Quick Study 16-17 (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
2. Sykes’s cash flow on total assets ratio is slightly stronger than that for
Quick Study 16-18A (10 minutes)
The balance sheet equation can be arranged so that the algebraic total of all
noncash items is equal to cash (see Exhibit 16.9). It follows that when all
Quick Study 16-19 (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
Depreciation expense………………………………………………………$ 7,200
Note 1
Equipment
Quick Study 16-19 (Concluded)
Part 2
The company’s operating cash flows are negative, $(1,750). This is not a
good omen. However, much of this is attributed to a huge increase in
Quick Study 16-20 (15 minutes)
1. Under IFRS (as with U.S. GAAP), both the indirect method and direct
method of reporting operating cash flows are acceptable.
2. IFRS and US GAAP differ on the classification of the following cash
flows as operating, investing or financing:
Cash flow source U.S. GAAP IFRS _
a. Interest paid Operating Financing or Operating
EXERCISES
Exercise 16-1 (25 minutes)
Statement of Cash Flows Noncash
Operating
Activities
Investing
Activities
Financing
Activities
Investing &
Financing
Activities
Not Reported
on Statement
or in Notes
a. Declared and paid a
cash dividend X
b. Recorded
depreciation expense X
Exercise 16-2 (20 minutes)
Cash flows from operating activities—indirect method
Net income…………………………………………………………………………………….$ 24,000
Adjustments to reconcile net income to net cash provided by
operating activities
Exercise 16-3 (30 minutes)
1. Cash flows from operating activities—indirect method
Net income (loss)……………………………………………………………………………$ (16,000)
Adjustments to reconcile net income to net cash provided by
operating activities
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
Exercise 16-4 (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
Depreciation expense…………………………………………….. 44,200
Amortization expense—Patents………………………………. 4,200
Gain on sale of equipment………………………………………. (6,200)
Changes in current operating assets and liabilities
Increase in accounts receivable………………………………. (30,500)
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 16-5 (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
Exercise 16-6 (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
Exercise 16-7 (10 minutes)
Cash flows from investing activities
Cash received from the sale of equipment*……………………………. $ 51,300
Exercise 16-8 (10 minutes)
Cash flows from financing activities
Sale of common stock……………………………………………………………………. $ 64,000
Exercise 16-9 (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
Exercise 16-10 (15 minutes)
Interpretation: Both years’ ratios are good in that they are positive and at
reasonable levels (most businesses can survive with annual returns at ~10%).
Further, the ratio improved from 8.3% to 9.2%, which is a good increase.