Chapter 13 – Statement of Cash Flows
13-1
Statement of Cash Flows
Learning Objectives
1. Categorize cash activities as operating, investing, or financing. (Unit 13.1)
2. Calculate cash flows provided (used) by operating activities using the indirect method. (Unit 13.2)
3. Calculate cash flows provided (used) by investing activities. (Unit 13.3)
4. Calculate cash flows provided (used) by financing activities. (Unit 13.3)
5. Construct a statement of cash flows. (Unit 13.4)
6. Analyze a statement of cash flows. (Unit 13.4)
7. Calculate cash flows provided by operating activities using the direct method. (Appendix)
Summary of End of Chapter Material
Difficulty: E = Easy, M = Moderate, D = Difficult
Bloom: K = Knowledge, C = Comprehension, AP = Application, AN = Analysis, S = Synthesis, E = Evaluation
AACSB: A = Analytic, C = Communication, E = Ethics
AICPA FN: DM = Decision modeling, RA = Risk Analysis, M = Measurement, R = Reporting, RS = Research, T = Technology
AICPA PC: C = Communication, I = Interaction, L = Leadership, P = Professional demeanor, PM = Project Management,
PS = Problem Solving and Decision Making, T = Technology
IMA: BA = Business applications, BP = Budget Preparation, CM = Cost Management, DA = Decision Analysis,
ID = Investment Decisions, PM = Performance Measurement, R = Reporting, SP = Strategic Planning
Item
L. O.
Difficulty
Level
Minutes to
Complete
Bloom’s
Taxonomy
AACSB
AICPA
PC
IMA
Ethics
Coverage
GUIDED UNIT PREPARATION
Unit 13.1
1
1
E
2
K
C
C
R
2
1
E
2
K
C
C
R
3
1
M
3
K,C
C
C
R
4
1
M
3
K,C
C
C
R
5
1
M
3
K,C
C
C
R
Unit 13.2
1
2
E
2
K
C
C
R
2
2
D
5
C
A
PS
R
3
2
D
5
C
A
PS
R
Unit 13.3
1
3
M
2
K
C
C
R
2
3
D
3
C
A
PS
R
3
4
M
2
K
C
C
R
Unit 13.4
1
5
M
3
C
A
PS
R
2
6
D
3
C
A
C
R
3
6
D
3
C
A
C
R
Appendix
1
7
E
3
K
C
C
R
2
7
M
4
C
A
PS
R
CHAPTER
13
photo: © jsnyderdesign / iStockphoto
Solutions for Davis & Davis, Managerial Accounting, 2nd ed.
13-2
Item
L. O.
Difficulty
Level
Minutes to
Complete
Bloom’s
Taxonomy
AACSB
AICPA
PC
IMA
Ethics
Coverage
EXERCISES
13-1
1
M
10
C
A
C
R
13-2
1
M
10
C
A
C
R
13-3
1
D
12–15
C
A
C
R
13-4
2
E
10–15
AP
A
PS
R
13-5
2
M
10–15
AP
A
PS
R
13-6
2
D
8-10
AN, C
A
PS
R
13-7
3
E
10
AP
A
PS
R
13-8
3
M
10
AP
A
PS
R
13-9
4
M
10
AP
A
PS
R
13–10
4
D
10
AP
A
PS
R
13–11
5
M
15–20
AP
A
PS
R
13–12
5
D
15–20
AP
A
PS
R
13–13
6
D
10
AN
A
PS
R
13–14
6
D
10–15
AN, E
A
PS
R
13–15
6
D
15
AN, E
A
PS
R
13–16
7
E
5-7
AP
A
PS
R
13–17
7
E
5-7
AP
A
PS
R
13–18
7
M
5-7
AP
A
PS
R
13–19
7
D
10–12
AP
A
PS
R
13–20
7
E
5-7
AP
A
PS
R
13–21
7
E
5-7
AP
A
PS
R
13–22
7
M
15–20
AP
A
PS
R
PROBLEMS
13–23
2, 3,
4, 5
M
20–25
AP
A
PS
R
13–24
2, 3,
4, 5
M
20–25
AP
A
PS
R
13–25
6
D
15–20
AN
A
PS
R
13–26
6
D
15–20
AN
A
PS
R
13–27
3, 4,
5, 7
D
20–25
AP
A
PS
R
13–28
3, 4,
5, 7
D
20–25
AP
A
PS
R
C&C CONTINUING CASE
13–29
1
M
10–15
AP
A
PS
R
CASE
13-30
1, 2,
3, 4,
5, 6,
7
D
60–65
AP, AN, S
A
PS
R
Chapter 13 – Statement of Cash Flows
13-3
SOLUTIONS TO GUIDED UNIT PREPARATION
Unit 13.1
1. A source of cash is an activity that generates a cash receipt.
and borrowing money from the bank.
2. A use of cash is an activity that requires a cash disbursement.
a bank loan.
3. Operating activities are those that accomplish the company’s
service, paying employees, and purchasing inventory.
