Copyright © 2015 Pearson Education, Inc.
13–22
(20-30 min.) P13-32A
Hoover Industries, Inc.
Statement of Cash Flows – Indirect Method
For the year ended December 31, 2014
Cash flows from operating activities:
Net Income
$161,770
Adjustments to reconcile net income to cash basis:
Depreciation expense
$ 48,900
Gain on sale of plant asset
(3,000)
Decrease in Accounts Receivable
50,000
Increase in Inventory
(120,000)
Increase in Prepaid Insurance
(2,000)
Increase in Accounts Payable
17,000
Decrease in Salaries Payable
(1,100)
Increase in Interest payable
1,300
Increase in Taxes payable
50,830
Increase in Other Accrued Operating Expenses
2,900
Total reconciling adjustments
44,830
Net cash flow provided (used) by operating activities
206,600
Cash flows from investing activities:
Proceeds from sale of plant equipment
4,500
Purchase of new equipment
(30,400)
Purchase of new investments
(10,000)
Net cash provided (used) by investing activities
(35,900)
Cash flows from financing activities:
Dividends paid
(18,700)
Repayment of long-term debt
(5,000)
Proceeds from bond issuance
41,000
Net cash provided (used) by financing activities
17,300
Net increase (decrease) in cash
188,000
Cash, beginning of the year
285,000
Cash, ending of the year
$473,000
Copyright © 2015 Pearson Education, Inc.
13–27
(20-30 min.) P13-36B
Griffin Industries, Inc.
Statement of Cash Flows – Indirect Method
For the year ended December 31, 2014
Cash flows from operating activities:
Net Income
$169,960
Adjustments to reconcile net income to cash basis:
Depreciation expense
$ 47,000
Gain on sale of plant asset
(3,000)
Decrease in Accounts Receivable
54,000
Increase in Inventory
(122,000)
Increase in Prepaid Insurance
(1,500)
Increase in Accounts Payable
20,000
Decrease in Salaries Payable
(1,400)
Increase in Interest payable
600
Increase in Taxes Payable
54,340
Increase in Other Accrued Operating Expenses
2,400
50,440
Net cash provided (used) by operating activities
220,400
Cash flows from investing activities:
Proceeds from sale of plant equipment
4,500
Purchase of new equipment
(40,500)
Purchase of new investments
(18,000)
Net cash provided (used) by investing activities
(54,000)
Cash flows from financing activities:
Dividends paid
(19,400)
Repayment of long-term bonds
(5,500)
Proceeds from bond issuance
39,500
Net cash provided (used) by financing activities
14,600
Net increase (decrease) in cash
181,000
Cash, beginning of the year
290,000
Cash, end of the year
$471,000
Managerial Accounting 4e Solutions Manual
Discussion & Analysis
A13-40
1. How do managers use the statement of cash flows by managers?
2. Describe at least four needs for cash within a business.
Employees expect payment of their salaries and wages.
3. Define an “operating activity.” List two examples of an operating activity on the statement of cash flows that
would increase cash. List two examples of an operating activity that would decrease cash.
4. Define an “investing activity.” List two examples of an investing activity on the statement of cash flows that
would increase cash. List two examples of an investing activity that would decrease cash.
5. Define a “financing activity.” List two examples of a financing activity on the statement of cash flows that would
increase cash. List two examples of a financing activity that would decrease cash.
6. Define a “noncash investing or financing” activity. Describe an activity that would need to be disclosed as a
noncash investing or financing activity.
Managerial Accounting 4e Solutions Manual
Application & Analysis
A13-41
Note: These answers are SAMPLE answers only – student answers can and will vary widely. This case is intended for
1. Which method is used to calculate the cash provided or used by operations?
2. What items increased cash provided by operations?
3. What items decreased cash provided by operations?
4. Overall, was cash increased or decreased by operating activities?
5. Did investing activities in total increase cash or decrease cash during the year? What were the major uses or
sources of cash related to investing?
6. Did financing activities in total increase cash or decrease cash during the year? What were the major uses or
sources of cash related to financing?
7. What items (if any) are disclosed as significant noncash financing or investing activities? Now that you have
looked at each company’s cash flow statements individually, compare the two companies. What can you tell
about each company from its statement of cash flows? Can you tell if one company is stronger than the other
Copyright © 2015 Pearson Education, Inc.
13–35
A13-42
1.
a. The ethical issues in this situation are:
Competence: “Maintain an appropriate level of professional expertise by continually developing knowledge
A13-43
2. Which section of the statement contains changes in Apple’s long-term assets?
The Investing activities are where the changes in long-term assets will be found.
4. Is Apple spending money to expand its business by purchasing additional fixed assets?
No, Apple is not spending money to expand its business by purchasing additional fixed assets.
6. Has Apple increased or decreased its dividend payments over the last three years?
Managerial Accounting 4e Solutions Manual
Decision Case
(15-25 min.) A13-44
Meredith Enterprises looks like the better investment at the present time for the following reasons:
1. Cash from operating activities is higher for Meredith Enterprises than for the other two companies. Baxter Corp.
3. Rollyson, Inc., appears to be in a growth mode. It used cash from operations to purchase plant or equipment. It
4. Meredith Enterprises used cash from operating activities to purchase plant and equipment and to purchase an
investment in stock. It also paid out dividends and repaid some long-term debt.