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

978-0078025754 Chapter 12 Solution Manual Part 4

March 26, 2020
Problem 12-7BA (50 minutes)
SATU COMPANY
Spreadsheet for Statement of Cash Flows
For Year Ended December 31, 2015
December
31, 2014
Analysis of Changes
December
31, 2015
Debit
Credit
Balance sheet--debits
Cash ..........................................................
$ 58,750
Accounts receivable ..............................
(b)
$ 5,638
20,222
Statement of cash flows
Operating activities
Net income ...............................................
(a)
202,767
Problem 12-7BA (concluded)
SATU COMPANY
Statement of Cash Flows
For Year Ended December 31, 2015
Cash flows from operating activities
Net income ................................................................................
$202,767
Adjustments to reconcile net income to net
cash provided by operating activities
Income statement items not affecting cash
Problem 12-8BB (35 minutes)
SATU COMPANY
Statement of Cash Flows
For Year Ended December 31, 2015
Cash flows from operating activities
Cash received from customers (Note 1) ..................
$756,438
Cash paid for inventory (Note 2) ..............................
(431,705)
Cash paid for other operating expenses .................
(173,933)
Supporting calculations
SERIAL PROBLEM SP 12
Serial Problem SP 12, Business Solutions (45 minutes)
BUSINESS SOLUTIONS
Statement of Cash Flows (Indirect)
For Quarter Ended March 31, 2016
Cash flows from operating activities
Net income ..........................................................................................
$ 18,833
Adjustments to reconcile net income to net
cash provided by operating activities
Income statement items not affecting cash
Depreciation expenseOffice Equipment ................................
400
Depreciation expenseComputer Equipment .........................
1,250
Changes in current assets and current liabilities
Cash flows from financing activities
Reporting in Action BTN 12-1
1. Apple uses the indirect method of reporting operating cash flows. We
2. In all three fiscal years, Apple’s cash flows from operating activities
markedly exceed its cash dividends paid, as shown in the table below:
3. In fiscal 2013, the largest item in reconciling the difference between net
income and cash flow from operations was depreciation and amortization
of $6,757 million.
4. In fiscal 2013, the largest cash inflow from investing activities was $104,130
million from proceeds from sales of marketable securities. The largest cash
outflow from investing activities was for purchases of marketable
securities, in the amount of $148,489 million.
5. Answer depends on the financial statement information obtained.
Comparative Analysis BTN 12-2
1. Apple’s cash flow on total assets ratio ($ millions)
Current Year = Operating cash flows/Average total assets
Google’s cash flow on total assets ratio ($ millions)
Current Year = Operating cash flows/Average total assets
2. The cash flow on total assets ratio reflects the return on average assets by
using actual operating cash flows instead of net income. This return
3. For both years, Apple has a higher cash flow on total assets ratio than
Google.
Ethics Challenge BTN 12-3
1. The business actions available include
a. Encourage early collection of receivables to reduce the accounts
receivable balance.
2. As a business owner, Katie Murphy certainly can exercise discretion over
business actions. However, the underlying economic realities should
Communicating in Practice BTN 12-4
Here is a sample of what the body of the memorandum might include:
TO: Diana Wood
FROM: (Your Name)
SUBJECT: Statement of Cash Flows
DATE: _________________
I am pleased to hear your business is more profitable this year than last.
However, I have been thinking about what you said regarding the statement of
cash flows and have some thoughts as to why you found it confusing.
The statement of cash flows (operating section) can be prepared using either
of two methodsthe direct or the indirect method. From what you describe,
your statement is probably prepared using the indirect method. This method
Taking It to the Net BTN 12-5
1. Mendocino Brewing Company uses the indirect method to construct the
consolidated statement of cash flows.
2. The largest reconciling item is for increase in accounts receivable totaling
$1,395,400.
Teamwork in Action BTN 12-6
Part 1
a. The reporting objective of the statement of cash flows is to provide
b. The statement can be prepared using the direct method or the indirect
method for reporting cash flows from operating activities.
Similarities
Both methods report the same net cash flow from operating activities.
Differences
Cash flow from operating activities is determined differently. The direct
method determines all operating cash inflows and outflows, and then
Teamwork in Action (Continued)
c. Steps to prepare the statement of cash flows:
(i) Compute the net increase or decrease in cash using comparative
balance sheet data. This is the target number or the number the
statement will explain and prove.
d. Common analyses made from information in the statement of cash flows
include assessing a company’s:
Ability to generate future cash flows.
Part 2
Adjusting Net Income to Cash Flow from Operating Activities
Items to Add
Items to Subtract
a.
Noncash expenses
Noncash revenues
Teamwork in Action (Concluded)
Part 3
a. Cash receipts from customers = Sales - Increase in Accounts Receivable,
or, + Decrease in Accounts Receivable.
b. Cash paid for inventory requires a two-step computation.
(1) Purchases = Cost of goods sold + Increase in inventory, or, Decrease
c. Cash paid for wages and operating expenses = Wages and other operating
expenses [+ Increase in prepaid expenses, or, Decrease in prepaid
d. Cash paid for interest and taxes = Interest and tax expense + Decrease in
related payable, or, Increase in related payable.
Entrepreneurial Decision BTN 12-7
1. It is common that small businesses must pay cash in advance for items such
as rent, advertising, supplies, and facilities expansion. Consequently, those
2. As a privately owned company, it can potentially raise cash financing for
expansion by selling shares in the company or by borrowing money. The
Entrepreneurial Decision BTN 12-8
Memorandum
To: Jenna and Matt Wilder
From: Your name
Subject: Performance evaluation of Mountain High
Date: Current Date
I have completed my evaluation of your company, Mountain High. My conclusion
is that Mountain High is performing well. This is in spite of its reported net loss
and its negative net cash flow, which I explain in this memorandum.
Hitting the Road BTN 12-9
1. The Motley Fool’s Website defines cash flow as earnings before interest,
taxes, depreciation, and amortization (EBITDA). The school’s justification
for this definition includes: “Interest income and expense, as well as taxes, are
all tossed aside because cash flow is designed to focus on the operating business
2. Some analysts tend to focus on this particular earnings definition
(earnings before interest and taxes or EBIT) as it purportedly allows a
3. Answer depends on the links visited and chosen for the report.
Global Decision BTN 12-10
1. Samsung’s cash flow on total assets ratio follows (in KRW millions):
Current Year = Operating cash flows / Average total assets
2. For the current and prior years, Samsung’s ratios (23.6% and 22.5%,
respectively) are lower than Apple’s ratios (28.0% and 34.8%, respectively).

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