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Solutions Manual, Chapter 14 1
Chapter 14
Statement of Cash Flows
Solutions to Questions
14-1 The statement of cash flows highlights
commercial paper, and money market funds.
(2) Investing activities: Include cash
should be considered when interpreting the
sale of a noncurrent asset appear as a cash
14-6 Transactions involving accounts payable
are not considered to be financing activities
14-7 The repayment of $300,000 and the
though it is added to net income on the
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2 Managerial Accounting, 16th Edition
The Foundational 15
1. The net decrease in cash and cash equivalents would equal the $9,000
2. The basic equation for stockholders’ equity accounts can be applied to
the Retained Earnings account to compute the net income of $2,000
as follows:
3. The basic equation for contra-asset accounts can be applied to the
Accumulated Depreciation account to compute the depreciation of
$19,000 that needs to be added to net income as follows:
Note to Instructors: Questions 4-9 are intended to help students move
4. The completed T-account is as follows:
A
ccounts Receivable
The total amount of credits recorded in accounts receivable is
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Solutions Manual, Chapter 14 3
The Foundational 15 (continued)
5. The accounts receivable balance decreased by $3,000; therefore, the
$3,000 decrease is added to net income. This adjustment reflects the
6. The completed T-accounts are as follows:
Inventory
Be
g
. Bal.
50,000
A
ccounts Payable
Be
g
. Bal.
57,000
The total amount of inventory purchases debited to inventory and
credited to accounts payable is $405,000. Therefore, the total amount
7. The inventory balance increased by $5,000; therefore, this amount is
subtracted from net income. The accounts payable balance decreased
by $25,000; therefore, this amount is also subtracted from net income.
8. The completed T-account is as follows;
Income Taxes Payable
g
The total amount of debits recorded in income taxes payable is $3,700.
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4 Managerial Accounting, 16th Edition
The Foundational 15 (continued)
9. The income taxes payable balance decreased by $3,000; therefore, the
$3,000 decrease is subtracted from net income. This adjustment
10. The operating activities section of the statement of cash flows would
contain an adjustment related to a gain on the sale of a piece of
equipment. The equipment was sold for $3,000 and it had a book
11. The net cash provided by (used in) operating activities would be
computed as follows:
Net income ……………………………………………. $ 2,000
A
d
j
ustments to convert net income to a cash
basis:
Depreciation ……………………………………….. $19,000
12. The gross cash outflows of $16,000 can be computed by applying the
basic equation for assets to the Property, Plant, and Equipment
account as follows:
Beginning balance + Debits – Credits = Ending balance
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Solutions Manual, Chapter 14 5
The Foundational 15 (continued)
13. The net cash provided by (used in) investing activities is $(13,000).
This amount includes the $(16,000) cash outflow related to the
14. The guidelines from Exhibit 14-3 can be used to analyze the changes
in noncash balance sheet accounts that impact financing cash flows as
follows:
Increase in
Account
Balance
Decrease
in Account
Balance
Liabilities and Stockholders’ Equity
Because Ravenna did not retire any bonds or repurchase any of its
own common stock during the year, the corresponding amounts in the
15. The cash inflows of $20,000 from the issuance of bonds and common
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6 Managerial Accounting, 16th Edition
Exercise 14-1 (15 minutes)
Activity
Transaction Operating Investing Financing
a. Collected cash from customers ………………………. X
b. Paid cash to repurchase its own stock ……………… X
c. Borrowed money from a creditor ……………………. X
d. Paid suppliers for inventory purchases……………… X
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Solutions Manual, Chapter 14 7
Exercise 14-2 (15 minutes)
The guidelines from Exhibit 14-2 can be used to analyze the changes in
noncash balance sheet accounts that impact net income as follows:
Increase
in Account
Balance
Decrease
in Account
Balance
Current Assets
A
Current Liabilities
A
A
The net cash provided by (used in) operating activities is computed as
follows:
Net income …………………………………………….……… $35,000
A
d
j
ustments to convert net income to a cash basis:
Depreciation ………………………………………………… $20,000
Increase in accounts receivable………………………… (19,000)
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8 Managerial Accounting, 16th Edition
Exercise 14-3 (5 minutes)
Free cash flow computation:
Net cash provided by operating activities . $ 34,000
Less:
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Solutions Manual, Chapter 14 9
Exercise 14-4 (30 minutes)
Net cash provided by (used in) operating activities:
Step 1: The company did not sell or retire any plant and equipment
during the year (land is not depreciated); therefore, the $60 increase in
Step 2: The guidelines from Exhibit 14-2 can be used to analyze the
changes in noncash balance sheet accounts that impact net income as
follows:
Increase in
Account Balance
Decrease in
Account Balance
Current Assets
Current Liabilities
Step 3: The gain on sale of investments ($10) is subtracted from net
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10 Managerial Accounting, 16th Edition
Exercise 14-4 (continued)
The net cash provided by (used in) operating activities is computed as
follows:
Net income ………………………………………………….. $ 84
A
d
j
ustments to convert net income to a cash basis:
Depreciation …………………………………………..…. $60
Increase in accounts receivable ……………………… (110)
2. Prepare a statement of cash flows for the year
Investing and Financing activities:
The guidelines from Exhibit 14-3 can be used to analyze the changes in
noncash balance sheet accounts that impact investing and financing
cash flows as follows:
Increase
in Account
Balance
Decrease
in Account
Balance
Noncurrent Assets
Liabilities and Stockholders’ Equity