Chapter 13 – Statement of Cash Flows
13–21
Problem 13-26
Student answers will vary.
Cash flows from operating activities
The company has not been able to generate cash from operations in
any of the three years reported.
Cash flows from investing activities
The company invested in new assets each year.
Cash flows from financing activities
Solutions for Davis & Davis, Managerial Accounting, 2nd ed.
13–22
Problem 13-27
Cook Enterprises
Statement of Cash Flows
For the year ended December 31, 2013
Cash flows from operating activities
Collections from customersa
$1,052,600
Payments to suppliersb
(747,000)
Payments to employeesc
(178,000)
Payments for other expensesd
(28,400)
Payments for income taxese
(65,800)
Net cash provided (used) by operating activities
$ 33,400
Cash flows from investing activities
Sale of equipment
30,000
Purchase of building
(150,000)
Net cash provided (used) by investing activities
(120,000)
Cash flows from financing activities
Proceeds from issuing common stock
100,000
Proceeds from long-term debt
75,000
Repayment of long-term debt
( 4,600)
170,400
Net cash provided (used) by financing activities
Change in cash
83,800
Cash, beginning balance
40,400
Cash, ending balance
$124,200
Chapter 13 – Statement of Cash Flows
13–23
Problem 13-28
Addison Controls
Statement of Cash Flows
For the year ended December 31, 2013
$127,100
(69,800)
(19,700)
(25,100)
(1,300)
$11,200
20,300
(17,500)
2,800
Cash flows from financing activities
10,000
(23,200)
Net cash provided (used) by financing activities
(13,200)
800
4,300
$ 5,100
13–24
SOLUTIONS TO C&C CONTINUING CASE
Case 13-29
Type of Cash Flow
Type of Activity
Source
Use
Not a Cash
Flow
Operating
Investing
Financing
1.
C&C orders $50,000 of
fabric from Bradley
Textile Mills
X
2.
C&C pays $100,000 to
Bradley Textile Mills for
fabric it ordered last
month
X
X
3.
C&C receives a $1,200
order from Central High
School for 100 pairs of
baseball pants
X
4.
C&C pays cash for
$13,000 of Nike stock
X
X
5.
C&C pays $500 in
interest due on its long-
term debt
X
X
6.
C&C pays $800 cash for
a new sewing machine
X
X
7.
C&C makes a $20,000
payment on its long-term
debt
X
X
Chapter 13 – Statement of Cash Flows
Case 13-29, continued
Type of Cash Flow
Type of Activity
Source
Use
Not a Cash
Flow
Operating
Investing
Financing
8.
C&C borrows $25,000
from the bank to maintain
its minimum required
cash balance
X
X
9.
C&C receives an order
from South Avenue High
School for 10 award
jackets, accompanied by
a check for the full
amount of the order,
$1,250
X
X
10.
C&C sells an old
computer to an employee
for $50 cash
X
X
13–26
SOLUTIONS TO CASE
Case 13-30
a. Indirect Method
MetroAir
Statement of Cash Flows
For the year ended December 31, 2013
Cash flows from operating activities
Net income
$1,662,015
Adjustments to reconcile net income to cash
provided by operating activities
Depreciation
1,016,835
Increase in accounts receivable
(604,260)
Increase in inventories
(1,398,945)
Increase in other assets
(331,740)
Decrease in accounts payable
(51,180)
Decrease in accrued expenses
(460,367)
Increase in salaries payable
20,560
Increase in interest payable
2,731
Increase in income taxes payable
3,921
(1,802,445)
Net cash provided (used) by operating
activities
(140,430)
Cash flows from investing activities
Purchase of equipmenta
(150,000)
Net cash provided (used) by investing
activities
(150,000)
Cash flows from financing activities
Proceeds from short-term borrowing
225,000
Repayment of long-term debt
(300,000)
Net cash provided (used) by financing
activities
(75,000)
Increase/(Decrease) in cash
(365,430)
Chapter 13 – Statement of Cash Flows
13–27
Cash at beginning of period
631,710
Cash at end of period
$ 266,280
aPurchase of equipment: $9,009,705 – $8,142,870 – $1,016,835
13–28
Direct Method – Cash from operations only
Cash flows from operating activities
Collections from customersa
$77,950,740
Payments to suppliersb
(59,596,605)
Payments to employeesc
(7,387,930)
Payments for operating expensesd
(9,775,272)
Payments for intereste
(622,994)
Payments for income taxesf
(708,369)
Net cash provided (used) by operating activities
$ (140,430)
b. Memo
To: Vincent Fairfield
From: Joe Student
RE: Explanation of Statement of Cash Flows
The difference between the two methods can be illustrated by looking at a
sales transaction. Assume that the company’s sole sale for the year, a
$100,000 sale on account, occurs on December 31. The $100,000 will be
reported as revenue for the year, increasing net income. However, since
Chapter 13 – Statement of Cash Flows
13–29
been operating the entire year, so it isn’t unreasonable to expect that with
such a large net income, we would have generated cash from operations.