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)
1. Under IFRS (as with U.S. GAAP), both the indirect method and direct
2. IFRS and US GAAP differ on the classification of the following cash flows
as operating, investing or financing:
EXERCISES
Exercise 12-1 (25 minutes)
Statement of Cash Flows
Noncash
Operating
Activities
Investing
Activities
Investing &
Financing
Activities
Not Reported
on Statement
or in Notes
a. Declared and paid a
cash dividend
b. Recorded
depreciation expense
X
c. Paid cash to settle
long-term note payable
d. Prepaid expenses
increased in the year
X
e. Accounts receivable
decreased in the year
X
f. Purchased land by
issuing common stock
X
g. Inventory increased
in the year
X
h. Sold equipment for
cash, yielding a loss
X
X
i. Accounts payable
decreased in the year
X
j. Income taxes payable
increased in the year
X
Exercise 12-2 (20 minutes)
Cash flows from operating activities—indirect method
Net income …………………………………………………………………………………...
$ 24,000
Adjustments to reconcile net income to net cash provided by
operating activities
Income statement items not affecting cash
Depreciation expense ……………………………………………………………….…..
12,000
Changes in current operating assets and liabilities
Accounts receivable increase ………………………………………………….…..
(10,000
)
Inventory decrease …………………………………………………………………..…..
16,000
Salaries payable increase ……………………………………………………………..
1,000
Net cash provided by operating activities ……………………………………..…..
$ 43,000
Exercise 12-3 (30 minutes)
1.
Cash flows from operating activities—indirect method
Net income (loss) …………………………………………………………………….……….
$ (16,000
)
Adjustments to reconcile net income to net cash provided by
operating activities
Income statement items not affecting cash
Depreciation expense …………………………………………………………..……….
14,600
Changes in current operating assets and liabilities
Accounts receivable decrease …………………………………………….……….
24,000
Salaries payable increase …………………………………………………….…
18,000
Accrued liabilities decrease ……………………………………………………….
(8,000
)
Net cash provided by operating activities ………………………………………….
$ 32,600
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
and (2) changes in revenue and expense recognition.
Exercise 12-4 (30 minutes)
Cash flows from operating activities
Net income…………………………..………………………………….……
$ 481,540
Adjustments to reconcile net income to net cash
provided by operating activities
Income statement items not affecting cash
Depreciation expense ………………………………………….……
44,200
Amortization expense—Patents …………………………..
4,200
Gain on sale of equipment …………………………………..……
(6,200)
Changes in current operating assets and liabilities
Increase in accounts receivable …………………………..
(30,500)
Increase in inventory ………………………………………….……
(25,000)
Decrease in accounts payable …………………………….……
(12,500)
Decrease in salaries payable ……………………………….……
(3,500)
Net cash provided by operating activities …………………..……
$ 452,240
Exercise 12-5 (20 minutes)
Cash flows from operating activities
Net income…………………………..……………………………………….
$374,000
Adjustments to reconcile net income to net cash
provided by operating activities
Income statement items not affecting cash
Depreciation expense ……………………………………………….
44,000
Amortization expense ……………………………………………...
7,200
Gain on sale of plant assets ……………………………………..
(6,000)
Changes in current operating assets and liabilities
Decrease in accounts receivable ……………………………...
17,100
Decrease in inventory ……………………………………………..
42,000
Increase in prepaid expenses …………………………………...
(4,700)
Decrease in accounts payable ………………………………….
(8,200)
Increase in salaries payable ……………………………………..
1,200
Net cash provided by operating activities ………………………..
$466,600
Exercise 12-6 (10 minutes)
Cash flows from operating activities
Net income ………………………………………………………………..…..
$400,000
Adjustments to reconcile net income to operating cash flow
Income statement items not affecting cash
Depreciation …………………………..……………………………..…..
$80,000
Gain on sale of machinery ……………………………………..…..
(20,000)
Changes in current operating assets and liabilities
Accounts receivable increase ………………………………..…..
(40,000)
Prepaid expense decrease …………………………..……………..
12,000
Accounts payable increase ………………………………………..
6,000
Wages payable decrease …………………………..…………..…..
(2,000)
36,000
Net cash provided from operating activities ………………….…..
$436,000
Exercise 12-7 (10 minutes)
Cash flows from investing activities
Cash received from the sale of equipment*……………………………..
$ 51,300
Cash paid for new truck ………………………………………………………….
(89,000)
Cash received from the sale of land ………………………………………..
198,000
Cash received from the sale of long-term investments ……………
60,800
Net cash provided by investing activities ………………………………..
$221,100
* Cash received from sale of equipment = Book value – loss = $65,300 – $14,000 = $51,300
Exercise 12-8 (10 minutes)
Cash flows from financing activities
Proceeds from issuance of common stock ………………………………………..
$ 64,000
Paid cash dividend ………………………………………………………………….………..
(14,600)
Repaid note payable ……………………………………………………………….………..
(50,000)
Purchased treasury stock ……………………………………………………….
(12,000)
Net cash used by financing activities ………………………………………………..
$(12,600)
Exercise 12-9 (20 minutes)
PEUGEOT S.A.
Statement of Cash Flows (Indirect Method)
For Year Ended December 31, 2011
Cash flows from operating activities
Net income …………………………..………………………………….
