Problem 14-11 (continued)
Step 3: The company had a $2,000 gain on the sale of equipment. The
book value of the equipment was $13,000 (= $50,000 – $37,000). The
company sold the equipment for $15,000, so its gain on the sale of
$2,000 (= $15,000 – $13,000) is subtracted from net income.
Problem 14-11 (continued)
Given the amounts above, the statement of cash flows would be as follows:
Yoric Company
Statement of Cash Flows
Operating activities:
Net income ………………………………………………….
$ 70,000
Adjustments to convert net income to cash basis:
Depreciation ……………………………………………..
$ 42,000
Increase in accounts receivable ……………………..
(110,000)
Decrease in inventory ………………………………….
65,000
Decrease in prepaid expenses ……………………….
8,000
Increase in accounts payable ………………………..
32,000
Decrease in accrued liabilities ……………………….
(9,000)
Increase in income taxes payable …………………..
16,000
Gain on sale of equipment …………………………...
(2,000)
42,000
Net cash provided by operating activities ……………
112,000
Investing activities:
Decrease in long-term loan to subsidiary ……………
30,000
Proceeds from sale of equipment ……………………..
15,000
Additions to long-term investments …………………..
(80,000)
Additions to plant and equipment …………………….
(270,000)
Net cash used in investing activities ………………….
(305,000)
Financing activities:
Issuance of bonds payable ……………………………..
400,000
Repurchase of common stock ………………………….
(170,000)
Cash dividends …………………………………………….
(20,000)
Net cash provided by financing activities ……………
210,000
Net increase in cash ………………………………………
17,000
Beginning cash and cash equivalents ………………..
23,000
Ending cash and cash equivalents …………………….
$ 40,000
Problem 14-12 (45 minutes)
1 Prepare a statement of cash flows (all numbers in millions).
Operating activities:
Step 1: The following equation can be applied to the Accumulated
Problem 14-12 (continued)
As an intermediate step, the net cash provided by operating activities
can now be calculated as follows:
Net income ……………………………………………….
$115
Adjustments to convert net income to cash basis:
Depreciation ……………………………………………
$132
Increase in accounts receivable …………………..
(65)
Increase in inventory ………………………………..
(45)
Increase in accounts payable ………………………
95
Increase in accrued liabilities ………………………
25
Increase in income taxes payable ………………..
6
Gain on sale of equipment …………………………
(3)
145
Net cash provided by operating activities …………
$260
Investing and Financing activities:
The guidelines from Exhibit 14-3 can be used to analyze the changes in
noncash balance sheet accounts that impact investing and financing
cash flows as follows:
Increase
in Account
Balance
Decrease
in Account
Balance
Noncurrent Assets
Property, plant, and equipment ………………
– 49
Liabilities and Stockholders’ Equity
Bonds payable ……………………………………
– 170
Problem 14-12 (continued)
Burgess Company
Statement of Cash Flows
Operating activities:
Net income ……………………………………………….
$ 115
Adjustments to convert net income to cash basis:
Depreciation ……………………………………………
$132
Increase in accounts receivable …………………..
(65)
Increase in inventory ………………………………..
(45)
Increase in accounts payable ………………………
95
Increase in accrued liabilities ………………………
25
Increase in income taxes payable ………………..
6
Gain on sale of equipment …………………………
(3)
145
Net cash provided by operating activities …………
260
Investing activities:
Proceeds from sale of equipment …………………..
8
Additions to plant and equipment …………………..
(62)
Net cash used in investing activities ……………….
(54)
Financing activities:
Retirement of bonds payable ………………………..
(170)
Cash dividends …………………………………………..
(66)
Net cash used in financing activities ……………….
(236)
Net decrease in cash …………………………………..
(30)
Beginning cash and cash equivalents ………………
79
Ending cash and cash equivalents ………………….
$ 49
2. Burgess’s net income decreased by $20 million; however, its net cash
provided by operating activities increased by $110 million over the prior
Problem 14-13 (45 minutes)
1. Net cash provided by operating activities:
Step 1: The following equation can be applied to the Accumulated
Depreciation account to compute the depreciation to add back to net
income:
Beginning balance – Debits + Credits = Ending balance
