Chapter 12
The Statement of Cash Flows
Short Exercises
(10 min.) S 12-1
The statement of cash flows helps investors and creditors:
a. Predict future cash flows by reporting past cash receipts and
(10-15 min.) S 12-2
DATE: _______________
TO: Managers of Kobe Inc.
FROM: Student Name
SUBJECT: Purposes of the statement of cash flows
The statement of cash flows is designed to help predict the future cash
flows of a business. The statement of cash flows measures past cash
flows, which are a reasonably good predictor of future cash flows. Net
(5-10 min) S 12-3
Three things that could cause operating cash flows to be positive (under
the indirect method) are:
1. Increase in net income
(15-30 min.) S 12-4
DATE: _______________
TO: Managers of Bayside Inns
FROM: Student Name
SUBJECT: Assessment of 2014 and Outlook for the Future
2014 was not a good year. Most of the increase in net income resulted
from the gain on the insurance proceeds from fire damage to a building,
which means that normal operations were not very profitable. This is
confirmed by the increase in receivables, which hints that collections
are lagging.
(continued) S 12-4
Financing activities provided a net cash inflow, which is normal.
(5-10 min.) S 12-5
Cash flows from operating activities:
Net income …………………………………………………………………
$76,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation expense ……………………………………………..
12,000
Loss on sale of land ………………………………………………..
3,100
Increase in accounts receivable, inventory,
and prepaid expenses ($59,000 − $56,000) ……………
(3,000)
Increase in current liabilities ($45,000 − $41,000) ………
4,000
Net cash provided by operating activities …………………….
$92,100
(10 min.) S 12-6
O−
a.
Decrease in accrued
h.
Increase in accounts
liabilities
payable
O+
b.
Net income
i.
Decrease in accounts
O+
c.
Decrease in prepaid
receivable
expense
j.
Gain on sale of
N
d.
Collection of cash
building
from customers
k.
Loss on sale of land
I
e.
Purchase of
l.
Depreciation expense
equipment
m.
Increase in inventory
N
f.
Retained earnings
n.
Issuance of common
F
g.
Payment of dividends
stock
(10 min.) S 12-7
Adams Corporation
Statement of Cash Flows (partial)
Year ended June 30, 2014
Cash flows from operating activities:
Net income …………………………………………………..
$102,000*
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation expense ……………………………….
$12,000
Increase in current assets other than
cash ……………………………………………………
(63,000)
Increase in current liabilities …………………….
20,100
(30,900)
Net cash provided by operating activities ………
$71,100
_____
*$376,000 − $198,000 − $64,000 − $12,000 = $102,000
(15 min.) S 12-8
Adams Corporation
Statement of Cash Flows
Year ended June 30, 2014
Cash flows from operating activities:
Net income ………………………………………………….
$ 102,000*
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation expense ………………………………
$12,000
Increase in current assets other than
cash ……………………………………………………
(63,000)
Increase in current liabilities …………………….
20,100
(30,900)
Net cash provided by operating activities ……..
71,100
Cash flows from investing activities:
Purchase of equipment ………………………………..
$(37,000)
Proceeds from sale of land …………………………..
28,000
Net cash used for investing activities ……………
(9,000)
Cash flows from financing activities:
Proceeds from issuance of common stock ……
$ 24,000
Payment of note payable ………………………………
(37,000)
Payment of dividends …………………………………..
(6,400)
Purchase of treasury stock …………………………..
(8,000)
Net cash used for financing activities ……………
(27,400)
Net increase in cash …………………………………………
$ 34,700
_____
*$376,000 − $198,000 − $64,000 − $12,000 = $102,000
(10 min) S 12-9
a. Acquisitions of plant assets = $75,000, as follows:
Plant Assets, net
Beg.
+
Acquisitions
−
Depreciation
−
Book value of
=
End.
bal.
assets sold
bal.
$195,000
+
X
−
$15,000
−
$0
=
$255,000
X
=
$255,000 − $195,000 + $15,000
X
=
$75,000
Plant Assets, net
Beg. bal.
195,000
Acquisitions
75,000
Depreciation
expense
15,000
End. bal.
