13–1
CHAPTER 13
STATEMENT OF CASH FLOWS
DISCUSSION QUESTIONS
1. It is costly to accumulate the data needed and to prepare the statement of cash flows.
3. In a separate schedule of noncash investing and financing activities accompanying the statement of cash
flows.
5. The $25,000 decrease in salaries payable should be deducted from income to determine the amount of
6. a. $100,000 gain
7. Cash flows from financing activities—issuance of bonds, $1,960,000 ($2,000,000 98%)
8. a. Cash flows from investing activities—Cash received from the disposal of fixed assets, $15,000
10. Cash received from customers, cash payments for merchandise, cash payments for operating expenses,
cash payments for interest, cash payments for income taxes.
CHAPTER 13 Statement of Cash Flows
BASIC EXERCISES
BE 13–1
BE 13–2
Net income ……………………………………………………………………………………….
$286,900
Adjustments to reconcile net income to net cash flow from
operating activities:
Depreciation ……………………………………………………………………………….
15,325
Amortization of patents ……………………………………………………………….
3,800
Gain from sale of investments ……………………………………………………..
(22,420)
Net cash flow from operating activities ………………………………………………
$283,605
BE 13–3
Net income ……………………………………………………………………………………….
$75,800
Changes in current operating assets and liabilities:
Increase in accounts receivable ……………………………………………………
(5,000)
Increase in inventory ……………………………………………………………………
(7,450)
Increase in accounts payable ……………………………………………………….
3,380
Net cash flow from operating activities ………………………………………………
$66,730
BE 13–4
Cash flows from (used for) operating activities:
Net income……………………………………………………………….. $396,200
13–3
BE 13–5
The gain on the sale of land is subtracted from net income in the operating activities section.
BE 13–6
Cash flows from (used for) financing activities:
BE 13–7
20Y2
20Y1
a. Net cash flow from operating activities ………………………….
$ 476,000
$ 455,000
Cash used to purchase property, plant, and
equipment …………………………………………………………………
(341,600)*
(302,400)**
Free cash flow ………………………………………………………………
$ 134,400
$ 152,600
b. The change in free cash flow from $152,600 to $134,400 represents a decline.
Appendix 2 BE 13–8
Sales …………………………………………………………………………………………………….. $225,000
CHAPTER 13 Statement of Cash Flows
13–4
EXERCISES
EX. 13–1
There were net additions to the net loss reported on the income statement to convert the net
loss from the accrual basis to the cash basis. For example, depreciation is an expense in
The cash flows from operating activities detail is provided as follows for class discussion:
Cash flows from (used for) operating activities:
Net income (loss)
$ (723)
Adjustments to reconcile net income (loss) to net cash flow
provided by operating activities:
Depreciation and amortization
1,522
Special charges
389
Debt and lease discount amortization
(247)
Share based compensation
14
Other, net
251
Changes in current operating assets and liabilities:
Decrease (increase) in accounts receivable
(21)
Decrease (increase) in other assets
(484)
Increase (decrease) in accounts payable
285
Increase (decrease) in advanced ticket sales
246
Increase (decrease) in frequent flyer deferred revenue
(712)
Increase (decrease) in other liabilities
415
Net cash flow from operating activities
$ 935
CHAPTER 13 Statement of Cash Flows
13–5
Ex. 13–2
a. Cash payment, $510,000
e.
Cash payment, $30,000
b. Cash receipt, $600,000
f.
Cash receipt, $392,000
c. Cash receipt, $72,400
g.
Cash payment, $225,000
d. Cash payment, $825,000
h.
Cash payment, $1,025,000
Ex. 13–3
a. operating
g.
financing
b. financing
h.
investing
c. financing
i.
financing
d. financing
j.
investing
e. financing
f. investing
k.
investing
Ex. 13–4
a. added
g.
added
b. deducted
h.
added
c. added
i.
added
d. added
j.
added
e. added
k.
deducted
f. added
CHAPTER 13 Statement of Cash Flows
13–6
Ex. 13–5
a. Net income …………………………………………………………………….. $93,700
Adjustments to reconcile net income to net cash flow
from operating activities:
b. Cash flows from operating activities shows the cash inflow or outflow from a company’s
day–to-day operations. Net income reports the excess of revenues over expenses for a
Ex. 13–6
a. Cash flows from (used for) operating activities:
Net income ………………………………………………………………………. $214,000
Adjustments to reconcile net income to net cash flow
CHAPTER 13 Statement of Cash Flows
13–7
Ex. 13–7
a. Cash flows from (used for) operating activities:
Net income ……………………………………………………………………. $508,000
Adjustments to reconcile net income to net cash flow
from operating activities:
Note: The change in dividends payable would be used to adjust the dividends
declared in obtaining the cash paid for dividends in the financing activities section
of the statement of cash flows.
