© 2013 Cengage
Lea
rning. All rights reserved. No distribution allowed without express
authorization.
authorization.
Net income declined in 2014 relative to 2013 but cash flow
from operations increased. The increase occurred because
Airlines Corporation received increased cash advances from
customers and stretched its other current liabilities. Cash flow
Solutions16-34
16.12 (Irish Paper Company; preparing and interpreting the statement of
cash flows.) (amounts in millions of US$)
a. T-account work sheet for 2012.
C
a
s h
√374
O
p
e
r
a
t
i
o n
s
I
n
v
es
t
i
n
g
Fi
n
a
ncin
g
© 2013 Cengage
Lea
rning. All rights reserved. No distribution allowed without express
authorization.
16-35Solutions
16.12 a. continued.
A
c c
o
u n
t
s
R
e c e i
v
a
b
l
e
_
I
n
v
e
n
t
o r i
es
P
r
e p
a y
m
e
n
t
s
Investments in Property, Plant, and Accumulated
Af
ili
a
t
e
s
Eq
u
i
p
m
en
t
D
ep
r
e
ci
a
t
i
on
Current
P
o
r
t
ion
O
t
h
e
r
A
ss
e
t
s
A
cc
o
u n
t
s P
ay
a
b
l
e
L
o
n
g
–
T
e
r
m
Other Current Deferred
L i
ab
i
l
i
t
i
e
s
L
o
n
g
–
T
e
r
m
D
e
b
t
I
n c
o
m
e
T
a
x
es
C
o
m
m
on S
t
o c k
R
e
t
a
i
n
ed
E
a
r n
i n
g
s
T r
e
a
s u r
y
S
t
o c k
© 2013 Cengage
Lea
rning. All rights reserved. No distribution allowed without express
authorization.
Solutions16-36
16.12 a. continued.
a. T-account work sheet for 2013.
C
a
s h
√49
O
p
e
r
a
t
i
o n
s
I
n
v
es
t
i
n
g
F i
n
a
n c i n
g
1OK to classify this as (Dis)investing source of cash.
A
cc
o
u n
t
s
R
e c e i
va
b
l
e
I
n
v
e
n
t
o r i
es
P r
e
p
a
y
m
e n
t
s
Investments in Property, Plant, and Accumulated
Af
ili
a
t
e
s
Eq
u
i
p
m
en
t
D
ep
r
e
ci
a
t
i
on
√375 √5,969 2,392 √
© 2013 Cengage
Lea
rning. All rights reserved. No distribution allowed without express
authorization.
16-37 Solutions
16.12 a. continued.
Current
P
o
r
t
ion
O
t
h
e
r
A
ss
e
t
s
A
cc
o
u n
t
s P
ay
a
b
l
e
L
o
n
g
–
T
e
r
m
D
e
b
t
Other Current Deferred
L i
ab
i
l
i
t
i
e
s
L
o
n
g
–
T
e
r
m
D
e
b
t
I
n c
o
m
e
T
a
x
es
C
o
m
m
on S
t
o c k
R
e
t
a
i
n
ed
E
a
r n
i n
g
s
T r
e
a
s u r
y
S
t
o c k
Solutions16-38
16.12 a. continued.
a. T-account work sheet for 2014.
C
a
s h
√114
O
p
e
r
a
t
i
o n
s
I
n
v
es
t
i
n
g
F i
n
a
n c i n
g
A
cc
o
u n
t
s
R
e c e i
va
b
l
e
I
n
v
e
n
t
o r i
es
P r
e
p
a
y
m
e n
t
s
Investments in Property, Plant, and Accumulated
Af
ili
a
t
e
s
Eq
u
i
p
m
en
t
D
ep
r
e
ci
a
t
i
on
16-39Solutions
16.12 a. continued.
Current
P
o
r
t
ion
O
t
h
e
r
A
ss
e
t
s
A
cc
o
u n
t
s P
ay
a
b
l
e
L
o
n
g
–
T
e
r
m
D
e
b
t
Other Current Deferred
L i
ab
i
l
i
t
i
e
s
L
o
n
g
–
T
e
r
m
D
e
b
t
I
n c
o
m
e
T
a
x
es
C
o
m
m
on S
t
o c k
R
e
t
a
i
n
ed
E
a
r n
i n
g
s
T r
e
a
s u r
y
S
t
o c k
Solutions16-40
16.12 continued.
