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Chapter 16 - Reporting the Statement of Cash Flows
Quick Study 16-19 (Concluded)
Part 2
The company’s operating cash flows are negative, $(1,750). This is not a good
omen. However, much of this is attributed to a huge increase in inventory.
Quick Study 16-20 (15 minutes)
1. Under IFRS (as with U.S. GAAP), both the indirect method and direct
method of reporting operating cash flows are acceptable.
2. IFRS and US GAAP differ on the classification of the following cash flows
as operating, investing or financing:
Cash flow source U.S. GAAP IFRS _
16-903
Education.
Chapter 16 - Reporting the Statement of Cash Flows
EXERCISES
Exercise 16-1 (25 minutes)
Statement of Cash Flows Noncash
Operating
Activities
Investing
Activities
Financing
Activities
Investing &
Financing
Activities
Not Reported
on Statement
or in Notes
a. Declared and paid a
cash dividend X
increased in the year X
e. Accounts receivable
decreased in the year X
f. Purchased land by
issuing common stock X
decreased in the year X
j. Income taxes payable
increased in the year X
16-904
Chapter 16 - Reporting the Statement of Cash Flows
Exercise 16-2 (20 minutes)
Cash flows from operating activities—indirect method
Net income....................................................................................................$ 24,000
Adjustments to reconcile net income to net cash provided by
operating activities
Income statement items not affecting cash
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
Income statement items not affecting cash
Depreciation expense..............................................................................14,600
Changes in current operating assets and liabilities
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
caused by various items. The most important causes for investors are
16-905
Chapter 16 - Reporting the Statement of Cash Flows
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
Changes in current operating assets and liabilities
Decrease in accounts receivable.................................... 17,100
Decrease in inventory..................................................... 42,000
Increase in prepaid expenses.......................................... (4,700)
16-906
Chapter 16 - Reporting the Statement of Cash Flows
Exercise 16-6 (10 minutes)
Gain on sale of machinery..................................................(20,000)
Changes in current operating assets and liabilities
Accounts receivable increase............................................(40,000)
Prepaid expense decrease.................................................12,000
Exercise 16-7 (10 minutes)
Cash flows from investing activities
Cash received from the sale of equipment*................................... $ 51,300
Cash paid for new truck................................................................... (89,000)
Exercise 16-8 (10 minutes)
Cash flows from financing activities
Sale of common stock................................................................................. $ 64,000
Paid cash dividend.......................................................................................(14,600)
Exercise 16-9 (20 minutes)
PEUGEOT S.A.
Statement of Cash Flows (Indirect Method)
For Year Ended December 31, 2011
16-907
Chapter 16 - Reporting the Statement of Cash Flows
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
Cash flows from investing activities
Cash from disposal of plant assets & intangibles........ 189
Cash paid for plant assets and intangibles................... (3,921)
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)
Exercise 16-10 (15 minutes)
Interpretation: Both years’ ratios are good in that they are positive and at
16-908
Chapter 16 - Reporting the Statement of Cash Flows
Exercise 16-11 (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
Depreciation expense..................................................... 58,600
Decrease in accounts payable....................................... (5,000)
Decrease in wages payable........................................... (9,000)
Decrease in income taxes payables.............................. (400)
Net cash provided by operating activities...................... $151,410
Cash flows from investing activities
Cash paid to retire notes (Note 2—given)....................... (30,000)
Cash paid for dividends (Note 3)..................................... (90,310)
Net cash used in financing activities.............................. (60,310)
16-909
Education.
Chapter 16 - Reporting the Statement of Cash Flows
Exercise 16-11 (Part 1 continued)
(1) Cost of equipment sold (Given)..................................................................... $ 48,600
Accumulated depreciation of equipment sold*............................................ (40 ,600)
Book value of equipment sold....................................................................... 8,000
Gain on sale of equipment (Given)................................................................ 2 ,000
Equipment Accumulated Depreciation, Equipment
Bal.,
6/30/2014
115,000 Bal., 6/30/2014 9,000
Purchase 57,600 Sale 48,600 Sale (plug)
*40,600
Depr. Expense 58,600
Bal., 6/30/2015 124,000 Bal., 6/30/2015 27,000
(3)
Retained Earnings
Bal., 6/30/2014 24,100
Part 2
Cash flow on total assets ratio = Operating cash flows / Average total assets
Interpretation: A 49.6% result on the cash flow on total assets ratio is
indicative of very good performance. Also, this favorably compares to its
return on assets figure of 32.6% (high-quality earnings).
16-910