b. Cash flows from operating activities reports the cash inflow or outflow from a company’s
Ex. 13–8
Cash flows from investing activities:
Ex. 13–9
Cash flows from investing activities:
Cash received from sale of equipment ……………………………………………………….. $20,200
CHAPTER 13 Statement of Cash Flows
13–8
Ex. 13–10
Cash flows from (used for) investing activities:
Ex. 13–11
Ex. 13–12
Cash flows from (used for) financing activities:
Ex. 13–13
Cash flows from (used for) investing activities:
Ex. 13–14
Cash flows from (used for) financing activities:
CHAPTER 13 Statement of Cash Flows
13–9
Ex. 13–15
a. Net cash flow from (used for) operating activities ……………………… $357,500
Increase in accounts receivable …………………………..…………………… 14,300
Increase in prepaid expenses …………………………………………………… 2,970
activities must be deducted (added) to determine net income.
b. Curwen’s net income differed from cash flows from operations because of:
• $29,480 of depreciation expense which has no effect on cash flows from operating
activities,
CHAPTER 13 Statement of Cash Flows
13–10
Ex. 13–16
a.
National Beverage Co.
Cash Flows from Operating Activities
(in thousands)
Cash flows from (used for) operating activities:
Net income
$49,311
Adjustments to reconcile net income to net
cash flow from operating activities:
Depreciation
11,580
Gain on disposal of property
(1,188)
Other items involving noncash expenses
1,383
Changes in current operating assets and
liabilities:
Increase in accounts receivable
(1,746)
Decrease in inventory
990
Increase in prepaid expenses
(605)
Decrease in accounts payable
(710)
Decrease in accrued and other current liab.
(995)
Net cash flow from operating activities
$58,020
b. National Beverage is doing well financially. The company has positive earnings and
positive net cash flow from operating activities. The increase in accounts receivable is a
positive sign, indicating an increase in sales.
CHAPTER 13 Statement of Cash Flows
13–11
Ex. 13–17
a.
Olson-Jones Industries Inc.
Statement of Cash Flows
For the Year Ended December 31, 20Y2
Cash flows from (used for) operating activities:
Net income
$ 62
Adjustments to reconcile net income to net
cash flow from operating activities:
Depreciation
26
Gain on sale of land
(40)
Changes in current operating assets and
liabilities:
Increase in accounts receivable
(6)
Increase in inventories
(18)
Increase in accounts payable
14
Net cash flow from operating activities
$ 38
Cash flows from (used for) investing activities:
Cash received from sale of land
$120
Cash paid for purchase of equipment
(30)
Net cash flow from investing activities
90
Cash flows from (used for) financing activities:
Cash received from sale of common stock
$ 60
Cash paid for dividends*
(19)
Net cash flow from financing activities
41
Net increase in cash
$169
Cash balance, January 1, 20Y2
14
Cash balance, December 31, 20Y2
$183
b. Olson-Jones Industries Inc.’s net income was more than the cash flows from operations
because of:
• $26 of depreciation expense, which has no effect on cash.
CHAPTER 13 Statement of Cash Flows
13–12
Ex. 13–18
1. The increase in accounts receivable should be deducted from net income in the “Cash
flows from operating activities” section.
3. The increase in accounts payable should be added to net income in the “Cash flows from
operating activities” section.
5. The final amount should be the amount of cash at the end of the year, $350,160.
7. The final amount of net cash flow from investing activities is $451,200.
A correct statement of cash flows would be as follows:
Shasta Inc.
Statement of Cash Flows
For the Year Ended December 31, 20Y9
Cash flows from (used for) operating activities:
Net income
$ 360,000
Adjustments to reconcile net income to net
cash flow from operating activities:
Depreciation
100,800
Gain on sale of investments
(17,280)
Changes in current operating assets
and liabilities:
Increase in accounts receivable
(27,360)
Increase in inventories
(36,000)
Increase in accounts payable
3,600
Decrease in accrued expenses
payable
(2,400)
Net cash flow from operating activities
$ 381,360
Cash flows from (used for) investing activities:
Cash received from sale of investments
$ 240,000
Cash paid for purchase of land
(259,200)
Cash paid for purchase of equipment
(432,000)
Net cash flow used for investing activities
(451,200)
Cash flows from (used for) financing activities:
Cash received from sale of common stock
$ 312,000
Cash paid for dividends
(132,000)
Net cash flow from financing activities
180,000
Net increase in cash
$ 110,160
Cash balance, January 1, 20Y9
240,000
Cash balance, December 31, 20Y9
$ 350,160
CHAPTER 13 Statement of Cash Flows
13–13
Appendix 2 Ex. 13–19
a. Sales ………………………………………………………………………………………. $753,500
from customers exceeded sales made on account by $48,400 during the current year.
