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Chapter 12 Statement of Cash Flows
12-1
1. The statement of cash flows explains how a company obtained
future.
2. The three categories of cash inflows and outflows are
operating activities, investing activities, and financing
activities.
Operating activities include cash inflows and outflows that are
3. Noncash investing and financing activities are transactions
that do not require the receipt or payment of cash. For
example, a company may purchase an operating asset with a
Chapter 12 Statement of Cash Flows
12-2
4. Since the ending balance of accounts receivable exceeded the
beginning balance by $2,000, less cash was provided by
5. Since the ending balance of utilities payable exceeded the
beginning balance by $1,900, more utility cost was used than
6. Since the ending balance of unearned revenue was less than
the beginning balance by $1,100, less cash was received in
7. a. Payment of accounts payable - operating activity.
b. Payment of interest on bonds payable - operating activity.
8. Depreciation expense is an allocation of the cost of an asset
12-3
9. Cost of land $4,200
10. Cost of office equipment $7,500
Accumulated depreciation (7,200)
11. a. operating activities
b. investing activities, or operating activities if trading securities
c. investing activities
12. The difference in the cash flow statement when using the
direct or the indirect method is the presentation of the
operating activities section of the statement.
Chapter 12 Statement of Cash Flows
12-4
13. The direct method is more logical because the presentation
shows where cash came from and where it went, i.e., the
14. The primary advantage of using the indirect method is the fact
15. The primary advantage of using the direct method is that it is
more logical and presents the actual amount of cash inflows
16. a. Cash outflow of $46,000 as an investing activity.
b. Cash inflow of $8,700 as an investing activity. The gain on
17. Yes, it is possible for a company to have negative net cash
flow and net income in the same period. A company may use
12-5
EXERCISE 12-1A
1.
Not affected (Financing)
2.
Subtracted
3.
Subtracted
4.
Not affected (Investing)
5.
Added
6.
Not affected (Financing)
7.
Subtracted
8.
Added
9.
Added
10.
Not affected (Financing)
11.
Added
Chapter 12 Statement of Cash Flows
12-6
EXERCISE 12-2A
a.
Cash Flows From Operating Activities
Net Income
$31,600
Add: Decrease in accounts receivable (1)
1,600
Deduct: Decrease in accounts payable (2)
(1,500)
Net cash inflow from operating activities
$31,700
(1 ) Add decreases and subtract increases in current asset account balances, other than cash, to net
income.
(2) Add increases and subtract decreases in current liability account balances to net income.
b. The decrease in the balance in the Accounts Receivable account
suggests that the amount of cash collected from accounts
receivable was more than the amount of revenue recognized
12-7
EXERCISE 12-3A
Cash Flows From Operating Activities
Net Income
$47,300
Add: Decrease in accounts receivable (1)
1,200
Depreciation expense (3)
3,600
Loss on sale of land (4)
800
Deduct: Increase in prepaid rent (1)
(600)
Increase in interest receivable (1)
(200)
Decrease in salaries payable (2)
(700)
Decrease in accounts payable (2)
(1,100)
Decrease in unearned revenue (2)
(1,800)
Gain on sale of equipment (4)
(1,500)
Net cash inflow from operating activities
$47,000
(1 ) Add decreases and subtract increases in current asset account balances, other than cash, to net
income.
(2) Add increases and subtract decreases in current liability account balances to net income.
(3) Add noncash expenses (e.g., depreciation) to net income.
(4) Add losses and subtract gains from the sale of noncurrent assets to net income.
Chapter 12 Statement of Cash Flows
12-8
EXERCISE 12-4A
Reconciliation of Unearned Revenue
Beginning balance
$ 6,200
Increase due to collecting cash in advance
?
= 47,400
Decrease due to recognizing revenue
(46,000)
Ending balance
$ 7,600
Reconciliation of Prepaid Rent
Beginning balance
$3,600
Increase due to the cash payment for rent
?
= 16,800
Decrease due to recognizing rent expense
(18,000)
Ending balance
$2,400
Cash Flow from Operating Activities
Receipts from customers
$47,400
Paid for rent
(16,800)
Net cash inflow from operating activities
$30,600
12-9
EXERCISE 12-5A
a.
Reconciliation of Accounts Receivable
Beginning balance
$ 31,600
Increase due to revenue recognized on account
530,000
Decrease due to cash collections from customers
?
= (526,400)
Ending balance
$ 35,200
Reconciliation of Interest Receivable
Beginning balance
$ 4,800
Increase due to interest revenue recognized on acct.
16,500
Decrease due to cash collections of interest rec.
?
= (17,100)
Ending balance
$ 4,200
Cash Inflow from Operating Activities
Collections from customers
$526,400
Collections of interest
17,100
Net cash inflow from operating activities
$543,500
Chapter 12 Statement of Cash Flows
EXERCISE 12-5A (cont.)
b.
Reconciliation of Other Operating Expenses Payable
Beginning balance
$ 18,500
Increase due to expenses recognized on account
175,000
Decrease due to payment to vendors
?
= (172,500)
Ending balance
$ 21,000
Reconciliation of Salaries Payable
Beginning balance
$ 7,200
Increase due to salaries expense recognized
214,000
Decrease due to cash paid for salaries
?
