Challenge Exercises and Problem
(20-30 min.) E 12-76
(All amounts in thousands)
Decrease in
Sales
+
Accounts Receivable
Collections
=
$25,133
=
$25,118
+
($612 − $597)
Cost
Increase in
Increase in
− Accounts
Payments for
of sales
+
Inventory
Payable
inventory
=
$18,248
=
$18,162
+
$267*
−
$181**
*$3,100 − $2,833 = $267
**$1,549 − $1,368 = $181
Other Operating
Increase in
Payments for
Expenses
− Accrued Liabilities
other
operating
=
$3,582
=
$3,885
− ($939 − $636)
expenses
Increase in
Payment of
Tax Expense −
Income Tax Payable
income tax
=
$529
=
$537 −
($198 − $190)
Proceeds from
Beg. Common
End. Common
issuance of
Stock
+
Issuance
= Stock
stock
=
$75
=
$443
+
X
= $518
X
= $75
Beg. Ret.
Net
End. Ret.
Payment of
Earnings
+
Income
− Dividends
= Earnings
dividends
=
$1,675
$3,783
+
$2,266
− X
= $4,374
X
= $1,675
(20 min.) E 12-77
a.
(All in thousands)
Loss on sale of
Book value of
assets sold
Proceeds from
sale of assets
property and
=
−
equipment
$485
=
$1,305
−
$820
Property & Equipment, Net
Bal., 12/31/13
9,640
Capital
Depreciation exp.
1,910
expenditures
4,175
Book value of
property and
equipment sold
X
=1,305
Bal., 12/31/14
10,600
b.
Long-Term Notes Payable
Bal., 12/31/13
3,000
Repayment
140
Proceeds from
Issuance
1,220
LT debt issued
for something
other than cash
X
= 320
Bal. 12/31/14
4,400
P 12–78
Assets:
December
31, 2013
December
31, 2014
Cash and cash
equivalents
$11,000
$63,000
Given
Accounts receivable
(net)
92,000
82,000
($92,000 – $10,000)
Inventory
103,000
110,000
($103,000 + $7,000)
Prepaid expenses
6,000
5,000
($6,000 – $1,000)
Land
69,000
64,000
[$69,000 – ($11,000 –
$6,000)]
Machinery and
equipment (net)
59,000
44,000
[59,000 + $25,000 –
($9,000 + $15,000) –
$16,000]
Total assets
$340,000
$368,000
Liabilities:
Accounts payable
$66,000
$78,000
($66,000+ $12,000)
Unearned revenue
1,000
2,500
($1,000 + $1,500)
Dividends payable
-0-
2,000
($7,000 – $5,000)
Income taxes payable
4,000
1,500
($4,000 – $2,500)
Long-term debt
75,000
59,000
($75,000 – $16,000)
Total liabilities
146,000
143,000
Stockholders’ equity:
Common stock, no par
26,000
46,000
($26,000 + $20,000)
Retained earnings
168,000
179,000
($168,000 + $18,000 –
$7,000)
Total stockholders’ equity
194,000
225,000
Total liabilities and
stockholders’ equity
$340,000
$368,000
Decision Cases
(45-60 min.) Decision Case 1
Req. 1 (indirect method for operating activities)
T-Bar-M Camp, Inc.
Statement of Cash Flows
Year Ended December 31, 2014
Cash flows from operating activities:
(Thousands)
Net income …………………………………………………………..
$ 97
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation expense ……………………………………..
$ 46
Amortization of patents …………………………………..
11
Increase in accounts receivable ($72 − $61) ……..
(11)
Increase in inventories ($194 − $181) ……………….
(13)
Increase in accounts payable ($63 − $56) …………
7
Decrease in accrued liabilities ($17 − $12) ………..
(5)
35
Net cash provided by operating activities ……………
132
Cash flows from investing activities:
Purchase of property, plant, and
equipment ($369 − $259) …………………………………….
$(110)
Purchase of long-term investments ($31 − $0) ………..
(31)
Net cash used for investing activities ………………….
(141)
Cash flows from financing activities:
Issuance of common stock ($149 − $61) …………………
$ 88
Payment of cash dividends ($156 + $97 − $213) ………
(40)
Payment of long-term notes payable ($264 − $179) …
(85)
Net cash used for financing activities ………………….
(37)
Net (decrease) in cash ……………………………………………..