Appendix 2 Ex. 13–20
a. Cost of goods sold ………………………………………………………………….. $1,031,550
Decrease in accounts payable …………………………..……………………… 9,660
CHAPTER 13 Statement of Cash Flows
13–14
Appendix 2 Ex. 13–21
a. Cash flows from (used for) operating activities:
Cash received from customers …………………………………. $ 522,7601
Computations:
1. Sales…………………………………………………………………………………………… $511,000
2. Cost of goods sold ………………………………………………………………………. $290,500
3. Operating expenses other than depreciation …………………………………. $105,000
4. Income tax expense …………………………..………………………………………… $ 21,700
b. The direct method directly reports cash receipts and payments. The cash received less
the cash payments is the net cash flow from operating activities. Individual cash receipts
CHAPTER 13 Statement of Cash Flows
13–15
Appendix 2 Ex. 13–22
Cash flows from (used for) operating activities:
Computations:
1. Sales ……………………………………………………….…………………………….. $445,500
2. Cost of goods sold …………………………………………………………………. $154,000
3. Operating expenses other than depreciation ……………………………. $115,280
CHAPTER 13 Statement of Cash Flows
13–16
PROBLEMS
Prob. 13–1A
Livers Inc.
Statement of Cash Flows
For the Year Ended December 31, 20Y3
Cash flows from (used for) operating activities:
Net income
$ 500,000
Adjustments to reconcile net income to
net cash flow from operating activities:
Depreciation
100,000
Gain on sale of investments
(75,000)
Changes in current operating assets
and liabilities:
Increase in accounts receivable
(50,000)
Increase in inventories
(20,000)
Increase in accounts payable
40,000
Decrease in accrued expenses payable
(5,000)
Net cash flow from operating activities
$ 490,000
Cash flows from (used for) investing activities:
Cash received from sale of investments
$ 175,000
Cash paid for purchase of land
(500,000)
Cash paid for purchase of equipment
(200,000)
Net cash flow used for investing activities
(525,000)
Cash flows from (used for) financing activities:
Cash received from sale of common stock
$ 125,000
Cash paid for dividends*
(85,000)
Net cash flow from financing activities
40,000
Net increase in cash
$ 5,000
Cash balance, January 1, 20Y3
150,000
Cash balance, December 31, 20Y3
$ 155,000
CHAPTER 13 Statement of Cash Flows
13–17
Prob. 13–1A (Concluded)
(Optional)
Livers Inc.
Spreadsheet (Work Sheet) for Statement of Cash Flows
For the Year Ended December 31, 20Y3
Balance,
Transactions
Balance,
Account Title
Dec. 31, 20Y2
Debit
Credit
Dec. 31, 20Y3
Cash
150,000
(m) 5,000
155,000
Accounts receivable (net)
400,000
(l) 50,000
450,000
Inventories
750,000
(k) 20,000
770,000
Investments
100,000
(j) 100,000
0
Land
0
(i) 500,000
500,000
Equipment
1,200,000
(h) 200,000
1,400,000
Accum. depr.—equipment
(500,000)
(g) 100,000
(600,000)
Accounts payable
(300,000)
(f) 40,000
(340,000)
Accrued expenses payable
(50,000)
(e) 5,000
(45,000)
Dividends payable
(25,000)
(d) 5,000
(30,000)
Common stock, $4 par
(600,000)
(c) 100,000
(700,000)
Paid-in capital in excess
of par—common stock
(175,000)
(c) 25,000
(200,000)
Retained earnings
(950,000)
(b) 90,000
(a) 500,000
(1,360,000)
Totals
0
870,000
870,000
0
Operating activities:
Net income
(a) 500,000
Depreciation
(g) 100,000
Gain on sale of investments
(j) 75,000
Increase in accounts
receivable
(l) 50,000
Increase in inventories
(k) 20,000
Increase in accounts payable
(f) 40,000
Decrease in accrued
expenses payable
(e) 5,000
Investing activities:
Purchase of equipment
(h) 200,000
Purchase of land
(i) 500,000
Sale of investments
(j) 175,000
Financing activities:
Declaration of cash dividends
(b) 90,000
Sale of common stock
(c) 125,000
Increase in dividends payable
(d) 5,000
Net increase in cash
(m) 5,000
Totals
945,000
945,000
CHAPTER 13 Statement of Cash Flows
13–18
Prob. 13–2A
Yellow Dog Enterprises Inc.