= (214,700)
Ending balance
$ 6,500
12-11
EXERCISE 12-6A
a.
Operating Activities – Direct Method
Cash receipts from customers
$2,100
Cash payments for operating expenses
(700)
Net cash inflow from operating activities
$1,400
Operating Activities – Indirect Method
Net income (revenue $3,800 - expenses $900)
$2,900
Add: Increase in accounts payable
200
Subtract: Increase in accounts receivable
(1,700)
Net cash inflow from operating activities
$1,400
Chapter 12 Statement of Cash Flows
12-12
EXERCISE 12-7A
a. Direct Method
Reconciliation of Accounts Receivable
Beginning balance
$ 62,000
Increase due to revenue recognized on account
268,000
Decrease due to cash collections from
customers
?
= (273,000)
Ending balance
$ 57,000
Reconciliation of Prepaid Rent
Beginning balance
$ 1,300
Increase due to the cash payment for rent
?
= 35,800
Decrease due to recognizing rent expense
(36,000)
Ending balance
$ 1,100
Reconciliation of Utilities Payable
Beginning balance
$ 750
Increase due to recognizing utilities exp. on acct.
18,300
Decrease due to cash settlements of utilities pay.
?
= (18,150)
Ending balance
$ 900
Reconciliation of Other Operating Expenses Payable
Beginning balance
$22,400
Increase due to recognizing other oper. exp. on
acct.
79,100
Decrease due to cash settlements of other
operating expenses payable
?
= (80,200)
Ending balance
$21,300
12-13
EXERCISE 12-7A a. (cont.)
Cash Flow From Operating Activities
Receipts from customers
$273,000
Paid for rent
(35,800)
Paid for utilities
(18,150)
Paid for other operating expenses
(80,200)
Net cash inflow from operating activities
$138,850
b. Indirect Method:
Begin by determining the amount of change in the balances in the
current accounts other than cash and current liability accounts.
2017
2016
Change
Accounts receivable
$57,000
$62,000
$(5,000)
Prepaid rent
1,100
1,300
(200)
Utilities payable
900
750
150
Other operating expenses payable
21,300
22,400
(1,100)
Cash Flow From Operating Activities
Net income:
$134,600
Add: Decrease in prepaid rent (1)
200
Decrease in accounts receivable (1)
5,000
Increase in utilities payable (2)
150
Deduct: Decrease in other oper. expense payable
(2)
1,100
Net cash inflow from operating activities
$138,850
income.
(2) Add increases and subtract decreases in current liability account balances to net income.
Chapter 12 Statement of Cash Flows
12-14
EXERCISE 12-8A
a.
Reconciliation of Land Account
Beginning balance
$325,000
Increase due to purchasing land
?
= 66,500
Decrease due to selling land
(106,500)
Ending balance
$285,000
Chapter 12 Statement of Cash Flows
12-16
EXERCISE 12-9A
a.
Reconciliation of Delivery Equipment Account
Beginning balance
$72,350
Increase due to purchasing delivery equip.
22,100
Decrease due to selling delivery equip.
?
= (25,050)
Ending balance
$69,400
In order to balance the account, delivery equipment with an original
cost of $25,050 must have been sold.
b.
Since a gain was recognized, the equipment must have been sold for
an amount of cash that was more than the book value of the
equipment. Specifically, the cash collected from the sale of the
equipment was $8,050 [($25,050 original cost - $22,000 accumulated
depreciation) = $3,050 book value; $3,050 + $5,000 gain on sale =
$8,050].
12-17
EXERCISE 12-10A
a.
Reconciliation of Investment securities Account
Beginning balance
$116,500
Decrease due to selling investment sec.
?
= (6,500)
Ending balance
$110,000
Reconciliation of Machinery Account
Beginning balance
$437,000
Increase due to purchasing machinery
?
= 85,000
Decrease due to selling machinery
(36,000)
Ending balance
$486,000
Chapter 12 Statement of Cash Flows
12-18
12-19
EXERCISE 12-10A (cont.)
d.
Reconciliation of Land Account
Beginning balance
$100,000
Increase due to purchasing land
?
= 60,000
Ending balance
$160,000
In order to balance the account, land costing $60,000 must have been
purchased. In the absence of information to the contrary, we assume
cash was paid to purchase the land.
e.
Delsey Company
Statement of Cash Flows
For the Year Ended December 31, 2017
Cash flows from investing activities:
Proceeds from sale of machinery
$ 12,500
Proceeds from sale of investment
securities
500
Paid to purchase machinery
(85,000)
Paid to purchase land
(60,000)
Net cash outflow from investing activities
$(132,000)
Chapter 12 Statement of Cash Flows
12-20
EXERCISE 12-11A
a.
Reconciliation of Bonds Payable Account
Beginning balance
$450,000
Increase due to issuing bonds payable
200,000
Decrease due to repayment of bonds
payable
?
= (250,000)
Ending balance
$400,000
Cash Flows from Financing Activities
Proceeds from issue of bonds payable
$200,000
Repayment of bonds payable
(250,000)
Net cash outflow from financing activities
$( 50,000)
