Continuing Problem
P14-47 Preparing the statement of cash flows—indirect method
This problem continues the Canyon Canoe Company situation from Chapter 13. Canyon Canoe
Company’s comparative balance sheet is shown below. 2019 amounts are assumed, but include several
transactions from prior chapters.
Additional data follow:
P14-47, cont.
1. The income statement for 2019 included the following items:
a. Net income, $417,000.
b. Depreciation expense for the year, $34,330.
c. Amortization on the bonds payable, $254.
2. There were no disposals of property, plant and equipment during the year. All acquisitions of PP&E
were for cash except the land, which was acquired by issuing preferred stock.
3. The company issued bonds payable with a face value of $210,000, receiving cash of $208,476.
4. The company distributed 4,000 shares of common stock in a stock dividend when the market value
was $4.50 per share. All other dividends were paid in cash.
5. The common stock, except for the stock dividend, was issued for cash.
6. The cash receipt from the notes payable in 2019 is considered a financing activity because it does not
relate to operations.
Requirement
Prepare the statement of cash flows for the year ended December 31, 2019, using the indirect method.
P14-47, cont.
SOLUTION
Critical Thinking
Tying It All Together Case 14-1
Amazon.com, Inc. serves its customers through its retail Web sites, selling millions of unique products.
In addition, the company manufactures and sells electronic devices including Kindle e-readers and Fire
tablets. Amazon.com also offers Amazon Prime, a membership program that includes unlimited free
shipping on items and access to unlimited streaming of movies and TV episodes.
Requirements
1. Review Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of
Operations) included in the 2015 Annual Report. What does Amazon.com, Inc. state is the
company’s financial focus? What are free cash flows and how does Amazon.com plan to increase
its free cash flows?
2. Review the statement of cash flows for Amazon.com, Inc. What type of noncash adjustments to
net income did Amazon.com report in 2015?
3. Review the 2015 statement of cash flows for Amazon.com, Inc. What was the net cash provided
(used) for investing activities? What were the cash inflows and outflows related to this section?
4. Review the 2015 statement of cash flows for Amazon.com, Inc. What was the net cash provided
(used) for financing activities? What were the cash inflows and outflows related to this section?
SOLUTION
Requirement 1
Decision Case 14-1
Theater by Design and Show Cinemas are asking you to recommend their stock to your clients. Because
Theater by Design and Show Cinemas earn about the same net income and have similar financial
positions, your decision depends on their statement of cash flows, summarized as follows:
Theater by Design Show Cinemas
Net Cash Provided by Operating Activities $ 30,000 $ 70,000
Cash Provided by (Used for) Investing
Activities:
Purchase of Plant Assets $ (20,000) $ (100,000)
Sale of Plant Assets 40,000 20,000 10,000 (90,000)
Cash Provided by (Used for) Financing
Activities:
Issuance of Common Stock 0 30,000
Payment of Long-term Debt (40,000) 0
Net Increase (Decrease) in Cash $ 10,000 $ 10,000
Based on their cash flows, which company looks better? Give your reasons.
SOLUTION
Ethical Issue 14-1
Moss Exports is having a bad year. Net income is only $60,000. Also, two important overseas customers
are falling behind in their payments to Moss, and Moss’s accounts receivable are ballooning. The
company desperately needs a loan. The Moss Exports Board of Directors is considering ways to put the
best face on the company’s financial statements. Moss’s bank closely examines cash flow from
operating activities. Daniel Peavey, Moss’s controller, suggests reclassifying the receivables from the
slow-paying clients as long-term. He explains to the board that removing the $80,000 increase in
accounts receivable from current assets will increase net cash provided by operations. This approach
may help Moss get the loan.
Requirements
1. Using only the amounts given, compute net cash provided by operations, both without and with the
reclassification of the receivables. Which reporting makes Moss look better?
2. Under what condition would the reclassification of the receivables be ethical? Unethical?
SOLUTION
Financial Statement Case 14-1
Details about a company’s cash flows appear in a number of places in the annual report. Use Target
Corporation’s Fiscal 2015 Annual Report to answer the following questions. Visit
Requirements
1. Which method does Target use to report net cash flows from operating activities? How can you tell?
2. Target earned net income during 2015. Did operations provide cash or use cash during 2015? Give
the amount. How did net cash provided by (used for) operations during 2015 compare with net
income in 2015?
3. For the year ended January 30, 2016 (fiscal year 2015), did Target pay cash dividends? If so, how
much?
4. For the year ended January 30, 2016, did Target use cash to purchase property, plant, and equipment?
If so, how much?
SOLUTION
Requirement 1