4. Investing activities are those that affect a company’s investments in
non-operating assets. Examples include purchasing equipment,
selling stock in other companies.
5. Financing activities are those that involve external funding for the
company. Examples include borrowing money, issuing stock,
Unit 13.2
1. The FASB prefers the direct method of calculating cash flows from
however.
2. Increases in current assets come at the expense of cash. For
example, when accounts receivable increases, more sales have been
flows from operating activities.
13-4
3. Increases in current liabilities result when expenses are higher than
the cash paid out for those expenses. Therefore, the increase in
statement than was actually paid to employees.
Unit 13.3
1. Investing activities are recorded in non-operating assets such as
Marketable Securities, Land, and Property and Equipment.
2. The cash amount received from the sale is to be reported on the
the sale of an asset.
3. Financing activities are recorded in non-operating liabilities and equity
accounts such as Short-term Notes Payable, Bonds Payable, Long-
term Debt, Common Stock and Retained Earnings.
Unit 13.4
1. Cash flows from the three sections add up to the change in cash. If
2. Operations should be the main source of funds for a company. A
3. If a company has a trend of providing cash through investing
activities, the company may be selling off assets to generate cash in
the short-run at the expense of providing future earnings.
Chapter 13 – Statement of Cash Flows
13-5
Appendix
1. Collections from customers, payments to suppliers, payments to
employees, payments for operating expenses, and payments for
income taxes
2. Use the basic formula for assets:
The beginning and ending balances are from the balance sheet, and
either the increase or decrease is usually from the income statement.
13-6
SOLUTIONS TO EXERCISES
Exercise 13-1
Source of
Cash
Use of
Cash
NBC Universal returns cash to
advertisers because of ratings
shortfalls.
X
Deutsche Lufthansa AG purchases
19% of JetBlue Airways stock for $300
million.
X
Bank of America pays shareholders a
dividend of $2.12 per share.
X
JP Morgan Chase receives dividends
on holdings of other companies’ stocks.
X
Cathay Pacific Airlines pays for new
airplanes.
X
ExxonMobil receives payment from a
major customer.
X
Apple pays its income taxes.
X
Facebook sells stock in its initial public
offering.
X
Honda Motor Co. makes a payment on
its long-term debt.
X
Chapter 13 – Statement of Cash Flows
13-7
Exercise 13-2
Operating
Activities
Investing
Activities
Financing
Activities
NBC Universal returns cash to
advertisers because of ratings
shortfalls.
X
Deutsche Lufthansa AG purchases
19% of JetBlue Airways Corp. stock
for $300 million.
X
Bank of America pays shareholders
$2.12 per share.
X
JP Morgan Chase receives
dividends on holdings of other
companies’ stocks.
X
Cathay Pacific Airlines pays for new
airplanes.
X
ExxonMobil receives payment from
a major customer.
X
Apple pays its income taxes.
X
Facebook sells stock in its initial
public offering.
X
Honda Motor Co. Ltd. makes a
payment on its long-term debt.
X
13-8
Exercise 13-3
Source
or Use
Operating
Activities
Investing
Activities
Financing
Activities
Purchase of
marketable securities
Use
X
Common stock cash
dividend
Use
X
Decrease in accounts
receivable
Source
X
Decrease in accounts
payable
Use
X
Proceeds from
disposal of property
Source
X
Sale of marketable
securities
Source
X
Proceeds from the
exercise of stock
options
Source
X
Proceeds from the sale
of assets
Source
X
Chapter 13 – Statement of Cash Flows
13-9
Exercise 13-4
Cash flows from operating activities
Net income
$1,208,000
Adjustments to net income
Depreciation
$85,000
Increase in accounts receivable
(70,000)
Decrease in inventories
60,000
Decrease in accounts payable
(39,000)
Increase in accrued liabilities
30,000
66,000
Net cash provided (used) by operating activities
$1,274,000
Exercise 13-5
Cash flows from operating activities
Net income
$704,621
Adjustments to net income
Depreciation
$83,698
Loss on sale of land
15,000
Decrease in accounts receivable
13,144
Increase in inventories
(24,824)
Increase in prepaid expenses
(600)
Decrease in accounts payable
(9,920)
Increase in accrued liabilities
2,515
Decrease in income taxes payable
(1,100)
77,913
Net cash provided (used) by operating activities
$782,534
Exercise 13-6
13–10
Exercise 13-7
Cash flows from investing activities
Purchase of marketable securities
($412,000)
Sale of marketable securities
55,000
Purchase of equipment
(320,000)
Sale of equipment
155,000
Net cash provided (used) by investing activities
($522,000)
Exercise 13-8
Cash flows from investing activities
Purchase of marketable securities
($12,000)
Sale of marketable securities
2,000
Purchase of equipment
(20,000)
Sale of equipment
35,000
Net cash provided (used) by investing activities
$5,000
Exercise 13-9
Cash flows from financing activities
Loan proceeds
$600,000
Common stock cash dividends paid
(28,000)
Loan repayment
(78,000)
Purchase of treasury stock
(200,000)
Net cash provided (used) by financing activities
$294,000