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Chapter 11 - Statement of Cash Flows
Chapter 11
Statement of Cash Flows
REVIEW QUESTIONS
Question 11-1 (LO 11-1)
The three categories of cash flows are operating activities, investing activities, and financing
Question 11-2 (LO 11-1)
Changes in long-term asset accounts and current investment accounts are used in determining net
Question 11-3 (LO 11-1)
Noncash activities are investing and financing activities that do not result in the transfer of cash.
Examples of significant noncash investing and financing activities include:
1. Purchase of long-term assets by issuing debt.
Question 11-4 (LO 11-1)
The income statement provides important information in determining cash flows from operating
Question 11-5 (LO 11-2)
The heading includes the company name, the title statement of cash flows, and the period
Question 11-6 (LO 11-2)
The four steps are to calculate net cash flows from operating activities using information from
the income statement and changes in current assets and current liabilities, determine the net cash
Chapter 11 - Statement of Cash Flows
11-2 Financial Accounting, 5e
Question 11-7 (LO 11-2)
Using the indirect method, we begin with net income and then list adjustments to net income in
Question 11-8 (LO 11-3)
The most common adjustments to convert net income to net cash flows are adjustments for
Question 11-9 (LO 11-3)
It is possible to report a loss and still have positive operating cash flows. For example, if
Question 11-10 (LO 11-3)
Depreciation expense is an addition to net income in arriving at net operating cash flows.
Question 11-11 (LO 11-3)
We subtract a gain on sale of assets and add a loss on sale of assets to net income in arriving at
Question 11-12 (LO 11-3)
We (a) subtract an increase in current assets, (b) add a decrease in current assets, (c) add an
Question 11-13 (LO 11-3)
An increase in accounts receivable indicates sales were more than cash collections from
Chapter 11 - Statement of Cash Flows
Question 11-14 (LO 11-3, 11-4)
The $1,000 loss on sale of the investment (selling price $9,000 less book value $10,000) is added
Question 11-15 (LO 11-5)
Financing activities are related to changes in short-term debt, long-term debt, and stockholders’
Question 11-16 (LO 11-1, 11-4, 11-5)
The purchase of land by issuing its own common stock is a noncash activity. Transactions like
Question 11-17 (LO 11-6)
Return on assets has net income in the numerator while cash return on assets has cash flows from
Question 11-18 (LO 11-6)
Companies have two primary strategies for increasing their cash return on assets. One strategy is
Chapter 11 - Statement of Cash Flows
11-4 Financial Accounting, 5e
Question 11-19 (LO 11-7)
Question 11-20 (LO 11-7)
Depreciation expense has no effect on cash flows. It is merely an allocation in the current period
Chapter 11 - Statement of Cash Flows
BRIEF EXERCISES
Brief Exercise 11-1 (LO 11-1)
1. Financing activity.
2. Financing activity.
Brief Exercise 11-2 (LO 11-1)
1. Financing activity.
Brief Exercise 11-3 (LO 11-2)
Operating activities
Investing activities
Ending cash balance
Brief Exercise 11-4 (LO 11-3)
Cash Flows from Operating Activities
Chapter 11 - Statement of Cash Flows
11-6 Financial Accounting, 5e
Net income
$650,000
Adjustments to reconcile net income to net cash
Brief Exercise 11-5 (LO 11-3)
Cash Flows from Operating Activities
Net income
$75,000
Adjustments to reconcile net income to net
Brief Exercise 11-6 (LO 11-3)
Cash Flows from Operating Activities
Net income
$70
Adjustments to reconcile net income to net
cash flows from operating activities:
Brief Exercise 11-7 (LO 11-3)
Cash Flows from Operating Activities
Net income
$70
Chapter 11 - Statement of Cash Flows
Adjustments to reconcile net income to net cash
flows from operating activities:
Brief Exercise 11-8 (LO 11-4)
Cash Flows from Investing Activities
Sale of investments
$40
Brief Exercise 11-9 (LO 11-4)
Cash Flows from Investing Activities
Collection of note receivable
