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Problem 16-8BB (35 minutes)
SATU COMPANY
Statement of Cash Flows
For Year Ended December 31, 2015
Cash flows from operating activities
Cash received from customers (Note 1) .................. $756,438
Cash flows from investing activities
Cash flows from financing activities
Cash received from issuing stock (3,000 x $21)...... 63,000
Cash paid for cash dividends .................................. (60,000)
Supporting calculations
(2) Cost of Increase in Decrease in
goods sold inventory accounts payable =
+
+
SERIAL PROBLEM — SP 16
Serial Problem — SP 16, Business Solutions (45 minutes)
BUSINESS SOLUTIONS
Statement of Cash Flows (Indirect)
For Quarter Ended March 31, 2016
Cash flows from operating activities
Net income............................................................................$ 18,833
Adjustments to reconcile net income to net
cash provided by operating activities
Income statement items not affecting cash
Cash flows from investing activities
Net cash used in investing activities....................................... 0
Cash flows from financing activities
Reporting in Action — BTN 16-1
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
In fiscal 2012, the largest item in reconciling the difference between net
In fiscal 2011, the largest item in reconciling the difference between net
4. In fiscal 2013, the largest cash inflow from investing activities was
In fiscal 2013, the largest cash inflow from financing activities was
In fiscal 2012, the largest cash inflow from investing activities was
In fiscal 2012, the largest cash inflow from financing activities was
5. Answer depends on the financial statement information obtained.
Comparative Analysis — BTN 16-2
1. Apple’s cash flow on total assets ratio ($ millions)
Current Year = Operating cash flows/Average total assets
Prior Year = Operating cash flows/Average total assets
Google’s cash flow on total assets ratio ($ millions)
Current Year = Operating cash flows/Average total assets
Prior Year = Operating cash flows/Average total assets
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
Ethics Challenge — BTN 16-3
1. The business actions available include
a. Encourage early collection of receivables to reduce the accounts
receivable balance.
Many other business actions are possible that would accelerate cash
receipts and/or delay cash payments.
2. As a business owner, Katie Murphy certainly can exercise discretion
over business actions. However, the underlying economic realities
In addition, Katie Murphy’s actions may be transparent to the banker
Communicating in Practice — BTN 16-4
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, your statement is probably prepared using the indirect method.
This method shows a determination of net cash flows in the operating
(first) section by listing the net income number and applying a series of
accounting adjustments. These adjustments often do not make sense to
those that do not have an accounting or finance background.
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 will also identify exactly how much cash went out for operating expenses
like inventory, wages, interest, and taxes. It will determine your net
operating cash flow by directly subtracting the total of these operating
outflows from the inflows. You should find this format more
understandable.
Note that good cash management is essential to business success and
growth. The statement of cash flows will provide you with a lot more
information regarding your cash than a balance sheet can offer. It will
allow you to see exactly where your cash came from, where it went, and
how much it changed. It organizes these amounts into categories of
operating, financing, and investing. This organization of cash information
will allow you to better project and plan for the future.
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 16-5
1. Mendocino Brewing Company uses the indirect method to construct the
2. The largest reconciling item is for increase in accounts receivable
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
2012 2013
1. For the recent period, the largest cash outflow for investing was
2. In the recent period, for supplementary cash flow information, the
Teamwork in Action — BTN 16-6
Part 1
a. The reporting objective of the statement of cash flows is to provide
How does a company obtain its cash?
b. The statement can be prepared using the direct method or the indirect
method for reporting cash flows from operating activities.
Similarities
Both methods report the same net cash flow from operating
activities.
Differences
Cash flow from operating activities is determined differently. The
direct method determines all operating cash inflows and outflows,
The direct method requires an extra section reconciling net income to
*
Teamwork in Action (Continued)
c. Steps to prepare the statement of cash flows:
(i) Compute the net increase or decrease in cash using comparative
balance sheet data. This is the target number or the number the
statement will explain and prove.
Also, identify and list noncash financing and investing activities in a
separate schedule or note.
d. Common analyses made from information in the statement of cash flows
include assessing a company’s:
Ability to generate future cash flows.
*
