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© The McGraw-Hill Companies, Inc., 2015. All rights reserved.
Solutions Manual, Chapter 14 1
Chapter 14
Statement of Cash Flows
Solutions to Questions
14-1 The statement of cash flows highlights
They are included with cash because
inflows and outflows related to revenue and
expense transactions that affect net income.
(2) Investing activities: Include cash
14-4 The company’s specific circumstances
should be considered when interpreting the
14-5 Since the entire cash proceeds from the
sale of a noncurrent asset appear as a cash
14-6 Transactions involving accounts payable
are not considered to be financing activities
14-7 The repayment of $300,000 and the
14-8 The direct method reconstructs the
14-9 Depreciation is not a cash inflow, even
though it is added to net income on the
increase in a noncash asset.
an investing activity.
© The McGraw-Hill Companies, Inc., 2015. All rights reserved.
2 Managerial Accounting, 15th Edition
2. The basic equation for stockholders’ equity accounts can be applied to
the Retained Earnings account to compute the net income of $2,000
3. The basic equation for contra-asset accounts can be applied to the
Accumulated Depreciation account to compute the depreciation of
$19,000 that needs to be added to net income as follows:
4. The completed T-account is as follows:
Accounts Receivable
Beg. Bal.
Sales on account
44,000
600,000
Cash collections
603,000
End. Bal.
41,000
The total amount of credits recorded in accounts receivable is
$603,000. This amount represents the cash collections from
customers.
© The McGraw-Hill Companies, Inc., 2015. All rights reserved.
Solutions Manual, Chapter 14 3
The Foundational 15 (continued)
5. The accounts receivable balance decreased by $3,000; therefore, the
$3,000 decrease is added to net income. This adjustment reflects the
6. The completed T-accounts are as follows:
Inventory
Beg. Bal.
Purchases
50,000
405,000
Goods sold
400,000
End. Bal.
55,000
Accounts Payable
Supplier payments
430,000
Beg. Bal.
Purchases
57,000
405,000
End. Bal.
32,000
The total amount of inventory purchases debited to inventory and
credited to accounts payable is $405,000. Therefore, the total amount
of the debits to accounts payable is $430,000. The amount of the
debits to accounts payable represents to total cash paid to suppliers.
7. The inventory balance increased by $5,000; therefore, this amount is
subtracted from net income. The accounts payable balance decreased
8. The completed T-account is as follows;
Income Taxes Payable
Tax payments
3,700
Beg. Bal.
Taxes payable
28,000
700
End. Bal.
25,000
The total amount of debits recorded in income taxes payable is $3,700.
This amount represents the cash paid for income taxes.
© The McGraw-Hill Companies, Inc., 2015. All rights reserved.
4 Managerial Accounting, 15th Edition
9. The income taxes payable balance decreased by $3,000; therefore, the
$3,000 decrease is subtracted from net income. This adjustment
10. The operating activities section of the statement of cash flows would
contain an adjustment related to a gain on the sale of a piece of
11. The net cash provided by operating activities would be computed as
follows:
Net income .............................................................
$ 2,000
Adjustments to convert net income to a cash
basis:
Depreciation .........................................................
$19,000
Decrease in accounts receivable ............................
3,000
Increase in inventory ............................................
(5,000)
Decrease in accounts payable ................................
(25,000)
Decrease in income taxes payable .........................
(3,000)
Gain on sale of equipment ................................
(1,000)
(12,000)
Net cash used in operating activities .........................
$(10,000)
12. The gross cash outflows of $16,000 can be computed by applying the
basic equation for assets to the Property, Plant, and Equipment
© The McGraw-Hill Companies, Inc., 2015. All rights reserved.
Solutions Manual, Chapter 14 5
The Foundational 15 (continued)
13. The net cash provided by (used in) investing activities is $(13,000).
This amount includes the $(16,000) cash outflow related to the
purchase of property, plant, and equipment (as computed in question
12) and the $3,000 cash inflow from the sale of equipment.
14. The guidelines from Exhibit 14-3 can be used to analyze the changes
in noncash balance sheet accounts that impact financing cash flows as
follows:
Increase in
Account
Balance
Decrease
in Account
Balance
Liabilities and Stockholders’ Equity
Bonds payable ..........................................
+ 10,000
Common stock ..........................................
+ 10,000
Because Ravenna did not retire any bonds or repurchase any of its
own common stock during the year, the corresponding amounts in the
table above represent the gross cash inflows that are included in
financing section of the statement of cash flows.
15. The cash inflows of $20,000 from the issuance of bonds and common
stock (as computed in question 14) minus the cash dividend of $6,000
equals net cash provided by (used in) financing activities of $14,000.
Exercise 14-2 (15 minutes)
The guidelines from Exhibit 14-2 can be used to analyze the changes in
noncash balance sheet accounts that impact net income as follows:
Increase
in Account
Balance
Decrease
in Account
Balance
Current Assets
Accounts receivable ...........
– 19,000
Inventory ..........................
– 33,000
Prepaid expenses ..............
+ 1,000
Current Liabilities
Accounts payable ..............
+ 15,000
Accrued liabilities ...............
– 2,000
Income taxes payable ........
+ 4,000
The net cash provided by operating activities is computed as follows:
Net income ..............................................................
$35,000
Adjustments to convert net income to a cash basis:
Depreciation .........................................................
$20,000
Increase in accounts receivable ..............................
(19,000)
Increase in inventory .............................................
(33,000)
Decrease in prepaid expenses ................................
1,000
Increase in accounts payable .................................
15,000
Decrease in accrued liabilities ................................
(2,000)
Increase in income taxes payable ...........................
4,000
(14,000)
Net cash provided by operating activities ...................
$21,000
Exercise 14-4 (30 minutes)
Net cash provided by operating activities:
Step 1: The company did not sell or retire any plant and equipment
during the year (land is not depreciated); therefore, the $60 increase in
