Chapter 11 – Statement of Cash Flows
*Problem 11-6B (LO 11-5)
Software Associates
Statement of Cash Flows
For the Year Ended December 31, 2018
Cash Flows from Operating Activities
Cash received from customers
$720,000
Cash paid to suppliers
(400,000)
Cash paid for operating expenses
Cash paid for income taxes
Net sales
+ Decrease in accounts receivable
= Cash received from customers
Cost of goods sold
= Purchases
= Cash paid to suppliers
Operating expenses
+ Decrease in salaries payable
= Cash paid for operating expenses
Income tax expense
= Cash paid for income taxes
Chapter 11 – Statement of Cash Flows
*Problem 11-7B (LO 11-5)
Virtual Gaming Systems
Statement of Cash Flows
For the Year Ended December 31, 2018
Cash Flows from Operating Activities
Cash Flows from Investing Activities
Purchase investment in stock
(95,000)
(33,000)
Cash Flows from Financing Activities
Payment of cash dividends
(60,000)
Net increase (decrease) in cash
Cash at the end of the period
Note: Noncash Activities
Purchase equipment issuing a note payable
Chapter 11 – Statement of Cash Flows
Net sales
+ Decrease in accounts receivable
= Cash received from customers
Cost of goods sold
+ Increase in inventory
= Purchases
= Cash paid to suppliers
Operating expenses
= Cash paid for operating expenses
Interest expense
= Cash paid for interest
Income tax expense
= Cash paid for income taxes
Chapter 11 – Statement of Cash Flows
*Problem 11-8B (LO 11-2, 11-5)
Electronic Transformations
Income Statement
For the Year Ended December 31, 2018
Net sales
$96,000
Expenses:
Net Income
= Cash received from customers
= Cash paid for operating expenses
= Cash paid for income taxes
Chapter 11 – Statement of Cash Flows
ADDITIONAL PERSPECTIVES
Continuing Problem: Great Adventures
AP11-1
Great Adventures, Inc.
Statement of Cash Flows
For the Year Ended December 31, 2020
Cash Flows from Operating Activities
Net income
$ 150,000
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation expense
50,000
Increase in accounts receivable
(10,000)
Increase in inventory
Increase in other current assets
Increase in income tax payable
19,000
Cash Flows from Investing Activities
Purchase of land
(500,000)
Purchase of buildings
Cash Flows from Financing Activities
Issued note payable
500,000
Repayment of notes payable
(37,638)
Issued common stock
Purchased treasury stock
Reissued treasury stock
80,000
Payment of dividends
(115,000)
Net increase (decrease) in cash
Cash at the beginning of the period
Cash at the end of the period
$ 322,362
Chapter 11 – Statement of Cash Flows
Financial Analysis: American Eagle
AP11-2
1. $8,237,000 decrease ($8,237 in thousands).
Chapter 11 – Statement of Cash Flows
Financial Analysis: Buckle
AP11-3
1. $31,160,000 decrease ($31,160 in thousands).
2. $195,768,000 ($195,768 in thousands). Net cash flows from operating activities
decreased from $220,941,000 in 2013 to $174,026,000 in 2014, but increased to
3. $50,619,000 ($50,619 in thousands). Net cash flows from investing activities is
4. $176,309,000 ($176,309 in thousands). While negative operating activities is a bad
sign, negative financing activities can be a positive sign. The largest financing
Chapter 11 – Statement of Cash Flows
Comparative Analysis: American Eagle vs. Buckle
AP11-4
1.
($ in thousands)
Operating
Cash Flow
÷
Average
Total Assets
=
Cash
Return
on Assets
($ in thousands)
Operating
Cash Flow
÷
Sales
=
Cash Flow
to Sales
($ in thousands)
Sales
÷
Average
Total Assets
=
Asset
Turnover
2.
($ in thousands)
Operating
Cash Flow
÷
Average
Total Assets
=
Cash Return
on Assets
($ in thousands)
Operating
Cash Flow
÷
Sales
=
Cash Flow
to Sales
($ in thousands)
Sales
÷
Average
Total Assets
=
Asset
Turnover
Chapter 11 – Statement of Cash Flows
3. Buckle has a higher cash return on assets (35.9% vs. 20.0%), a higher cash flow to
Ethics
AP11-5
Requirement 1
Aggressive Corporation
Statement of Cash Flows
For the Year Ended December 31, 2018
Cash Flows from Operating Activities
Net income
$ 30,000
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation expense
10,000
Increase in accounts receivable
Increase in inventory
Increase in accounts payable
20,000
Net cash flows from operating activities
Cash Flows from Investing Activities
Purchase of equipment
(100,000)
Net cash flows from investing activities
(100,000)
Cash Flows from Financing Activities
Issuance of note payable
100,000
Issuance of common stock
40,000
Net cash flows from financing activities
Net increase (decrease) in cash
Cash at the beginning of the period
Cash at the end of the period
Chapter 11 – Statement of Cash Flows
Requirement 2
While the company is reporting a positive net income of $30,000, the company has
negative operating cash flows of $30,000 this year. This is largely due to the large
Requirement 3
Larry likely mentioned the potential employment position as it could influence Matt’s
decision regarding the approval of the $50,000 loan increase. It is important that Matt
Chapter 11 – Statement of Cash Flows
Internet Research
AP11-6
This case provides an opportunity for students to learn more about Form 10-K,
containing the annual report for publicly traded companies. It also introduces students
Chapter 11 – Statement of Cash Flows
Written Communication
AP11-7
Polar Opposites
Statement of Cash Flows
For the Year Ended December 31, 2018
($ in millions)
Cash Flows from Operating Activities
Net income
$ 5
Adjustments to reconcile net income to net cash
flows from operating activities:
Chapter 11 – Statement of Cash Flows
Earnings Management
AP11-8
Requirement 1
The increase in accounts receivable is likely caused by the company’s more relaxed
credit policy and longer collection periods. The company may be having greater
difficulty collecting their accounts receivable.
Requirement 2
Salary arrangements for officers that are tied to reported net income might increase
the risk of earnings management. For instance, the CEO and CFO may have an
Requirement 3
The positive trend in operating income, the negative trend in cash flows from
operations, combined with the two additional events may lead Bryan to suspect the
possibility of earnings management.
Chapter 11 – Statement of Cash Flows
Requirement 4
At the minimum, Bryan needs to be alert to the increased risk of accounting fraud. He
should carefully examine accounts receivable. Is the allowance for doubtful accounts
adequate? Are the recorded sales legitimate? Is the company too aggressive in the