Solutions 15–44
15.12 a. continued.
Other Current Deferred
Liabilities Long-Term Debt Income Taxes
93 √ 1,678 √ 694 √
Common Stock Retained Earnings Treasury Stock
428 √ 1,648 √ √ 15
a. T-account work sheet for 2009.
Cash
√ 114
Operations
(6) 353 142 (1)
(7) 34 30 (8)
Investing
Financing
(5) 36 59 (2)
15–45 Solutions
Solutions 15–46
15.12 a. continued.
Accounts Receivable Inventories Prepayments
√ 829 √ 735 √ 54
159 (10) 164 (11) (12) 2
√ 670 √ 571 √ 56
Investments in Property, Plant and Accumulated
Affiliates Equipment Depreciation
Current Portion
Other Assets Accounts Payable Long-Term Debt
√ 465 1,178 √ 334 √
(13) 19 136 (14) (16) 334 158 (15)
√ 484 1,314 √ 158 √
Other Current Deferred
15–47 Solutions
15.12 continued.
b. IRISH PAPER COMPANY
Statement of Cash Flows
(Amounts in Millions)
2007 2008 2009
Operations:
Net Income (Loss) ……………………………. $ 376 $ 169 $ (142)
Depreciation Expense ………………………. 306 346 353
Loss (Gain) on Sale of Property, Plant
and Equipment …………………………….. (221) (19) 34
Equity in Undistributed Earnings of
Investing:
Sale of Property, Plant and Equip-
ment …………………………………………… $ 5 $ 21 $ 114
Acquisition of Property, Plant and
Equipment …………………………………… (775) (931) (315)
(Increase) Decrease in Investments
in Affiliates …………………………………… (92) 86 (13)
Solutions 15–48
Redemption of Common Stock War-
rants …………………………………………… (201) — —
Dividends ……………………………………….. (59) (59) (59)
15–49 Solutions
15.12 b. continued.
Supplementary Information
c. The pattern of cash flows for 2007 is typical of a growing, capital-intensive
firm. Cash flow from operations exceeds net income because of the
addback of depreciation expense. Book income before taxes exceeds
taxable income, resulting in a deferral of taxes payable. Accounts
receivable and inventories increased to support the growth, while
accounts payable increased to finance the increased inventories. Irish
made significant capital expenditures during the year for which it had to
rely in part on external debt financing.
Solutions 15–50
15.13 (Breda Enterprises, Inc.; preparing a statement of cash flows.)
BREDA ENTERPRISES, INC.
Statement of Cash Flows
For the Year Ended December 31, 2009
Operations:
Net Income (1) ……………………………………………….. $ 90,000
Adjustments for Noncash Transactions:
Decrease in Merchandise Inventory (3) ……………… 4,000
Increase in Accounts Payable (3) ……………………… 12,000
Loss on Sale of Equipment (4) ………………………….. 13,000
Depreciation Expense (4) ………………………………… 42,000
Investing:
Sale of Equipment (4) ……………………………………… $ 25,000
Sale of Marketable Securities (7) ………………………. 9,100
15–51 Solutions
15.14 (Gear Locker; interpreting the statement of cash flows.)
a. The rate of increase in net income suggests that Gear Locker grew rapidly
b. During 2007, Gear Locker sold marketable securities and borrowed short
term to finance the negative cash flow from operations. Accounts
receivable and inventories convert into cash within one year, so short-term
financing is appropriate. Selling marketable securities to help finance
these working capital investments suggests that the revenue from these
c. Gear Locker is growing rapidly, so that new capacity additions exceed
d. Gear Locker is not capital intensive. The firm uses independent
e. Gear Locker has few fixed assets that might serve as collateral for such
Solutions 15–52
15.15 (Canned Soup Company; interpreting the statement of cash flows.) (Based on
financial statements of Campbell Soup Company.)
a. Canned uses suppliers and other creditors to finance its working capital
needs. Consumer foods is a mature industry in the United States, so
b. (1) Capital expenditures have declined slightly each year, suggesting little
(2) Depreciation expense is a growing percentage of acquisitions of
(3) Substantial trading in marketable securities each year. Mature,
(4) Acquisition of another business in Year 8. Firms in mature industries
by selling marketable securities.
c. (1) Increases in long-term debt approximately equal repayments of long-
(3) Dividends have grown in line with increases in net income and
15.16 (Prime Contracting Services; interpreting the statement of cash flows.)
a. The firm reduced expenditures on fixed assets beginning in 2007. It sold
15–53 Solutions
b. Net income declined between 2006 and 2008 as the firm attempted to
build its new people-based service business. It collected accounts
Solutions 15–54
15.16 b. continued.
c. The people-based service business began to grow, leading to increasing
net income. The firm also sold off fixed assets at a gain, increasing net
d. Net income has increased and long-term borrowing has decreased,
15.17 (Cypress Corporation; interpreting the statement of cash flows.)
a. Although net income increased between 2011 and 2013, the firm
b. The principal factors causing cash flow from operations to increase in
2014 is an increase in net income. Inventories decreased and the firm
c. The firm has repaid both short– and long-term debt, likely reducing its debt
15–55 Solutions
Solutions 15–56
5.18 (Deriving cash flows from financial statement data; comprehensive review,
including other comprehensive income.)
Cash Flow from Operations ……………. $ 181,500 [9] Plug $181,500
Investing/Disinvesting:
Purchase of Securities Available
for Sale ………………………………… (9,000) [8]
B&E Sold
Financing:
Increase (Decrease) in Long-Term
Debt …………………………………….. (2,000) [3]
Increase (Decrease) in Common
Depreciation Charge ……………………… $ 54,000
Less Increase in Accumulated
Depreciation ……………………………… (44,000)
Accumulated Depreciation on Asset
15–57 Solutions
a. $53,000; see above.
Solutions 15–58
15.18 continued.
e. $900 = $1,600 [Inc St] – ($13,700 [EB] – $13,000 [BB]).
f. $11,000 = $1,100 [Min Int Inc St]/.10($1.00 – Ownership %].
j. $105,800 = $141,000 – ($236,000 – $200,000) [Income less increase in
Retained Earnings].
n. $1,356,000 = $1,500,000 – ($154,000 – $143,000) + ($6,000 – $14,000) –
$125,000 = Sales less increase in Accounts Receivable, net plus
increase in Advance from Customers less Bad Debt Expense.
q. LIFO [see balance sheet subtraction for adjustment from FIFO to LIFO].
15–59 Solutions
Solutions 15–60
15.18 continued.
s. $58,000 [EB of Allowance].
t. [e], but holding gains on inventory will become part of net income when