€ 784
Adjustments to reconcile net income to net cash
provided by operating activities
Income statement items not affecting cash
Depreciation and amortization ……………………………….
€ 3,037
Gains on disposals and other ………………………………..
(883)
Changes in current operating assets and liabilities
Net change (decrease) in working capital ……………….
(1,183)
Net cash from operating activities …………………………..
€ 1,755
Cash flows from investing activities
Cash from disposal of plant assets & intangibles ……..
189
Cash paid for plant assets and intangibles ……………….
(3,921)
Net cash used in investing activities ………………………..
(3,732)
Cash flows from financing activities
Cash from purchases of treasury stock …………………...
(199)
Cash paid for dividends …………………………..……………...
(290)
Cash paid for other financing activities …………………...
(2,282)
Net cash used in financing activities ………………………..
(2,771)
Net decrease in cash …………………………..……………………..
€ (4,748)
Cash and cash equivalents, Dec 31, 2010 …………………...
10,442
Cash and cash equivalents, Dec 31, 2011 …………………...
€ 5,694
Exercise 12-10 (15 minutes)
2014: $102,920 / $1,240,000 = 8.3%
Exercise 12-11 (40 minutes)
Part 1
IKIBAN, INC.
Statement of Cash Flows (Indirect Method)
For Year Ended June 30, 2015
Cash flows from operating activities
Net income …………………………..…………………………………..
$ 99,510
Adjustments to reconcile net income to net cash
provided by operating activities
Income statement items not affecting cash
Depreciation expense …………………………………………....
58,600
Gain on sale of plant assets …………………………………...
(2,000)
Changes in current operating assets and liabilities
Increase in accounts receivable ……………………………..
(14,000)
Decrease in inventory …………………………………………...
22,700
Decrease in prepaid expenses ………………………………..
1,000
Decrease in accounts payable ………………………………..
(5,000)
Decrease in wages payable …………………………………....
(9,000)
Decrease in income taxes payables ………………………..
(400)
Net cash provided by operating activities ………………....
$151,410
Cash flows from investing activities
Cash received from sale of equip. (Note 1) ………………..
10,000
Cash paid for equipment (Note 1—given) ………………....
(57,600)
Net cash used in investing activities ………………………...
(47,600)
Cash flows from financing activities
Cash received from stock issuance …………………………..
60,000
Cash paid to retire notes (Note 2—given) ………………....
(30,000)
Cash paid for dividends (Note 3) ……………………………....
(90,310)
Net cash used in financing activities ………………………...
(60,310)
Net increase in cash …………………………………………………...
$ 43,500
Cash balance at prior year-end …………………………………...
44,000
Cash balance at current year–end ………………………………..
$ 87,500
(Notes 1, 2, and 3 on next page.)
Exercise 12-11 (Part 1 continued)
(1)
Cost of equipment sold (Given) ………………………………………………………..…
$ 48,600
Accumulated depreciation of equipment sold* …………………………………..…
(40,600)
Book value of equipment sold ………………………………………………………….…
8,000
Gain on sale of equipment (Given) ………………………………………………………
2,000
Cash receipt from sale of equipment ……………………………………………………
$ 10,000
Cost of equipment sold ………………………………………………………………………
$ 48,600
Plus net increase in the equipment account balance …………………………..
9,000
Cash paid for new equipment (given) ………………………………………………..…
$ 57,600
Equipment
Accumulated Depreciation, Equipment
Bal., 6/30/2014
115,000
Bal., 6/30/2014
9,000
Purchase
57,600
Sale 48,600
Sale (plug) *40,600
Depr. Expense
58,600
Bal., 6/30/2015
124,000
Bal., 6/30/2015
27,000
(2)
Carrying value of notes retired ……………………………………………………………
$ 30,000
Cash payment to retire notes ………………………………………………………………
$ 30,000
(3)
Retained Earnings
Bal., 6/30/2014
24,100
Dividends (plug)
90,310
Net income
99,510
Bal., 6/30/2015
33,300
= 49.6%
Interpretation: A 49.6% result on the cash flow on total assets ratio is
Exercise 12-12B (40 minutes)
Part 1
IKIBAN, INC.
Statement of Cash Flows (Direct Method)
For Year Ended June 30, 2015
Cash flows from operating activities
Cash received from customers (Note 1) ………..
$664,000
Cash paid for inventory (Note 2) …………………..
(393,300)
Cash paid for operating expenses (Note 3) ……
(75,000)
Cash paid for income taxes (Note 4) ……………..
(44,290)
Net cash provided by operating activities ……..
$151,410
Cash flows from investing activities
Cash received from sale of equip. (Note 5) ……
10,000
Cash paid for equipment (Note 5—given) ……..
(57,600)
Net cash used in investing activities …………….
(47,600)
Cash flows from financing activities
Cash received from stock issuance ………………
60,000
Cash paid to retire notes (Note 6) …………………
(30,000)
Cash paid for dividends (Note 7) …………………..
(90,310)
Net cash used in financing activities …………….
(60,310)
Net increase in cash ……………………………………….
$ 43,500
Cash balance at prior year-end ……………………….
44,000
Cash balance at current year-end ……………………
$ 87,500
(See notes on next page)