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Chapter 12
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
expenses.
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
8. The amount of the land purchase that was paid for in cash ($400,000) should be reported
on the statement of cash flows as an investing activity. Also, a schedule of noncash
9. Since this cash inflow results from borrowing money, it is reported on the statement of
10. Yes; even though a company reports positive net income for the year, it may still show a
net cash outflow from operating activities. When net income is reconciled to the net
11. Depreciation is not a source or a use of cash, even though it must be added to net
12. (a) Indirect method. (b) The increase in accounts (trade) receivable represents an
amount by which the company had cash tied up in accounts (trade) receivable versus
13. Google’s statement of cash flows shows several major financing activities for the year
ended December 31, 2013 ($ 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
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Solutions Manual, Chapter 12
677
QUICK STUDIES
Quick Study 12-1 (10 minutes)
1. Investing 6. Financing
2. Operating 7. Operating
3. Operating 8. Operating
4. Operating 9. Investing*
5. Financing 10. Operating
Quick Study 12-2 (20 minutes)
1.
d
8.
k
6
a.
5
h.
2.
f
9.
j
3
b.
11
i.
3.
b
10.
g
4
c.
9
j.
4.
c
11.
i
1
d.
8
k.
5.
h
12.
m
13
e.
7
l.
6.
a
13.
e
2
f.
12
m.
7.
l
10
g.
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
cash provided by operations
Income statement items not affecting cash
Depreciation expense ........................................
30,000
8,000
24,000
Changes in current assets and liabilities
Change in accounts receivable ........................
(40,000)
(20,000)
4,000
Change in inventories........................................
20,000
10,000
(10,000)
Change in accounts payable.............................
24,000
(22,000)
14,000
Change in accrued liabilities.............................
(44,000)
12,000
(8,000)
Cash provided by (used for) operations ............
$ (6,000)
$ 88,000
$96,000
Quick Study 12-4 (10 minutes)
Cash flows from operating activities
Net income ..................................................................................
$18,200
Adjustments to reconcile net income to operating cash flow
Income statement items not affecting cash
Depreciation expense ............................................................
$36,000
Changes in current operating assets and liabilities
Accounts receivable decrease .............................................
7,000
Inventory increase ................................................................
(5,900)
Accounts payable increase ..................................................
4,700
Income taxes payable decrease ...........................................
(150)
41,650
Net cash provided from operating activities ...........................
$59,850
Quick Study 12-5 (10 minutes)
a. Reconstructed journal entry for equipment sale:
Cash ............................................................................... 37,000
Loss on Sale of Equipment .......................................... 3,000
Accumulated Depreciation—Equipment .................... 170,000
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 12-8 (15 minutes)
Investing Activities
Purchase of used equipment ................................................................
$(5,000)
Sale of short-term investments ................................................................
6,000
Cash provided by investing activities .......................................................
$ 1,000
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
Increase in Paid-in capital in excess of par ($567,000-$342,000) ...............
225,000
Cash received from the sale of common stock .........................................
$230,000
Part 2
Computation of cash paid for dividends
Beginning retained earnings .......................................................................
$287,500
Net income ................................................................................................
48,000
Total “expected” retained earnings............................................................
335,500
Actual ending retained earnings................................................................
(313,500)
Cash paid for dividends ...............................................................................
$ 22,000
Quick Study 12-10 (15 minutes)
Financing Activities
Additional short-term borrowings ..............................................................
$20,000
Cash dividends paid ....................................................................................
(16,000)
Cash provided by financing activities .......................................................
$ 4,000
Quick Study 12-11 (10 minutes)
Cash flows from operating activities
Net income ..................................................................................
$30,000
Adjustments to reconcile net income to operating cash flow
Income statement items not affecting cash
Depreciation expense ...........................................................
$37,600
Changes in current operating assets and liabilities
Accounts receivable decrease .............................................
10,000
Inventory decrease ................................................................
10,000
Prepaid expense increase ....................................................
(1,200)
Accounts payable decrease .................................................
(6,000)
Wages payable increase .......................................................
4,000
Income taxes payable decrease...........................................
(1,200)
53,200
Net cash provided from operating activities ...........................
$83,200
Quick Study 12-12 (15 minutes)
Computation of cash inflow from sale of furniture
Cost of furniture sold (given) ..................................................
$55,000
Accumulated depreciation at beginning of year (given) ..........
$ 9,000
Increase from depreciation expense (given) .............................
37,600
Total “expected” accumulated depreciation .............................
46,600
Actual accumulated depreciation at end of year (given) .........
(17,000)
Accumulated depreciation on sold furniture .............................
29,600
Cash received from sale of furniture at book value ..................
$25,400
Quick Study 12-13 (15 minutes)
1. Computation of cash paid for dividends
Beginning retained earnings ............................................
$ 8,400
Net income .........................................................................
30,000
Total “expected” retained earnings.................................
38,400
Actual ending retained earnings......................................
(35,600)
Decrease from (cash paid for) dividends ........................
$ 2,800
2. Computation of cash payments for notes
Beginning notes payable ..................................................
$69,000
Increases to notes (given) ................................................
0
Total “expected” notes payable.......................................
69,000
Actual ending notes payable ............................................
(29,000)
Decrease from (cash) payments toward notes...............
$40,000
Quick Study 12-14B (10 minutes)
1. Cash received from customers = Sales + Accounts receivable decrease
2. Net increase in cash = $94,800 - $24,000 = $70,800
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
Payments for inventoryb ......................................................
(310,000)
Payments for other expensesc .............................................
(86,300)
Payments for taxesd ..............................................................
(18,500)
Net cash provided by operating activities .............................
$ 83,200
a From QS 12-14B
b From QS 12-15B
c From QS 12-15B
d $17,300 (income tax expense) + $1,200 (decrease in income taxes payable)
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
Income statement items not affecting cash
Depreciation expense ................................................................
$ 7,200
Changes in current operating assets and liabilities
Decrease in accounts receivable ................................
2,100
Increase in inventory ................................................................
(19,950)
Decrease in accounts payable .................................................
(1,500)
Decrease in salaries payable ....................................................
(100)
Net cash used in operating activities ................................
$ (1,750)
Cash flows from investing activities
Cash paid for equipment (Note 1) ..............................................
(8,400)
Net cash used in investing activities ................................
(8,400)
Cash flows from financing activities
Cash received from stock issuance ................................
10,000
Net cash provided by financing activities ................................
10,000
Net decrease in cash ................................................................
$ (150)
Cash balance at beginning of year ...............................................
30,550
Cash balance at end of year ..........................................................
$ 30,400
Note 1
Equipment
Bal., 12/31/2015
41,500
Purchase
“plug”
Sale 0
plug = $8,400
Bal., 12/31/2016
49,900
