Exercise 14A-3 (15 minutes)
Sales …………………………………………………
$275
Adjustments to a cash basis:
Decrease in accounts receivable …………
+ 2
$277
Cost of goods sold ……………………………….
150
Adjustments to a cash basis:
Increase in inventory ……………………….
+ 10
Increase in accounts payable ……………..
– 4
156
Selling and administrative expenses …………
90
Adjustments to a cash basis:
Depreciation charges ……………………….
– 15
75
Net cash provided by operating activities …..
$ 46
Problem 14A-5 (45 minutes)
1.
The income statement adjusted to a cash basis:
Sales …………………………………………………
$500,000
Adjustments to a cash basis:
Increase in accounts receivable …………..
– 40,000
$460,000
Cost of goods sold ………………………………..
300,000
Adjustments to a cash basis:
Increase in inventory ………………………..
+ 50,000
Increase in accounts payable ……………..
– 63,000
287,000
Selling and administrative expenses ………….
158,000
Adjustments to a cash basis:
Decrease in prepaid expenses …………….
– 4,000
Decrease in accrued liabilities ……………..
+ 9,000
Depreciation charges ………………………..
– 20,000
143,000
Income taxes ………………………………………
20,000
Adjustments to a cash basis:
Increase in income taxes payable ………..
– 8,000
12,000
Net cash provided by operating activities …..
$ 18,000
Problem 14A-5 (continued)
3. There are two reasons for the sharp decline in cash. First, note that a
relatively small amount of cash was provided by operations during the
year. This is due to a build-up in accounts receivable and inventory,
Problem 14A-6 (continued)
2.
Weaver Company
Statement of Cash Flows
For the Year Ended December 31, 2014
Operating activities:
Cash received from customers ……………………………..
$700
Less cash disbursements for:
Cost of merchandise purchased ………………………….
$370
Selling and administrative expenses …………………….
205
Income taxes …………………………………………………
21
Total cash disbursements …………………………………….
596
Net cash provided by operating activities ………………..
104
Investing activities:
Proceeds from sale of long-term investments …………..
10
Proceeds from sale of equipment ………………………….
20
Additions to plant and equipment ………………………….
(180)
Net cash used for investing activities ……………………..
(150)
Financing activities:
Increase in bonds payable …………………………………..
110
Decrease in common stock ………………………………….
(40)
Cash dividends ………………………………………………….
(30)
Net cash provided by financing activities …………………
40
Net decrease in cash ………………………………………….
(6)
Beginning cash and cash equivalents ……………………..
15
Ending cash and cash equivalents …………………………
$ 9
Problem 14A-7 (continued)
2.
Joyner Company
Statement of Cash Flows
For Year 2
Operating activities:
Cash received from customers ……………………..
$820,000
Less cash disbursements for:
Cost of merchandise purchased ………………….
$490,000
Selling and administrative expenses …………….
289,000
Income taxes …………………………………………
21,000
Total cash disbursements …………………………….
800,000
Net cash provided by operating activities ………..
20,000
Investing activities:
Proceeds from sale of equipment ………………….
18,000
Loan to Hymans Company …………………………..
(40,000)
Additions to plant and equipment ………………….
(150,000)
Net cash used for investing activities ……………..
(172,000)
Financing activities:
Increase in bonds payable …………………………..
120,000
Increase in common stock …………………………..
30,000
Cash dividends ………………………………………….
(15,000)
Net cash provided by financing activities …………
135,000
Net decrease in cash ………………………………….
(17,000)
Beginning cash and cash equivalents ……………..
21,000
Ending cash and cash equivalents …………………
$ 4,000
3. The decline in cash is explainable largely by the company’s inability to
generate a significant amount of cash from operating activities. Note
that the company generated only $20,000 from operating activities,