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25 Minutes, Strong
a.
SOLUTIONS TO CASES
ANOTHER LOOK AT ALLISON CORPORATION
CASE 13.1
Based on past performance, it does not appear that Allison Corporation can continue to pay
annual dividends of $40,000 without straining the cash position of the company. In a typical
15 Minutes, Easy
a.
b.
CASE 13.2
Ending cash balances:
Week 2: $20 [$(20) + $100 − $30 − $20 − $10]
CASH BUDGETING FOR YOU AS A STUDEN
T
In Week 1 you have two problems. The first is that you do not have enough cash to pay your
rent on Wednesday. But you will by Friday, so your payment may be a couple of days late.
Cash
Increase No effect No effect
Increase No effect No effect
(2)
(4)
Changing from an accelerated method to the straight-line method of depreciation will
(generally) reduce the amount of depreciation expense included in the income
Requiring dealers to pay more quickly will speed up cash collections from customers,
increasing operating cash flows and total cash. The timing of these collections has no
direct effect upon net income. However, offering shorter credit terms may have the
indirect effect of reducing net sales. Thus, one might argue that this proposal could
decrease both net income and future collections from customers.
Wheels’ sales for the year. This should increase net income and cash flows from
operating activities (collections from customers).
Net Cash Flows from
Operating Activities
Net Income
CASE 13.3
LOOKIN' GOOD?
45 Minutes, Medium
a.
(1)
(2)
Proposals
(5)
(6)
(7)
CASE 13.3
LOOKIN' GOOD? (concluded)
Passing up cash discounts will delay many cash outlays by about 20 days. In the long run,
the amount paid will be about 2% greater, but in the short run, the delay should more than
Incurring short-term interest charges of 10% to replace long-term interest charges of 13%
will reduce interest expense and cash payments of interest. Therefore, net income, cash
Dividend payments do not enter into the determination of net income or net cash flow from
operating activities. Therefore, these two amounts will not be affected by the proposal. Cash
dividends are classified as financing activities and do not affect total cash flows from
operating activities. Therefore, replacing cash dividends with stock dividends (which
15 Minutes, Easy
a.
But what represents an emergency situation? For example, we would not view it as
unethical for hotels to raise their room rates because the Superbowl is being played in town.
CASE 13.
4
PEAK PRICING
The statement is not valid because it addresses only the peak-period aspect of a peak-pricing
strategy. It is true that during the peak period, some customers will be priced out of the
market (or at least encouraged to purchase in an off-peak period). But in off-peak periods,
prices tend to be lower than they would under a single-price strategy. Peak pricing may
actually allow some customers to purchase goods or services that they otherwise could not
afford.
20 Minutes, Medium
IMPROVING THE STATEMENT OF CASH FLOW
S
CASE 13.5
The first four parts of this case have no written requirements. Part (d) requires students to
write a synopsis, based on their research in the Securities & Exchange Commission's (SEC)
web site, of a speech given by SEC staff member Scott Taub, in which he makes a specific
reference to the statement of cash flows.
Following are several points that are appropriate for inclusion in the student's response to
this case:
ETHICS, FRAUD & CORPORATE GOVERNANC
E
CASE 13.6
FROM TWO COMPANIES
INTERNET
a.
b.
c. Based on the following information from the 2012 financial statements of the two
companies, Coca-Cola's cash flow from operations is over 2 1/2 times that of
Amazon's --$10,645 million compared to $4,180 million. The obvious reason for this
(no solution)
(no solution)
COMPARING CASH FLOW INFORMATION
2012 2011 2010
OPERATING ACTIVITIES
Consolidated net income 9,086$ 8,646$ 11,837$
De
p
reciation and amortization 1,982 1,954 1,443
(in millions)
THE COCA-COLA COMPANY AND SUBSIDIARIE
S
EXCERPT FROM CONSOLIDATED STATEMENTS OF CASH FLOW
S
Year ended December 31
(in millions)
2012 2011 2010
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
OPERATING ACTIVITIES: 5,269$ 3,777$ 3,444$
Net income (loss) (39) 631$ 1,152$
Adjustments to reconcile net income (loss) to net cash from operating activities:
AMAZON.COM, INC
.
EXCERPT FROM CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31
(in millions)