b. IRISH PAPER COMPANY
Statement of Cash
Flows
(amounts in millions of US$)
Operations
:
2012 2013 2014
Net Income (
Loss
) ……………………………. $ 376 $ 169 $
(142) Depreciation Expe
ns
e ………………………. 306 346
353
Loss (Gain) on Sale of Property, Plant,
Supplementary
Information
During 2013, Irish Paper Company assumed a mortgage
payable of
c. The pattern of cash flows for 2012 is typical of a growing,
capital- intensive firm. Cash flow from operations exceeds net
income because of the addback of depreciation expense. Book
The pattern of cash flows for 2013 is similar to that for 2012,
again
typical of a growing firm. In this case, however, cash flow from
operations declines relative to 2012 because of reduced net
The pattern of cash flows for 2014 is typical of a firm that
stopped growing. Sales and net income declined, the result of
Solutions16-42
16.13 (Breda Enterprises, Inc.; preparing a statement of cash flows.)
(amounts
in
US$)
BREDA ENTERPRISES,
I
N
C.
Statement of Cash
Fl
o
ws
For the Year Ended December 31,
2014
Operations:
Adjustments for Non-cash Transactions:
Decrease in Merchandise Inventory (3) …………….
16-43Solutions
16.14 (Gear Locker; interpreting the statement of cash flows.)
a. The rate of increase in net income suggests that Gear Locker
b. During 2012, 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.
c. Gear Locker is growing rapidly, so that new capacity additions
d. Gear Locker is not capital intensive. The firm uses independent
e. Gear Locker has few fixed assets that might serve as collateral
Solutions16-44
16.15 (Canned Soup Company; interpreting the statement of cash flows.)
a. Canned uses suppliers and other creditors to finance its
b. (1) Capital expenditures have declined slightly each year,
(2) Depreciation expense is a growing percentage of
(3) Canned trades a substantial amount of marketable
(4) Canned acquired another business in 2013. Firms in mature
c. (1) Increases in long-term debt approximately equal
(2) Canned repurchased a portion of its common stock with
(3) Dividends have grown in line with increases in net income
16.16 (Prime Contracting Services; interpreting the statement of cash
flows.)
a. The firm reduced expenditures on fixed assets beginning in
16.16 continued.
b. Net income declined between 2006 and 2013 as the firm
c. The people-based service business began to grow, leading to
increasing net income. The firm also sold off fixed assets at a
d. Net income has increased and long-term borrowing has
authorization.
Net income declined in 2014 relative to 2013 but cash flow
from operations increased. The increase occurred because
Airlines Corporation received increased cash advances from
customers and stretched its other current liabilities. Cash flow
Solutions16-34
16.12 (Irish Paper Company; preparing and interpreting the statement of
cash flows.) (amounts in millions of US$)
a. T-account work sheet for 2012.
C
a
s h
√374
O
p
e
r
a
t
i
o n
s
I
n
v
es
t
i
n
g
Fi
n
a
ncin
g
© 2013 Cengage
Lea
rning. All rights reserved. No distribution allowed without express
authorization.
16-35Solutions
16.12 a. continued.
A
c c
o
u n
t
s
R
e c e i
v
a
b
l
e
_
I
n
v
e
n
t
o r i
es
P
r
e p
a y
m
e
n
t
s
Investments in Property, Plant, and Accumulated
Af
ili
a
t
e
s
Eq
u
i
p
m
en
t
D
ep
r
e
ci
a
t
i
on
Current
P
o
r
t
ion
O
t
h
e
r
A
ss
e
t
s
A
cc
o
u n
t
s P
ay
a
b
l
e
L
o
n
g
–
T
e
r
m
Other Current Deferred
L i
ab
i
l
i
t
i
e
s
L
o
n
g
–
T
e
r
m
D
e
b
t
I
n c
o
m
e
T
a
x
es
C
o
m
m
on S
t
o c k
R
e
t
a
i
n
ed
E
a
r n
i n
g
s
T r
e
a
s u r
y
S
t
o c k
© 2013 Cengage
Lea
rning. All rights reserved. No distribution allowed without express
authorization.
Solutions16-36
16.12 a. continued.
a. T-account work sheet for 2013.
C
a
s h
√49
O
p
e
r
a
t
i
o n
s
I
n
v
es
t
i
n
g
F i
n
a
n c i n
g
1OK to classify this as (Dis)investing source of cash.
A
cc
o
u n
t
s
R
e c e i
va
b
l
e
I
n
v
e
n
t
o r i
es
P r
e
p
a
y
m
e n
t
s
Investments in Property, Plant, and Accumulated
Af
ili
a
t
e
s
Eq
u
i
p
m
en
t
D
ep
r
e
ci
a
t
i
on
√375 √5,969 2,392 √
© 2013 Cengage
Lea
rning. All rights reserved. No distribution allowed without express
authorization.
