PA12–6
Req. 1 HEADS UP COMPANY
Statement of Cash Flows
For the Year Ended December 31
Cash flows from operating activities:
Cash collected from customers1 ………………………………..
$ 38,350
Cash paid for wages to employees2 …………………………..
(35,250
)
Cash paid for other operating expenses3 …………………….
(500
)
Cash paid for income tax ………………………………………….
(1,000
)
Net cash provided by operating activities ……………….
1,600
Cash flows from investing activities:
Cash payments to purchase equipment …………………….
(500
)
Net cash provided by (used in) investing activities ….
(500
)
Cash flows from financing activities:
Cash proceeds from bank loan …………………………………
1,200
Net cash provided by financing activities ………………..
1,200
Net increase in cash during the year ……………………………….
2,300
Cash balance, January 1 ………………………………………………
4,000
Cash balance, December 31 ………………………………………….
$6,300
1 $37,500 + 1,750 – 900 = $38,350
2 $35,000 + 750 – 500 = $35,250
3 $1,000 – 500 = $500 decrease in accounts payable for operating expenses
Req. 2
Heads Up Company appears to be in a good cash position, with an ending cash
balance of $6,300. This balance is $2,300 greater than the prior year because the
company generated positive cash flows from operations (+$1,600) and obtained
additional funding from the bank, enabling the company to acquire additional equipment
with cash. The company is well positioned to continue expanding its business in the
upcoming year.
PA12–7
Req. 1 HEADS UP COMPANY
Statement of Cash Flows
For the Year Ended December 31
Cash flows from operating activities:
Net income…………………………………………………………….
$1,250
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense …………………………………………….
500
Loss on disposal of equipment ………………………………..
550
Decrease in accounts receivable ……………………………..
850
Decrease in accounts payable …………………………………
(500
)
Decrease in salaries and wages payable…………………..
(250
)
Net cash provided by operating activities ………………
2,400
Cash flows from investing activities:
Cash proceeds from disposal of equipment ………………..
500
Cash payments to purchase equipment …………………….
(1,800
)
Net cash provided by (used in) investing activities ….
(1,300
)
Cash flows from financing activities:
Cash proceeds from bank loan …………………………………
1,200
Net cash provided by financing activities ………………..
1,200
Net increase in cash during the year ……………………………….
2,300
Cash balance, January 1 ………………………………………………
4,000
Cash balance, December 31 ………………………………………….
$6,300
ANSWERS TO GROUP B PROBLEMS
PB12–1
Activity
O
1
Received deposits from customers for products
to be delivered the following period.
F
2
Principal repayments on loan.
I
3
Paid cash to purchase new equipment.
F
4
Received proceeds from loan.
O
5
Collected payments on account from customers.
O
6
Recorded and paid salaries and wages to
employees.
I
7
Paid cash for building construction.
O
8
Recorded and paid interest to debt holders.
PB12–2
CALENDARS INCORPORATED
Statement of Cash Flows
For the Year Ended December 31
Cash flows from operating activities:
Net income…………………………………………………………….
$ 10,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense …………………………………………….
$16,000
Increase in accounts receivable ……………………………….
(300
)
Decrease in inventory …………………………………………….
60
Decrease in accounts payable …………………………………
(100
)
Decrease in prepaid rent…………………………………………
20
Decrease in prepaid insurance ………………………………..
20
Increase in salaries and wages payable ……………………
200
Increase in utilities payable ……………………………………..
