11–38 Financial Accounting, 5e
Problem 11-4B (LO 11-2, 11-3, 11-4, 11-5)
Virtual Gaming Systems
Statement of Cash Flows
For the Year Ended December 31, 2021
Cash Flows from Operating Activities
Net income
$195,000
Adjustments to reconcile net income to net
cash flows from operating activities:
33,000
(7,000)
Cash Flows from Investing Activities
Purchase investment in stock
(95,000)
Proceeds from sale of land
62,000
Cash Flows from Financing Activities
Issue common stock
60,000
Payment of cash dividends
(120,000)
Net increase (decrease) in cash
Cash at the beginning of the period
Cash at the end of the period
Note: Noncash Activities
Purchase equipment issuing a note payable
$30,000
Chapter 11 – Statement of Cash Flows
Problem 11-5B (LO 11-6)
Requirement 1
Net Income
÷
Average
Total Assets
=
Return
on Assets
$7,074
÷
($124,503 + $129,517)/2
=
5.6%
$15,855
÷
($113,452 + $116,433)/2
=
13.8%
Requirement 2
Operating
Cash Flows
÷
Average
Total Assets
=
Cash Return
on Assets
$12,639
÷
($124,503 + $129,517)/2
=
$19,846
÷
($113,452 + $116,433)/2
=
Requirement 3
Operating
Cash Flows
÷
Net Sales
=
Cash Flow
to Sales
$19,846
÷
=
÷
Average
Total Assets
=
InGen
÷
($124,503 + $129,517)/2
=
RDA
÷
($113,452 + $116,433)/2
=
Requirement 4
RDA has a higher return on assets, cash return on assets, and cash flow to sales ratio.
Chapter 11 – Statement of Cash Flows
11–40 Financial Accounting, 5e
*Problem 11-6B (LO 11-7)
Software Associates
Statement of Cash Flows
For the Year Ended December 31, 2021
Cash Flows from Operating Activities
Cash received from customers
$720,000
Net sales
$710,000
+ Decrease in accounts receivable
10,000
= Cash received from customers
$720,000
Cost of goods sold
$420,000
− Decrease in inventory
(13,000)
= Purchases
407,000
− Increase in accounts payable
= Cash paid to suppliers
$400,000
Operating expenses
$130,000
+ Decrease in salaries payable
= Cash paid for operating expenses
Income tax expense
$49,000
= Cash paid for income taxes
Chapter 11 – Statement of Cash Flows
*Problem 11-7B (LO 11-7)
Virtual Gaming Systems
Statement of Cash Flows
For the Year Ended December 31, 2021
Cash Flows from Operating Activities
Cash received from customers
$2,616,000
Cash Flows from Investing Activities
Purchase investment in stock
(95,000)
Proceeds from sale of land
62,000
(33,000)
Cash Flows from Financing Activities
Issue common stock
60,000
Payment of cash dividends
(60,000)
Net increase (decrease) in cash
Cash at the beginning of the period
Cash at the end of the period
Note: Noncash Activities
Purchase equipment issuing a note payable
$30,000
Chapter 11 – Statement of Cash Flows
11–42 Financial Accounting, 5e
Net sales
+ Decrease in accounts receivable
= Cash received from customers
Cost of goods sold
$1,650,000
+ Increase in inventory
15,000
= Purchases
1,665,000
+ Decrease in accounts payable
63,000
= Cash paid to suppliers
$1,728,000
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 11-3, 11-7)
Electronic Transformations
Income Statement
For the Year Ended December 31, 2021
Net sales
$96,000
Expenses:
Operating expenses
$34,000
Depreciation expense
Net Income
Net sales
$96,000
− Increase in accounts receivable
(13,000)
= Cash received from customers
$83,000
Operating expenses
$34,000
= Cash paid for operating expenses
Income tax expense
$17,000
− Increase in income tax payable
= Cash paid for income taxes
Chapter 11 – Statement of Cash Flows
11–44 Financial Accounting, 5e
ADDITIONAL PERSPECTIVES
Continuing Problem: Great Adventures
AP11-1
Great Adventures, Inc.
Statement of Cash Flows
For the Year Ended December 31, 2022
Cash Flows from Operating Activities
Net income
$ 35,835
Adjustments to reconcile net income to net
cash flows from operating activities:
Cash Flows from Investing Activities
Purchase of buildings
(800,000)
Purchase of equipment
(822,000)
Cash Flows from Financing Activities
Repayment of notes payable
(6,117)
Issued common stock
1,000,000
Purchased treasury stock
(150,000)
Sale of treasury stock
Payment of dividends
Net increase (decrease) in cash
Cash at the beginning of the period
Cash at the end of the period
Purchase land issuing a note payable
Chapter 11 – Statement of Cash Flows
Financial Analysis: American Eagle
AP11-2
($ in thousands)
1. $35,000 increase.
3. $(172,150) .
Chapter 11 – Statement of Cash Flows
11–46 Financial Accounting, 5e
Financial Analysis: Buckle
AP11-3
($ in thousands)
1. $31,450 decrease.
3. $(17,297).
The largest investment activity during the most recent year is purchases of
investments for $56,631.
Chapter 11 – Statement of Cash Flows
Comparative Analysis: American Eagle vs. Buckle
AP11-4
($ in thousands)
1.
Operating
Cash Flow
÷
Average
Total Assets
=
Cash Return
on Assets
American Eagle
$394,426
÷
($1,816,313 + 1,782,660)/2
=
21.9%
Cash Flow
÷
÷
Turnover
American Eagle
$3,795,549
÷
2.
Operating
Cash Flow
÷
Average
Total Assets
=
Cash Return
on Assets
Buckle
$119,721
÷
($538,616 + $579,847)/2
=
21.4%
Buckle
$119,721
÷
=
13.1%
Buckle
($538,616 + $579,847)/2
=
3. American has a higher cash return on assets (21.9% vs. 21.4%), a lower cash flow
to sales (10.4% vs. 13.1%), and a higher asset turnover (2.1 times vs. 1.6 times)
compared to Buckle.
Chapter 11 – Statement of Cash Flows
11–48 Financial Accounting, 5e
Ethics
AP11-5
Requirement 1
Cash Flows from Operating Activities
Net income
$65,000
Adjustments to reconcile net income to net
Requirement 2
Cash Flows from Operating Activities
Net income
$ 30,000a
Adjustments to reconcile net income to net
Chapter 11 – Statement of Cash Flows
a $65,000 as reported − $35,000 profit on assumed sale of inventory ($75,000 −
$40,000)
Requirement 3
Yes.
The company is reporting a positive net income of $65,000 and positive operating
cash flows of $110,000. Both amounts are overstated. Net income is overstated by
Requirement 4
No.
Without additional information, it’s not possible for Matt to determine the likelihood
that customer accounts will be collected or for what amount the inventory will be sold.
Chapter 11 – Statement of Cash Flows
11–50 Financial Accounting, 5e
Internet Research
AP11-6
This case provides an opportunity for students to learn more about Form 10-K,
Chapter 11 – Statement of Cash Flows
Written Communication
AP11-7
Polar Opposites
Statement of Cash Flows
For the Year Ended December 31, 2021
($ 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
11–52 Financial Accounting, 5e
Earnings Management
AP11-8
Requirement 1
Increase.
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
Yes.
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 compared to the negative trend in cash flows
from operations.
Chapter 11 – Statement of Cash Flows
11–54 Financial Accounting, 5e