16-37 Solutions
16.12 a. continued.
Current
P
o
r
t
ion
O
t
h
e
r
A
ss
e
t
s
A
cc
o
u n
t
s P
ay
a
b
l
e
L
o
n
g
–
T
e
r
m
D
e
b
t
Other Current Deferred
L i
ab
i
l
i
t
i
e
s
L
o
n
g
–
T
e
r
m
D
e
b
t
I
n c
o
m
e
T
a
x
es
C
o
m
m
on S
t
o c k
R
e
t
a
i
n
ed
E
a
r n
i n
g
s
T r
e
a
s u r
y
S
t
o c k
Solutions16-38
16.12 a. continued.
a. T-account work sheet for 2014.
C
a
s h
√114
O
p
e
r
a
t
i
o n
s
I
n
v
es
t
i
n
g
F i
n
a
n c i n
g
A
cc
o
u n
t
s
R
e c e i
va
b
l
e
I
n
v
e
n
t
o r i
es
P r
e
p
a
y
m
e n
t
s
Investments in Property, Plant, and Accumulated
Af
ili
a
t
e
s
Eq
u
i
p
m
en
t
D
ep
r
e
ci
a
t
i
on
16-39Solutions
16.12 a. continued.
Current
P
o
r
t
ion
O
t
h
e
r
A
ss
e
t
s
A
cc
o
u n
t
s P
ay
a
b
l
e
L
o
n
g
–
T
e
r
m
D
e
b
t
Other Current Deferred
L i
ab
i
l
i
t
i
e
s
L
o
n
g
–
T
e
r
m
D
e
b
t
I
n c
o
m
e
T
a
x
es
C
o
m
m
on S
t
o c k
R
e
t
a
i
n
ed
E
a
r n
i n
g
s
T r
e
a
s u r
y
S
t
o c k
Solutions16-40
16.12 continued.
b. IRISH PAPER COMPANY
Statement of Cash
Flows
(amounts in millions of US$)
Operations
:
2012 2013 2014
Net Income (
Loss
) ……………………………. $ 376 $ 169 $
(142) Depreciation Expe
ns
e ………………………. 306 346
353
Loss (Gain) on Sale of Property, Plant,
Supplementary
Information
During 2013, Irish Paper Company assumed a mortgage
payable of
c. The pattern of cash flows for 2012 is typical of a growing,
capital- intensive firm. Cash flow from operations exceeds net
income because of the addback of depreciation expense. Book
The pattern of cash flows for 2013 is similar to that for 2012,
again
typical of a growing firm. In this case, however, cash flow from
operations declines relative to 2012 because of reduced net
The pattern of cash flows for 2014 is typical of a firm that
stopped growing. Sales and net income declined, the result of
Solutions16-42
16.13 (Breda Enterprises, Inc.; preparing a statement of cash flows.)
(amounts
in
US$)
BREDA ENTERPRISES,
I
N
C.
Statement of Cash
Fl
o
ws
For the Year Ended December 31,
2014
Operations:
Adjustments for Non-cash Transactions:
Decrease in Merchandise Inventory (3) …………….
16-43Solutions
16.14 (Gear Locker; interpreting the statement of cash flows.)
a. The rate of increase in net income suggests that Gear Locker
b. During 2012, 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.
c. Gear Locker is growing rapidly, so that new capacity additions
d. Gear Locker is not capital intensive. The firm uses independent
e. Gear Locker has few fixed assets that might serve as collateral
Solutions16-44
16.15 (Canned Soup Company; interpreting the statement of cash flows.)
a. Canned uses suppliers and other creditors to finance its
b. (1) Capital expenditures have declined slightly each year,
(2) Depreciation expense is a growing percentage of
(3) Canned trades a substantial amount of marketable
(4) Canned acquired another business in 2013. Firms in mature
c. (1) Increases in long-term debt approximately equal
(2) Canned repurchased a portion of its common stock with
(3) Dividends have grown in line with increases in net income
16.16 (Prime Contracting Services; interpreting the statement of cash
flows.)
a. The firm reduced expenditures on fixed assets beginning in
16.16 continued.
b. Net income declined between 2006 and 2013 as the firm
c. The people-based service business began to grow, leading to
increasing net income. The firm also sold off fixed assets at a
d. Net income has increased and long-term borrowing has