$100,000*
Chapter 11 - Statement of Cash Flows
11-8 Financial Accounting, 5e
Brief Exercise 11-10 (LO 11-4)
If purchased for $850,000:
Cash Flows from Investing Activities
Sale of land
$900,000
Brief Exercise 11-11 (LO 11-5)
Cash Flows from Financing Activities
Brief Exercise 11-12 (LO 11-5)
Cash Flows from Financing Activities
Brief Exercise 11-13 (LO 11-1, 11-4, 11-5)
Investing activities
Financing activities
Chapter 11 - Statement of Cash Flows
Brief Exercise 11-14 (LO 11-6)
Operating
Cash Flow
÷
Average
Total Assets
=
Cash Return
on Assets
$60,000
÷
($500,000 + $800,000)/2
=
9.2%
Brief Exercise 11-15 (LO 11-6)
Operating Cash Flow
=
0.25
($620,000 + $820,000)/2
Brief Exercise 11-16 (LO 11-7)
Net sales
$73
Chapter 11 - Statement of Cash Flows
11-10 Financial Accounting, 5e
Brief Exercise 11-17 (LO 11-7)
Cost of goods sold
$45
Brief Exercise 11-18 (LO 11-7)
Operating expenses
$985,000
Brief Exercise 11-19 (LO 11-7)
Income tax expense
$340,000
− Increase in income taxes payable
(15,000)
Cash paid for income taxes
$325,000
Brief Exercise 11-20 (LO 11-5, 11-7)
Chapter 11 - Statement of Cash Flows
EXERCISES
Exercise 11-1 (LO 11-1, 11-2, 11-3, 11-4, 11-5, 11-6)
Items
__e__ 1. Operating activities
Descriptions
a. Begins with net income and then lists adjustments to net income in order to
arrive at operating cash flows.
11-12 Financial Accounting, 5e
Exercise 11-2 (LO 11-1)
The $25,000 increase in notes payable should be properly recorded as an increase in
cash from financing activities. While most changes in current assets and current
liabilities are included in operating activities, borrowing money from a bank is clearly
a financing activity.
Exercise 11-3 (LO 11-1)
1. Investing activities
2. Operating activities
Chapter 11 - Statement of Cash Flows
Exercise 11-4 (LO 11-1)
1. Financing activities
2. Investing activities
Exercise 11-5 (LO 11-1)
1. Investing activities, Operating activities (Gain on sale of land)
Chapter 11 - Statement of Cash Flows
11-14 Financial Accounting, 5e
Exercise 11-6 (LO 11-1)
1. Investing activities
2. Investing activities
Chapter 11 - Statement of Cash Flows
Exercise 11-7 (LO 11-2)
Technology Solutions
Statement of Cash Flows
For the Year Ended December 31, 2021
Cash Flows from Operating Activities
Net income
Adjustments to reconcile net income to net cash
Cash Flows from Investing Activities
List of cash inflows and outflows from investing
activities
Net cash flows from investing activities
$$$
Exercise 11-8 (LO 11-3)
Cash Flows from Operating Activities
Net income
$165,000
Adjustments to reconcile net income to net cash
flows from operating activities:
Exercise 11-9 (LO 11-3)
Cash Flows from Operating Activities
Net income
$65,000
Adjustments to reconcile net income to net cash
flows from operating activities:
Exercise 11-10 (LO 11-2, 11-3, 11-4, 11-5)
Plasma Screens Corporation
Statement of Cash Flows
For the Year Ended December 31, 2021
Cash Flows from Operating Activities
Net income
$ 79,000
Adjustments to reconcile net income to net
cash flows from operating activities:
Cash Flows from Investing Activities
Purchase of equipment
(110,000)
Net cash flows from investing activities
(110,000)
Cash Flows from Financing Activities
Payment of notes payable
(115,000)
Chapter 11 - Statement of Cash Flows
11-18 Financial Accounting, 5e
Exercise 11-11 (LO 11-3)
Peach Computer
Statement of Cash Flows
For the Year Ended December 31, 2021
Cash Flows from Operating Activities
Net income
$130,000
Adjustments to reconcile net income to net
Chapter 11 - Statement of Cash Flows
Exercise 11-12 (LO 11-4)
Sale of building
$ 500,000
Exercise 11-13 (LO 11-5)
Issuance of common stock
$ 160,000
Chapter 11 - Statement of Cash Flows
Exercise 11-14 (LO 11-6)
Requirement 1
($ in millions)
Net Income
÷
Average
Total Assets
=
Return
on Assets
Zoogle
$6,620
÷
($41,768 + $50,497)/2
=
14.3%
Requirement 2
Requirement 3
($ in millions)
Operating
Cash Flows
÷
Net Sales
=
Cash Flow
to Sales
Zoogle
$9,326
÷
$24,651
=
37.8%