Statement of Cash Flows
For the Year Ended December 31, 20Y8
Cash flows from (used for) operating activities:
Net income
$ 250,000
Adjustments to reconcile net income to
net cash flow from operating activities:
Depreciation
135,000
Changes in current operating assets
and liabilities:
Decrease in accounts receivable
20,000
Increase in inventories
(70,000)
Increase in prepaid expenses
(10,000)
Increase in accounts payable
25,000
Net cash flow from operating activities
$ 350,000
Cash flows from (used for) investing activities:
Cash paid for equipment
$ (420,000)
Net cash flow used for investing activities
(420,000)
Cash flows from (used for) financing activities:
Cash received from sale of common stock
$ 600,000
Cash paid for dividends
(45,000)
Cash paid to retire mortgage note payable
(500,000)
Net cash flow from financing activities
55,000
Net decrease in cash
$ (15,000)
Cash balance, January 1, 20Y8
110,000
Cash balance, December 31, 20Y8
$ 95,000
accounts.
CHAPTER 13 Statement of Cash Flows
13–19
Prob. 13–2A (Concluded)
(Optional)
Yellow Dog Enterprises Inc.
Spreadsheet (Work Sheet) for Statement of Cash Flows
For the Year Ended December 31, 20Y8
Account Title
Balance,
Dec. 31, 20Y7
Transactions
Balance, Dec.
31, 20Y8
Debit
Credit
Cash
110,000
(l) 15,000
95,000
Accounts receivable (net)
280,000
(k) 20,000
260,000
Inventories
450,000
(j) 70,000
520,000
Prepaid expenses
5,000
(i) 10,000
15,000
Equipment
800,000
(h) 420,000
(g) 90,000
1,130,000
Accum. depr.—equipment
(190,000)
(g) 90,000
(f) 135,000
(235,000)
Accounts payable
(75,000)
(e) 25,000
(100,000)
Mortgage note payable
(500,000)
(d) 500,000
0
Common stock, $10 par
(200,000)
(c) 300,000
(500,000)
Paid-in capital in excess
of par—common stock
(100,000)
(c) 300,000
(400,000)
Retained earnings
(580,000)
(b) 45,000
(a) 250,000
(785,000)
Totals
0
1,135,000
1,135,000
0
Operating activities:
Net income
(a) 250,000
Depreciation
(f) 135,000
Decrease in accts. receivable
(k) 20,000
Increase in inventories
(j) 70,000
Increase in prepaid expenses
(i) 10,000
Increase in accounts payable
(e) 25,000
Investing activities:
Purchase of equipment
(h) 420,000
Financing activities:
Payment of cash dividends
(b) 45,000
Sale of common stock
(c) 600,000
Payment of mortgage note
payable
(d) 500,000
Net decrease in cash
(l) 15,000
Totals
1,045,000
1,045,000
CHAPTER 13 Statement of Cash Flows
13–20
Prob. 13–3A
Whitman Co.
Statement of Cash Flows
For the Year Ended December 31, 20Y2
Cash flows from (used for) operating activities:
Net loss
$ (35,320)
Adjustments to reconcile net loss to
net cash flow from operating activities:
Depreciation*
55,620
Loss on sale of land**
12,600
Changes in current operating assets
and liabilities:
Increase in accounts receivable
(66,960)
Increase in inventories
(105,480)
Decrease in prepaid expenses
5,760
Decrease in accounts payable
(35,820)
Net cash flow used for operating activities
$(169,600)
Cash flows from (used for) investing activities:
Cash received from land sold
$151,200
Cash paid for acquisition of building
(561,600)
Cash paid for purchase of equipment
(104,400)
Net cash flow used for investing activities
(514,800)
Cash flows from (used for) financing activities:
Cash received from issuance of
bonds payable
$270,000
Cash received from issuance of
common stock
400,000
Cash paid for dividends
(32,400)
Net cash flow from financing activities
637,600
Net decrease in cash
$ (46,800)
Cash balance, January 1, 20Y2
964,800
Cash balance, December 31, 20Y2
$ 918,000