255,000
b. Proceeds from the sale of long-term investments = $23,000, as
follows:
Long-term investments
Beg. bal.
+
Purchases
−
Book value of
=
End. bal.
investments sold
$88,000
+
0
−
X
=
$65,000
X
=
$88,000 − $65,000
X
=
$23,000
With no gain or loss, proceeds from the sale must be the same as the
book value of the investments sold, $23,000.
Long-Term Investments
Beg. bal.
88,000
Book value of
investments sold
23,000
End. bal.
65,000
(15 min.) S 12–10
a. New borrowing on long-term notes payable = $9,000 ($75,000 −
$66,000)
c. Payment (and declaration) of dividends = $151,000, as follows:
Beginning
Net
income
Dividend
declarations
Ending
Retained
+
−
=
Retained
Earnings
Earnings
$297,000
+
$163,000
−
X
=
$309,000
X
=
$297,000 + $163,000 − $309,000
X
=
$151,000
Retained Earnings
Beg. bal.
297,000
Dividends declared
(paid)
151,000
Net income
163,000
End. bal.
309,000
(15 min.) S 12-11
a. Collections from customers = $810,000, as follows:
Collections
=
Service
−
Increase in Accounts Receivable
from customers
Revenue
=
$819,000
−
$9,000 ($62,000 − $53,000)
=
$810,000
Accounts Receivable
Beg. Bal.
53,000
Revenue
819,000
Collections
810,000
End. Bal.
62,000
b. Payments for inventory = $385,000, as follows:
Payments for
inventory
Decrease in
Inventory
Increase in
Accounts Payable
=
COGS
−
−
=
$401,000
−
$14,000
−
$2,000
($91,000 − $77,000)
($56,000 − $54,000)
=
$385,000
Inventory
Beg. Bal.
91,000
Purchases
387,000
COGS
401,000
End. Bal.
77,000
Accounts Payable
Payments for
Beg. bal.
54,000
Inventory
385,000
Purchases
387,000
End. bal.
56,000
(10-15 min.) S 12-12
a. Payments to employees = $56,000, as follows:
Payments to
=
Salary
−
Increase in
employees
Expense
Salary Payable
=
$60,000
−
$4,000
($26,000 − $22,000)
=
$56,000
Salary Payable
Payments to
Beg. bal.
22,000
Employees
56,000
Salary expense
60,000
End. bal.
26,000
b. Payments for other expenses = $184,000, as follows:
Payments
of other
expenses
Other
Expenses
Increase in
Decrease in
=
+
Prepaid
+
Accrued
Expenses
Liabilities
=
$180,000
+
$1,000
+
$3,000
($17,000 − $16,000) ($16,000 − $13,000)
=
$184,000
(15 min.) S 12–13
McCracken Horse Farms, Inc.
Statement of Cash Flows
Year 2014
Cash flows from operating activities:
Collections from customers ………………………
$ 640,000
Payments to suppliers and employees……….
(465,000)
Net cash provided by operating activities …..
$175,000
Cash flows from investing activities:
Purchase of equipment ……………………………..
$(119,000)
Net cash used for investing activities…………
(119,000)
Cash flows from financing activities:
Issued note payable to borrow money ……….
$ 25,000
Payment of dividends ……………………………….
(37,000)
Net cash used for financing activities ………..
(12,000)
Net increase in cash ……………………………………..
$ 44,000
Cash balance, beginning ……………………………….
58,000
Cash balance, ending …………………………..……….
$102,000
(5 min.) S 12-14
Phoenix Golf Club, Inc.
Statement of Cash Flows (partial)
Year ended September 30, 2014
Cash flows from operating activities:
Collections from customers …………………………...
$ 263,000
Payments to suppliers ……………………………………
(124,000)
Payments to employees …………………………………
(78,000)
Payment of income tax …………………………………..
(19,000)
Net cash provided by operating activities ……….
$42,000
(15 min.) S 12-15
Phoenix Golf Club, Inc.
Statement of Cash Flows
Year ended September 30, 2014
Cash flows from operating activities:
Collections from customers …………………………...
$ 263,000
Payments to suppliers ……………………………………
(124,000)
Payments to employees …………………………………
(78,000)
Payment of income tax …………………………………..
