60 Minutes, Strong
a.
Balance sheet effects:
Beginning Ending
B
a
l
ance
B
a
l
ance
Cash and cash e
q
uivalents 10,000 (x) 50,000 60,000
Marketable securities 20,000 (8) 15,000 5,000
Accounts receivable 40,000 (4) 17,000 23,000
Inventories 120,000 (5) 2,000 122,000
Plant and e
q
ui
p
ment
(
net of
accumulated de
p
reciation
)
300
,
000
(9)
20
,
000
(3)
3
5,
000
28
5,
000
Totals
490
,
000
49
5,
000
490
000
123
000
123
000
49
000
1
000
(
10
000
10
000
MIRACLE TOOL, INC.
Worksheet for a Statement of Cash Flows
For the Year Ended December 31, 2015
Assets
Debit
PROBLEM 13.8
A
Changes
Credit
Changes
MIRACLE TOOL, INC.
(2)
4
b
.
Cash flows from o
p
eratin
g
activities:
Net loss (34,000)$
Add: De
p
reciation ex
p
ense 35,000
Decrease in accounts receivable 17,000
Increase in accounts
p
a
y
able 23,000
Loss on sale of marketable securities
1
,
000
(2
1
1
000
10
60
$
18
2
000
$
PROBLEM 13.8
A
MIRACLE TOOL, INC.
For the Year Ended December 31, 2015
Statement of Cash Flows
MIRACLE TOOL, INC. (continued
)
3
000
000
c.
d.
e.
f. The company’s principal revenue source—sales of tools—is declining. If nothing is done,
it is likely that the annual net losses will increase, and that operating cash flows will turn
either event, management should stop purchasing tools. Assuming that sales continue to
decline, the company’s current inventory appears to be approximately a one-year supply.
PROBLEM 13.8
A
MIRACLE TOOL, INC. (continued
)
This company is contracting its operations. Its investment in marketable securities,
receivables, and plant assets all are declining. Further, the income statement shows that
Miracle Tool, Inc. has substantially more cash than it did a year ago. Nonetheless, the
company’s financial position appears to be deteriorating. Its marketable securities—a
questionable in light of the declining sales.
Miracle Tool, Inc. achieved its positive cash flow from operating activities basically by
liquidating assets and by not paying its bills. It has converted most of its accounts
used to. While this conserves cash, the “savings” are temporary. Also, if the company’s
credit rating is damaged, this strategy may reduce both earnings and cash flows in the
near future.
Hill Education.
•
PROBLEM 13.8
A
MIRACLE TOOL, INC. (concluded)
If management decides to continue business operations, it should consider taking the following
actions:
Expand the company’s product lines! The combination tool alone can no longer support
profitable operations. Also, dependency upon a single product—especially a faddish
product with a limited market potential—is not a sound long-term strategy.
Hill Education.
30 Minutes, Medium
a.
Cash flows from o
p
eratin
g
activities:
Cash received from customers
(
1
)
3,040,000$
Interest and dividends received
40
,
000
Cash
p
rovided b
y
o
p
eratin
g
activitie
s
3,080,000$
Cash
p
aid to su
pp
liers and em
p
lo
y
ees
(
2
)
(2,150,000)$
Interest
p
aid (130,000)
Income taxes
p
aid
(6
5,
000)
Cash disbursed for o
p
eratin
g
activities
(2
,
34
5,
000)
Net cash flow from o
p
eratin
g
activities 735,000$
490
1
,
2
8
,
1
$
p
p
y
SOLUTIONS TO PROBLEM SET B
PROBLEM 13.1B
WELCH COMPAN
Y
For the Year Ended December 31, 2015
Statement of Cash Flows
WELCH COMPAN
Y
p
25 Minutes, Easy
a.
Cash flows from investin
g
activities:
Purchases of marketable securities (65,000)$
Proceeds from sales of marketable securities
(
1
)
89,000
PROBLEM 13.2B
MARY’S FASHIONS
For the Year Ended December 31, 2015
Partial Statement of Cash Flows
MARY’S FASHIONS
25 Minutes, Easy
a.
Cash flows from investin
g
activities:
Purchases of marketable securities (59,000)$
Proceeds from sales of marketable securities
(
1
)
52,000
Loans made to borrowers (40,000)
PROBLEM 13.3B
RPZ IMPORTS
For the Year Ended December 31, 2015
Partial Statement of Cash Flows
RPZ IMPORTS
30 Minutes, Medium
a.
Cash flows from o
p
eratin
g
activities:
Cash received from customers
(
1
)
2,590,000$
Interest and dividends received
(
2
)
91
,
000
Cash
p
rovided b
y
o
p
eratin
g
activities 2,681,000$
Cash
p
aid to su
pp
liers and em
p
lo
y
ees
(
3
)
(1,576,000)
Interest
p
aid
(
4
)
(58,000)
Income taxes
p
aid
(
5
)
(112
,
000)
Cash disbursed for o
p
eratin
g
activities
(1
,7
46
,
000)
Net cash flow from o
p
eratin
g
activities
93
5,
000
$
(
1
)
Cash received from customers:
Net sales 2,600,000$
2
90
$
40
000
4
91
000
$
p
pp
p
y
2
000
p
pp
49
000
p
p
4
2
1
$
(
)
2
p
000
$
p
p
2
PROBLEM 13.4B
ROYCE INTERIORS, INC.
For the Year Ended December 31, 2015
Partial Statement of Cash Flows
ROYCE INTERIORS, INC.
10
000
PROBLEM 13.4B
ROYCE INTERIORS, INC. (concluded)
b. Management could increase cash flows from operations by (only two required):
Reducing the amount of inventories being held.
Hill Education.
25 Minutes, Medium
a.
Cash flows from o
p
eratin
g
activities:
Net income 928,000$
Add: De
p
reciation ex
p
ense 49,000$
Increase in accounts
p
a
y
able to su
pp
liers 5,000
Increase in accrued interest
p
a
y
able
2
,
000
5
6
,
000
Subtotal 984,000$
Less: Increase in accounts receivable 10,000$
Increase in accrued interest receivable 4,000
93
$
PROBLEM 13.5B
ROYCE INTERIORS, INC.
For the Year Ended December 31, 2015
Partial Statement of Cash Flows
ROYCE INTERIORS, INC.
(INDIRECT)
3
000
49
000
45 Minutes, Strong
a.
Cash flows from o
p
eratin
g
activities:
Cash received from customers
(
1
)
3,340,000$
Interest received
(
2
)
6
5,
000
Cash
p
rovided b
y
o
p
eratin
g
activities 3,405,000
Cash
p
aid to su
pp
liers and em
p
lo
y
ees
(
3
)
(2,334,000)$
Interest
p
aid
(
4
)
(23,000)
Income taxes
p
aid
(
5
)
(12
5,
000)
Cash disbursed for o
p
eratin
g
activities
(2
,
482
,
000)
Net cash flow from o
p
eratin
g
activities 923,000$
Cash flows from investin
g
activities:
Purchases of marketable securities (50,000)$
Proceeds from sales of marketable securities
(
6
)
65,000
22
000
(1
000)
20
000
4
$
PROBLEM 13.6B
FOXBORO TECHNOLOGIES
For the Year Ended December 31, 2015
Statement of Cash Flows
FOXBORO TECHNOLOGIES
p