100
16,000
Net cash provided by operating activities ………………
$26,000
PB12–3
Req.1
Related Cash
Balance Sheet at December 31
Flow Section
Current
Previous
Change
Δ in Cash
Cash
$60,000
$65,000
-5,000
10
Net decrease in cash
O
Accounts receivable
15,000
20,000
-5,000
3
Add to net income the decrease in A/R
O
Inventory
22,000
20,000
+2,000
4
Subtract from net income the increase in Inventory
I
Equipment
223,000
150,000
+73,000
7
Payment in cash for equipment
O
Accumulated
depreciation–Equipment
(60,000)
(45,000)
-15,000
2
Add to NI because depreciation expense does not
affect cash
$260,000
$210,000
O
Accounts payable
$8,000
$19,000
-11,000
5
Subtract from net income the decrease in Accounts
Payable
O
Salaries and wages
payable
2,000
1,000
+1,000
6
Add to net income the increase in Salaries and
Wages Payable
F
Note payable (long–
term)
60,000
75,000
-15,000
8
Cash used in repayment of note principal
F
Common Stock
100,000
70,000
+30,000
9
Issuance of stock for cash
O,F
Retained earnings
90,000
45,000
+45,000
1
Increased $50,000 for net income (see income
statement below) and decreased for $5,000
dividends
$260,000
$210,000
Income Statement for the current year
Sales
$200,000
Cost of goods sold
90,000
Other expenses
60,000
Net Income
$50,000
PB12–3 (continued)
Req. 1 (continued)
Audio City Inc.
Statement of Cash Flows
For the Year Ended December 31
Cash flows from operating activities:
Net income
$50,000
1
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense
$15,000
2
Decrease in accounts receivable
5,000
3
Increase in inventory
(2,000)
4
Decrease in accounts payable
(11,000)
5
Increase in salaries and wages payable
1,000
6
8,000
Net cash provided by operating activities
58,000
Cash flows from investing activities:
Cash payments to purchase equipment
(73,000)
7
Net cash provided by (used in) investing activities
(73,000)
Cash flows from financing activities:
Cash payments on note payable (long–
term)
(15,000)
8
Cash receipts from issuing stock
30,000
9
Cash dividends paid
( 5,000)
1
Net cash provided by financing activities
10,000
Net decrease in cash during the year
(5,000)
10
Cash balance, January 1
65,000
Cash balance, December 31
$ 60,000
Req. 2
An overall decrease in cash of $5,000 came from a positive inflow of $58,000 from
operating activities and a stock issuance of $30,000. A large percentage of the cash
inflow was invested in equipment ($73,000), with $15,000 used to pay down long-term
financing and $5,000 paid as dividends.
PB12–4
Req. 1 DIVE IN COMPANY
Statement of Cash Flows
For the Year Ended December 31
Cash flows from operating activities:
Net income…………………………………………………………….
$ 300
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in accounts receivable ……………………………….
(500
)
Increase in prepaid rent …………………………………………
(50
)
Decrease in salaries and wages payable…………………..
(750
)
Net cash provided by (used in) operating activities …
(1,000
)
Cash flows from financing activities:
Cash proceeds from issuing stock …………………………….
200
Net cash provided by financing activities ………………..
200
Net increase (decrease) in cash during the year ……………….
(800
)
Cash balance, January 1 ………………………………………………
4,000
Cash balance, December 31 ………………………………………….
$3,200
Req. 2
Dive In Company appears to be in a satisfactory cash position, with an ending cash
balance of $3,200. However, this balance is down $800 from the prior year because the
company’s cash flows from operations were negative (-$1,000). Much of the negative
cash flow was caused by delayed collection of accounts receivable and earlier payment
of wages in comparison to the prior year. The company needs to work at improving its
operating cash flows.
PB12–5
CALENDARS INCORPORATED
Statement of Cash Flows
For the Year Ended December 31
Cash flows from operating activities:
Cash receipts from customers1 ………………………………………………………
$77,700
Cash payments to suppliers2 …………………………………………………………
(36,040
)
Cash payments for salaries and wages3 ………………………………………….
(9,800
)
Cash payments for rent4 ……………………………………………………………….
(2,480
)
Cash payments for insurance5 ……………………………………………………….
(1,280
)
Cash payments for utilities6 …………………………………………………………..
(900
)
Cash payments for interest …………………………..……………………………….
(1,200
)
Net cash provided by operating activities …………………………………..
$ 26,000
Note 1: $78,000 + $1,500 – $1,800 = $77,700
Note 2: $36,000 + ($1,300 – $1,200) – ($490-430) = $36,040
Note 3: $10,000 + $250 – $450 = $9,800
Note 4: $2,500 + ($80 – $100) = $2,480
Note 5: $1,300 + ($70 – $90) = $1,280
Note 6: $1000 – $100 = $900