 12-18A (10 minutes)
The balance sheet equation can be arranged so that the algebraic total of all
noncash items is equal to cash (see Exhibit 12.9). It follows that when all
the change in cash also has been fully accounted for.
Quick Study 12-19 (25 minutes)
Part 1
MONTGOMERY, INC.
Statement of Cash Flows (Indirect Method)
For Year Ended December 31, 2016
Cash flows from operating activities
Net income…………..………………………..………………..….…..….…..… $ 10,500
Adjustments to reconcile net income to net cash
provided by operating activities
Income statement items not affecting cash
Net cash used in operating activities………..…………..….…..….… $ (1,750)
Cash flows from investing activities
Cash paid for equipment (Note 1)………..…………………..….…..…. (8,400)
Net cash used in investing activities…….………………………….…. (8,400)
Cash flows from financing activities
Cash received from stock issuance…………..…..….…..….…..…... 10,000
Note 1
Equipment
Bal., 12/31/2015 41,500
Financial and Managerial Accounting, 6th Edition
Quick Study 12-19 (Concluded)
Part 2
The company’s operating cash flows are negative, $(1,750). This is not a good
omen. However, much of this is attributed to a huge increase in inventory.
Quick Study 12-20 (15 minutes)
1. Under IFRS (as with U.S. GAAP), both the indirect method and direct
2. IFRS and US GAAP differ on the classification of the following cash flows
as operating, investing or financing:
Cash flow source U.S. GAAP IFRS _
a. Interest paid Operating Financing or Operating
forwarded, distributed, or posted on a website, in whole or part.
EXERCISES
Exercise 12-1 (25 minutes)
Statement of Cash Flows Noncash
Operating
Activities
Investing
Activities
Financing
Activities
Investing &
Financing
Activities
Not Reported
on Statement
or in Notes
d. Prepaid expenses
increased in the year X
e. Accounts receivable
decreased in the year X
f. Purchased land by
issuing common stock X
Financial and Managerial Accounting, 6th Edition
Exercise 12-2 (20 minutes)
Cash flows from operating activities—indirect method
Net income……………..………………………..………………………………….…..………$ 24,000
Adjustments to reconcile net income to net cash provided by
operating activities
Income statement items not affecting cash
Exercise 12-3 (30 minutes)
1. Cash flows from operating activities—indirect method
Net income (loss)……………….…………………………………….…..….…..….………$ (16,000)
Accounts receivable decrease ……………..…………………..….…..….…..….24,000
Salaries payable increase……………………………………………..…..….…..….18,000
Accrued liabilities decrease……..……………………………………………………(8,000)
Net cash provided by operating activities…………..………………….…..….….$ 32,600
2. One reason for the net loss was depreciation expense. Depreciation
expense is added to net income to adjust for the effects of a noncash
3. Differences between cash flow from operations and net income can be
Financial and Managerial Accounting, 6th Edition
Exercise 12-4 (30 minutes)
Cash flows from operating activities
Net income……………..………………………..………………………….. $ 481,540
Adjustments to reconcile net income to net cash
provided by operating activities
Income statement items not affecting cash
Increase in inventory……………………………………….….….. (25,000)
Decrease in accounts payable……….…..….…..…..….….... (12,500)
Decrease in salaries payable……………………………..….…. (3,500)
Net cash provided by operating activities…………..….…..…... $ 452,240
Exercise 12-5 (20 minutes)
Cash flows from operating activities
Net income……………..………………………..………………………….. $374,000
Adjustments to reconcile net income to net cash
provided by operating activities
Income statement items not affecting cash
Depreciation expense…………….………………………….…….. 44,000
Amortization expense…………….….…..….…..…..….…..…... 7,200
Gain on sale of plant assets………………….……….…..….… (6,000)
Changes in current operating assets and liabilities
Exercise 12-6 (10 minutes)
Cash flows from operating activities
Net income……………..………………………..………………….…..….… $400,000
Adjustments to reconcile net income to operating cash flow
Income statement items not affecting cash
Depreciation………………..………………………..…………….…..…$80,000
Gain on sale of machinery…………………………………….….…(20,000)
Changes in current operating assets and liabilities
Exercise 12-7 (10 minutes)
Cash flows from investing activities
Cash received from the sale of equipment*…………..….…..….…..… $ 51,300
Cash paid for new truck…………………………………..…..….…..….…..… (89,000)
Exercise 12-8 (10 minutes)
Cash flows from financing activities
Proceeds from issuance of common stock……………….………………….…... $ 64,000
Paid cash dividend……………………………………………………………………..…….(14,600)
Financial and Managerial Accounting, 6th Edition
Exercise 12-9 (20 minutes)
PEUGEOT S.A.
Statement of Cash Flows (Indirect Method)
For Year Ended December 31, 2011
Cash flows from operating activities
Net income…………..………………………..………………….….... € 784
Adjustments to reconcile net income to net cash
provided by operating activities
Income statement items not affecting cash
Net cash used in investing activities…….…..….…..….…. (3,732)
Cash flows from financing activities
Cash from purchases of treasury stock…..…..…..….….. (199)
Cash paid for dividends………………….……….…..….…..…. (290)
Cash paid for other financing activities……..…………….. (2,282)
Net cash used in financing activities………………..….….. (2,771)
Exercise 12-10 (15 minutes)
2014: $102,920 / $1,240,000 = 8.3%
2015: $138,920 / $1,510,000 = 9.2%
Exercise 12-11 (40 minutes)
Part 1
IKIBAN, INC.
Statement of Cash Flows (Indirect Method)
For Year Ended June 30, 2015
Cash flows from operating activities
Net income…………..………………………..………….…..….…..…$ 99,510
Adjustments to reconcile net income to net cash
provided by operating activities
Income statement items not affecting cash
Decrease in income taxes payables………………………... (400)
Net cash provided by operating activities………..….….... $151,410
Cash flows from investing activities
Cash received from sale of equip. (Note 1)…..............… 10,000
Cash paid for equipment (Note 1—given)………..…….….. (57,600)
Net cash used in investing activities……….…..…..…..….. (47,600)
Cash flows from financing activities
Cash received from stock issuance……………..….…..…... 60,000
Cash balance at current year-end…………….………………….. $ 87,500
(Notes 1, 2, and 3 on next page.)
Financial and Managerial Accounting, 6th Edition