SERIAL PROBLEM — SP 12
Serial Problem — SP 12, Business Solutions (45 minutes)
BUSINESS SOLUTIONS
Statement of Cash Flows (Indirect)
For Quarter Ended March 31, 2016
Cash flows from operating activities
Net income………………………………………..….……………….……..$ 18,833
Adjustments to reconcile net income to net
cash provided by operating activities
Income statement items not affecting cash
Increase in accounts receivable ($22,867 – $5,668)..….…….....(17,199)
Increase in inventory ($704 – $0)……………..……..………………. (704)
Increase in computer supplies ($2,005 – $580) ….……............ (1,425)
Decrease in prepaid insurance ($1,665 – $1,110)……………….. 555
Decrease in accounts payable ($1,100 – $0)………………………(1,100)
Cash flows from financing activities
Cash received from stock issuance..………………………………... 25,000
Cash paid for dividends……………………………………………..…… (4 ,800 )
Net cash provided by financing activities………………….………. 20 ,200
Cash balance at March 31, 2016……………………..………….………. $ 68 ,057
Reporting in Action — BTN 12-1
1. Apple uses the indirect method of reporting operating cash flows. We
2. In all three fiscal years, Apple’s cash flows from operating activities
markedly exceed its cash dividends paid, as shown in the table below:
($ millions) Fiscal 2013 Fiscal 2012 Fiscal 2011
3. In fiscal 2013, the largest item in reconciling the difference between net
income and cash flow from operations was depreciation and amortization
of $6,757 million.
current and non-current liabilities of $4,495 million.
4. In fiscal 2013, the largest cash inflow from investing activities was $104,130
million from proceeds from sales of marketable securities. The largest cash
outflow from investing activities was for purchases of marketable
securities, in the amount of $148,489 million.
equivalent rights paid.
5. Answer depends on the financial statement information obtained.
Financial and Managerial Accounting, 6th Edition
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Comparative Analysis — BTN 12-2
1. Apple’s cash flow on total assets ratio ($ millions)
Current Year = Operating cash flows/Average total assets
= $53,666 / [($207,000 + $176,064)/2]
= $53,666 / $191,532 = 28.0%
Google’s cash flow on total assets ratio ($ millions)
Current Year = Operating cash flows/Average total assets
= $18,659 / [($110,920 + $93,798)/2]
= $18,659 / $102,359 = 18.2 %
2. The cash flow on total assets ratio reflects the return on average assets by
using actual operating cash flows instead of net income. This return
3. For both years, Apple has a higher cash flow on total assets ratio than
Google.
4. Many business decision makers (such as analysts) feel that the cash flow
forwarded, distributed, or posted on a website, in whole or part.
Ethics Challenge — BTN 12-3
1. The business actions available include
a. Encourage early collection of receivables to reduce the accounts
receivable balance.
2. As a business owner, Katie Murphy certainly can exercise discretion over
business actions. However, the underlying economic realities should
Financial and Managerial Accounting, 6th Edition
Communicating in Practice — BTN 12-4
Here is a sample of what the body of the memorandum might include:
TO: Diana Wood
FROM: (Your Name)
SUBJECT: Statement of Cash Flows
DATE: _________________
I am pleased to hear your business is more profitable this year than last.
However, I have been thinking about what you said regarding the statement of
cash flows and have some thoughts as to why you found it confusing.
The statement of cash flows (operating section) can be prepared using either
of two methods—the direct or the indirect method. From what you describe,
I recommend that you request your accountant to provide you with a
statement of cash flows that is prepared using the direct method. This will
identify exactly how much cash came in from operating activities like sales. It
Please reconsider the value of the statement of cash flows for your business
decisions. If you wish to discuss this further, please call me.
Taking It to the Net — BTN 12-5
2. The largest reconciling item is for increase in accounts receivable totaling
3. The following table shows the net income (or net loss) and the cash flows
from operations for Mendocino Brewing for 2012 and 2013. Over this two-
positive (but did decline year-over-year).
2012 2013
Net income (loss).……………………………
$ 558,400 $(876,900)
4. For the recent period, the largest cash outflow for investing was $819,000
for purchases of property, equipment and leasehold improvements.
5. In the recent period, for supplementary cash flow information, the company
reports cash flows related to: Interest paid and Income taxes paid.
Financial and Managerial Accounting, 6th Edition