(19,000)
Net cash provided by operating activities ………..
$42,000
Cash flows from investing activities:
Purchase of equipment …………………………………..
$(29,000)
Proceeds from sale of land ……………………………..
46,000
Net cash provided by investing activities ………..
17,000
Cash flows from financing activities:
Proceeds from issuance of common stock ………
$ 30,000
Payment of note payable ………………………………..
(36,000)
Payment of dividends …………………………………….
(12,000)
Purchase of treasury stock …………………………….
(5,400)
Net cash used for financing activities ……………..
(23,400)
Net increase in cash …………………………………………..
$35,600
Exercises
(10-15 min.) E 12-16A
I–
a.
Purchase of long-term
F–
k.
Payment of long-term debt
investment
O+
l.
Increase in salary payable
F+
b.
Issuance of long-term note
payable to borrow cash
I+
m.
Cash sale of land
O–
c.
Increase in prepaid
I+
n.
Sale of long-term
expenses
investment
O–
d.
Decrease in accrued
I–
o.
Acquisition of building by
liabilities
cash payment
O+
e.
Loss on the sale of
O+
p.
Net income
equipment
F+
q.
Issuance of common stock
O+
f.
Decrease in accounts
for cash
receivable
F–
r.
Payment of cash dividend
O+
g.
Depreciation of equipment
NIF
s.
Acquisition of equipment
O+
h.
Increase in accounts
by issuance of note
payable
payable
O+
i.
Amortization of intangible
assets
F–
j.
Purchase of treasury stock
(5-10 min.) E 12-17A
a.
Financing
h.
Investing
b.
Financing
i.
Financing
c.
Investing
j.
Financing
d.
Operating
k.
Operating
e.
Operating
l.
Operating
f.
Investing
m.
Noncash investing and
financing
g.
Investing
(10-15 min.) E 12-18A
Cash flows from operating activities:
Net income ……………………………………………….
$19,000
Adjustments to reconcile net income to
net cash used for operating activities:
Depreciation expense ………………………….
$ 7,000
Gain on sale of land …………………………….
(8,000)
Increase in current assets other
than cash ………………………………………….
(29,000)
Increase in current liabilities ………………..
6,000
(24,000)
Net cash used for operating activities ………..
$ (5,000)
Operating cash flow is weak, as shown by the negative net cash flows
(15-20 min.) E 12-19A
Cash flows from operating activities:
Net income ……………………………………………………
$17,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation expense ……………………………..
$ 17,000
Increase in accounts receivable ……………….
(3,000)
Increase in inventory ………………………………
(1,500)
Increase in accounts payable …………………..
62,000
Decrease in accrued liabilities …………………
(4,000)
70,500
Net cash provided (used) by operating
activities …………………………..…………………………...
$87,500
Lane Fur Traders does not have trouble collecting receivables or selling
(20-30 min.) E 12-20A
Req. 1
Tullis Travel Products, Inc.
Statement of Cash Flows
Year Ended December 31, 2014
Cash flows from operating activities:
Net income …………………………………………………..
$ 38,300
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation expense ………………………………
$ 28,000
Decrease in accounts receivable ………………
19,000
Increase in inventory ……………………………….
(10,000)
Increase in prepaid expenses …………………..
(500)
Increase in accounts payable ……………………
12,900
Increase in accrued liabilities ……………………
9,000
58,400
Net cash provided by operating activities ….
96,700
Cash flows from investing activities:
Acquisition of plant assets …………………………...
$(65,000)
Proceeds from sale of land …………………………...
17,000
Net cash used for investing activities………..
(48,000)
Cash flows from financing activities:
Proceeds from issuance of common stock …….
$ 46,000
Payment of long-term note payable ………………..
(17,000)
Payment of dividends ……………………………………
(8,000)
Net cash provided by financing activities ….
21,000
Net increase in cash …………………………………………
$ 69,700
Cash balance, December 31, 2013 …………………….
48,600
Cash balance, December 31, 2014 …………………….
$118,300
Noncash investing and financing activities:
Acquisition of plant assets by issuing note payable
$ 30,000