Type
Solution Manual
Book Title
Financial Accounting Fundamentals 5th Edition
ISBN 13
978-0078025754

978-0078025754 Chapter 12 Solution Manual Part 1

March 26, 2020
Chapter 12
Reporting Cash Flows
QUESTIONS
1. The purpose of the cash flow statement is to report all major cash receipts (inflows) and
cash payments (outflows) during a period. It helps users to answer questions such as:
2. On a statement of cash flows, investing activities include cash outflows from purchases
of long-term investments such as stocks and bonds, from purchases of plant assets
3. On a statement of cash flows, financing activities include cash inflows such as those
that result from issuing preferred or common stock, and from borrowing by issuing
4. The direct method of reporting cash flows from operating activities itemizes the major
5. On a statement of cash flows prepared according to the direct method, operating
activities generally include cash receipts from the sale of goods and services, cash
6. The indirect method of reporting cash flows from operating activities begins with net
7. Payments of cash dividends should be reported on the statement of cash flows as
financing activities.
8. The amount of the land purchase that was paid for in cash ($400,000) should be reported
on the statement of cash flows as an investing activity. Also, a schedule of noncash
9. Since this cash inflow results from borrowing money, it is reported on the statement of
cash flows as a financing activity.
10. Yes; even though a company reports positive net income for the year, it may still show a
net cash outflow from operating activities. When net income is reconciled to the net
11. Depreciation is not a source or a use of cash, even though it must be added to net
12. (a) Indirect method. (b) The increase in accounts (trade) receivable represents an
amount by which the company had cash tied up in accounts (trade) receivable versus
13. Google’s statement of cash flows shows several major financing activities for the year
ended December 31, 2013 ($ millions):
14. Samsung’s net cash (all is KRW millions) from operating activities is 46,707,440; its
15. Samsung’s investing activities yielding cash outflows and inflows for the year ended
December 31, 2013, follow. Its cash outflows are listed in parentheses (₩ in millions):
Net decrease (increase) in short-term financial instruments ................................. ₩(19,391,643)
Net decrease (increase) in short-term available-for-sale financial assets ........... 33,663
QUICK STUDIES
Quick Study 12-1 (10 minutes)
1. Investing 6. Financing
2. Operating 7. Operating
Quick Study 12-2 (20 minutes)
Statement of cash flow items in sequential order 1 through 13 on left OR
textbook order on right:
1.
d
8.
k
6
5
h.
2.
f
9.
j
3
11
i.
Quick Study 12-3 (20 minutes)
Cash Flows from Operations (Indirect)
Case X
Case Y
Case Z
Net Income ............................................................
$ 4,000
$100,000
$72,000
Adjustments to reconcile net income to net
Quick Study 12-4 (10 minutes)
Cash flows from operating activities
Net income ..................................................................................
$18,200
Quick Study 12-5 (10 minutes)
a. Reconstructed journal entry for equipment sale:
Cash ............................................................................... 37,000
Loss on Sale of Equipment .......................................... 3,000
Quick Study 12-6 (10 minutes)
a. Reconstructed journal entry for building sale:
Cash ............................................................................... 130,000
Accumulated Depreciation Building ........................ 230,000
Gain on Sale of Building ....................................... 60,000
Quick Study 12-7 (10 minutes)
Computation of cash inflow from sale of furniture
Cost of furniture sold (given) ......................................................
$52,500
Quick Study 12-8 (15 minutes)
Investing Activities
Quick Study 12-9 (10 minutes)
Part 1
Computation of cash received from the sale of common stock
Increase in Common stock ($105,000 - $100,000) ........................................
$ 5,000
Quick Study 12-10 (15 minutes)
Financing Activities
Quick Study 12-11 (10 minutes)
Cash flows from operating activities
Net income ..................................................................................
$30,000
Adjustments to reconcile net income to operating cash flow
Quick Study 12-12 (15 minutes)
Computation of cash inflow from sale of furniture
Cost of furniture sold (given) ..................................................
$55,000
Quick Study 12-13 (15 minutes)
1. Computation of cash paid for dividends
Beginning retained earnings ............................................
$ 8,400
2. Computation of cash payments for notes
Beginning notes payable ..................................................
$69,000
Quick Study 12-14B (10 minutes)
1. Cash received from customers = Sales + Accounts receivable decrease
Quick Study 12-15B (10 minutes)
1. Cash paid for inventory
2. Cash paid for other expenses
= Other expenses (which exclude depreciation)
Quick Study 12-16B (10 minutes)
Cash flows from operating activities
Receipts from sales to customersa ......................................
$ 498,000
Quick Study 12-17 (10 minutes)
1. Moore is probably in the strongest position of the three competing companies
on the basis of the statement of cash flows. Moore’s cash flows from
2. Sykes’s cash flow on total assets ratio is slightly stronger than that for Moore.
Quick Study 12-18A (10 minutes)
The balance sheet equation can be arranged so that the algebraic total of all
Quick Study 12-19 (25 minutes)
Part 1
MONTGOMERY, INC.
Statement of Cash Flows (Indirect Method)
For Year Ended December 31, 2016
Cash flows from operating activities
Net income ....................................................................................
$ 10,500
Adjustments to reconcile net income to net cash
provided by operating activities
Quick Study 12-19 (Concluded)
Part 2
The company’s operating cash flows are negative, $(1,750). This is not a good
Quick Study 12-20 (15 minutes)
2. IFRS and US GAAP differ on the classification of the following cash flows
as operating, investing or financing:
Cash flow source U.S. GAAP IFRS _
a. Interest paid Operating Financing or Operating
EXERCISES
Exercise 12-1 (25 minutes)
Statement of Cash Flows
Noncash
Operating
Activities
Investing
Activities
Financing
Activities
Investing &
Financing
Activities
Not Reported
on Statement
or in Notes
Exercise 12-2 (20 minutes)
Cash flows from operating activitiesindirect method
Net income ................................................................................................
$ 24,000
Exercise 12-3 (30 minutes)
1.
Cash flows from operating activitiesindirect method
Net income (loss) .........................................................................................
$ (16,000
)
Adjustments to reconcile net income to net cash provided by
2. One reason for the net loss was depreciation expense. Depreciation
expense is added to net income to adjust for the effects of a noncash
3. Differences between cash flow from operations and net income can be
Exercise 12-4 (30 minutes)
Cash flows from operating activities
Net income ..............................................................................
$ 481,540
Adjustments to reconcile net income to net cash
Exercise 12-5 (20 minutes)
Cash flows from operating activities
Net income ..............................................................................
$374,000
Adjustments to reconcile net income to net cash

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