$ (46)
Cash balance, December 31, 2013 …………………………....
63
Cash balance, December 31, 2014 …………………………….
$ 17
(continued) Decision Case 1
Req. 2
The cash balance at the end of 2014 is low because:
• The camp paid $110,000 to buy new property, plant, and
equipment.
Req. 3
Year 2014 was a good year. Net income was $97,000, and operations
(15-25 min.) Decision Case 2
Four-Star Catering looks like the better investment because:
1. Operations provide far more cash for Four-Star than for Applied
Technology. Operations should be the main source of cash for a
healthy company.
Ethical Issue
Req. 1
Cash flows from operating
activities:
Without
Reclassification
With
Reclassification
Net income ……………………….
$ 37,000
$37,000
Increase in accounts
receivable ………………………..
(80,000)
—
Net cash (used for) provided
by operating activities …………..
$(43,000)
$37,000
Columbia looks better with the reclassification because net
cash flow from operations is positive.
(continued) Ethical case
Legal analysis: To reclassify receivables when, in fact, they are not truly
collectible, even in the long run, might leave the company open later to a
lawsuit for damages suffered by creditors who loan Columbia money
based on false information.
Focus on Financials: Amazon.com, Inc.
(40-50 min.)
Req. 1
Amazon.com uses the indirect method to report operating cash flows.
You can tell because the statement begins with net income.
Req. 2 (Amounts in millions)
a. Note 1 provides the balance of Allowance for Doubtful accounts
Gross Accounts Receivable, Vendors and Customers
Beg. Bal. ($2,571 + $82)
2,653
Sales (income statement)
61,093
Write-offs (see below)
271
Collections ($2,653 +
$61,093 – $3,480 – $271)
59,995
End. Bal. ($3,364 + $116)
3,480
Allowance for Doubtful Accounts
Beg. Bal.
82
Write-offs ($82 + $305 –
Doubtful accounts expense
$116)
271
($61,093 x .005)
305
End. Bal.
116
(continued) Amazon.com
b. Using the format provided in Exhibit 12-15: (Amounts in millions)
Payments for
Cost of
+
Increase in
−
Increase in
inventory
sales
Inventory
Accounts Payable
$44,837
$45,971
+
$1,039
−
$2,173
($6,031 − $4,992)
($13,318 – $11,145)
c. (Amounts in millions) From Note 3 and the Statement of Cash
Flows:
Gross Property and Equipment
Beg. Bal.
5,786
(a) Acquired under capital leases
802
(d) Retirement of
(a) Acquired under build-to-suit
29
fixed assets
820
leases
(b) Capital spending (investing
section, SCF)
3,785
End. Bal.
9,582
Accumulated Depreciation
Beg. Bal. (Note 3)
1,369
(d) Retirement of fixed assets
547
(c) Depreciation exp. (Note 3)
1,700
End. Bal.
2,522
(continued) Amazon.com
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
(a)
Leased Property and Equipment ………………
802
Built-to-suit Leases – Property & Eq. ………..
29
Long-term Debt ……………………………………
831
(b)
Property and Equipment ………………………….
3,785
Cash …………………………………………………..
3,785
(c)
Depreciation Expense ………………………………
1,700
Accumulated Depreciation …………………..
1,700
(d)
Accumulated Depreciation ……………………….
547
Loss on Retirement ………………………………….
273
Property and Equipment ………………………
820
The loss on retirement of fixed assets equals the remaining net book
value of the fixed asset retired. This loss would be reported in the
income statement as part of other income (expense).
d. In 2012, for Amazon.com, Inc.,
Focus on Analysis: YUM! Brands, Inc.
(20-30 min.)
(All amounts are in millions)
Req. 1
The main source of cash is operating activities ($2,294 million). This
indicates that YUM! Brands, Inc.’s basic operations are generating
Req. 2
The three most significant differences between net income and net cash
provided by operations are:
(continued) YUM! Brands
Req. 3
In 2012, YUM! Brands’ additions to property, plant, and equipment were
more than previous years’ additions. This is evident in the investing
Req. 4
The largest two items in YUM! Brands’ financing section of their
consolidated statement of cash flows are purchases of treasury stock
Req. 5
(continued) YUM! Brands
support the business and repayment of debt without borrowing any new
debt in 2012. However, we note a decrease in cash and cash equivalents
Group Projects
(2-3 hours)