Exercise 14-4 (continued)
Because Pavolik did not retire any bonds or issue any of its own stock
during the year, the corresponding amounts in the table on the prior
and retained earnings require further analysis as follows:
Property, Plant, and Equipment
A
The statement of cash flows must report the gross cash outflow of $200
and the gross cash inflow related to the sale of land of $9.
Lon
g
–
T
erm Investments
A
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12 Managerial Accounting, 16th Edition
Exercise 14-4 (continued)
Pavolik Company
Statement of Cash Flows
Operatin
g
activities
:
Net cash provided by (used in) operatin
g
activities …….. $ 130
Investin
g
activities
:
Financin
g
activities
:
Issuance of bonds payable ……………………………….….. 150
Purchase of common stock ………………………………..…. (80)
Cash dividends paid …………………………………….……… (30)
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Solutions Manual, Chapter 14 13
Exercise 14-5 (10 minutes)
Item Amount Add Subtract
A
ccounts receivable ………………. $90,000 decrease X
Inventory …………………………… $120,000 increase X
Prepaid expenses …………………. $3,000 decrease X
A
A
g
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14 Managerial Accounting, 16th Edition
Exercise 14-6 (30 minutes)
1. Prepare a statement of cash flows:
Operating activities:
Step 1: The following equation can be applied to the Accumulated
Depreciation account to compute the depreciation to add back to net
income:
Beginning balance – Debits + Credits = Ending balance
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
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Solutions Manual, Chapter 14 15
Exercise 14-6 (continued)
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
Because Carmono did not sell any plant and equipment and it did not
The following equation can be applied to the Retained Earnings account
to compute the dividend payment (the debit to the account):
Beginning balance – Debits + Credits = Ending balance
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16 Managerial Accounting, 16th Edition
Exercise 14-6 (continued)
Carmono Company
Statement of Cash Flows
For
T
his Year Ended December 31
Operatin
g
activities
:
Net income …………………………………………….……… $35
A
d
j
ustments to convert net income to a cash basis:
Investin
g
activities
:
A
dditions to property, plant,
&
equipment …………….. (40)
Net cash provided by (used in) investin
g
activities ….. (40)
Financin
g
activities
:
Issuance of common stock ………………………………...5
g
2. Free cash flow computation:
Net cash provided by operatin
g
activities … $ 46
Less:
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Solutions Manual, Chapter 14 17
Problem 14-7 (30 minutes)
1. Net cash provided by (used in) operating activities:
Step 1: The following equation can be applied to the Accumulated
Depreciation account to compute the depreciation to add back to net
income:
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 ($7) is subtracted from net
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18 Managerial Accounting, 16th Edition
Problem 14-7 (continued)
The net cash provided by (used in) operating activities is computed as
follows:
Net income ………………………………………………… $ 63
A
d
j
ustments to convert net income to cash basis:
Depreciation ………………………………………….. $24
Increase in accounts receivable………………….. (100)
Decrease in inventory………………………………. 50
2. Prepare a statement of cash flows.
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
© The McGraw-Hill Companies, Inc., 2018. All rights reserved.
Solutions Manual, Chapter 14 19
Problem 14-7 (continued)
The decrease in the long-term investments account ($3) equals the cost
of the long-term investment sold; therefore, Weaver did not purchase
Because Weaver did not retire any bonds during the year, the
corresponding amount in the table on the prior page (+110) represents
the gross cash inflow pertaining to a bond issuance. The company
and retained earnings require further analysis as follows:
Property, plant, and equipment:
Beginning balance + Debits – Credits = Ending balance
The additions to property, plant, and equipment ($180) are recorded as
Retained earnings:
Beginning balance – Debits + Credits = Ending balance
The dividend payment ($30) should be recorded as a cash outflow in the
financing activities section of the statement.
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20 Managerial Accounting, 16th Edition
Problem 14-7 (continued)
WeaverCompany
Statement of Cash Flows
For
T
his
Y
ear Ended December 31
Operatin
g
activities
:
Net income …………………………………………….…… $ 63
A
d
j
ustments to convert net income to cash basis:
Depreciation …………………………………………...$24
Increase in accounts receivable…………………… (100)
Decrease in inventory ……………………………….. 50
Investin
g
activities
:
Proceeds from sale of lon
g
-term investments ……… 10
Proceeds from sale of equipment……………………… 20
A
dditions to property, plant,
&
equipment ………….. (180)
Net cash provided by (used in) financin
g
activities .. 40
g