P12-3A Prepare the operating activities section-indirect method
The income statement of Munsun Company is presented here.
Sales revenue $7,600,000
Cost of goods sold
Beginning inventory $1,900,000
Purchases 4,400,000
Goods available for sale 6,300,000
Ending inventory 1,600,000
Total cost of goods sold 4,700,000
Gross profit $2,900,000
Operating expenses
Selling expenses
450,000
Administrative expenses 700,000 1,150,000
Net income $1,750,000
Additional information:
1. Accounts receivable decreased $380,000 during the year, and inventory decreased $300,000.
2. Prepaid expenses increased $150,000 during the year.
3. Accounts payable to suppliers of merchandise decreased $350,000 during the year.
4. Accrued expenses payable decreased $100,000 during the year.
5. Administrative expenses include depreciation expense of $110,000.
Instructions
Prepare the operating activities section of the statement of cash flows for the year ended November 30,
2017, for Munsun Company, using the indirect method.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a “?” .
Cash flows from operating activities
Net income Value
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation expense Value
Decrease in accounts receivable Value
Decrease in inventory Value
Increase in prepaid expenses Value
Decrease in accounts payable
Value
Decrease in accrued expenses payable Value ?
Net cash provided by operating activities ?
For the Year Ended November 30, 2017
MUNSUN COMPANY
Income Statement
For the Year Ended November 30, 2017
MUNSUN COMPANY
Partial Statement of Cash Flows
After you have completed P12-3A, consider the additional question.
1. Assume that depreciation expense, accounts receivable and accounts payable
changed to $98,000, $320,000 and $300,000. Show the impact of these changes
on the operating section of the statement of cash flows.
MUNSUN COMPANY
Partial Statement of Cash Flows
For the Year Ended November 30, 2017
P12-3A Solution to additional question
1. Assume that depreciation expense, accounts receivable and accounts payable
changed to $98,000, $320,000 and $300,000. Show the impact of these changes
on the operating section of the statement of cash flows.
Cash flows from operating activities
Net income $1,750,000
Adjustments to reconcile net income to
net cash provided by operating activities:
MUNSUN COMPANY
Partial Statement of Cash Flows
For the Year Ended November 30, 2017
P12-5A Prepare the operating activities section-indirect method
Rewe Company’s income statement contained the condensed information below.
Service revenue $970,000
Operating expenses, excluding depreciation $614,000
Depreciation expense 55,000
Loss on disposal of plant assets 16,000 $685,000
Income before income taxes $285,000
Income tax expense 56,000
Net income $229,000
Rewe’s balance sheet contained the comparative data at December 31.
2017 2016
Accounts receivable $70,000 $60,000
Accounts payable 41,000 32,000
Income taxes payable 13,000 7,000
Accounts payable pertain to operating expenses.
Instructions
Prepare the operating activities section of the statement of cash flows using the indirect method
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a “?” .
Cash flows from operating activities
Net income
Value
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation expense Value
Loss on disposal of plant assets Value
Increase in accounts receivable Value
Increase in accounts payable Value
Increase in income taxes payable Value ?
Net cash provided by operating activities ?
After you have completed P12-5A, consider the additional question.
1. Assume that the 2017 balance of accounts receivable, accounts payable,
and income taxes payable changed to $75,000, $39,000 and $4,500 respectively,
Show the impact of these changes on the operating section of the statement of
cash flows.
For the Year Ended December 31, 2017
REWE COMPANY
Income Statement
For the Year Ended December 31, 2017
REWE COMPANY
Partial Statement of Cash Flows
P12-5A Solution
Cash flows from operating activities
Net income $229,000
Adjustments to reconcile net income to
net cash provided by operating activities:
REWE COMPANY
Partial Statement of Cash Flows
For the Year Ended December 31, 2017
P12-5A Solution to additional question
1. Assume that the 2017 balance of accounts receivable, accounts payable,
and income taxes payable changed to $75,000, $39,000 and $4,500 respectively,
Show the impact of these changes on the operating section of the statement of
cash flows.
Cash flows from operating activities
Net income $229,000
Adjustments to reconcile net income to
Partial Statement of Cash Flows
For the Year Ended December 31, 2017
REWE COMPANY
P12-6A Prepare the operating activities section-indirect method
Rewe Company‘s income statement contained the condensed information below.
Service revenue $970,000
Operating expenses, excluding depreciation $614,000
Depreciation expense 55,000
Loss on disposal of plant assets 16,000 $685,000
Income before income taxes $285,000
Income tax expense 56,000
Net income $229,000
Thornton‘s balance sheet contained the comparative data at December 31.
2017 2016
Accounts receivable $70,000 $60,000
Accounts payable 41,000 32,000
Income taxes payable 13,000 7,000
Accounts payable pertain to operating expenses.
Instructions
Prepare the operating activities section of the statement of cash flows using the direct method
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a “?” .
Cash flows from operating activities
Cash receipts from customers Value (1)
Less cash payments:
For operating expenses Value (2)
For income taxes Value (3) Value
Net cash provided by operating activities ?
Computations:
(1) Cash receipts from customers
Revenues Value
Deduct: Increase in accounts receivable Value
Cash receipts from customers ?
(2) Cash payments for operating expenses
Operating expenses per income statement Value
Deduct: Increase in accounts payable
Value
Cash payments for operating expenses ?
For the Year Ended December 31, 2017
REWE COMPANY
Income Statement
For the Year Ended December 31, 2017
REWE COMPANY
Partial Statement of Cash Flows
(3) Cash payments for income taxes
Income tax expense per income statement Value
Deduct: Increase in income taxes payable Value
Cash payments for income taxes ?
After you have completed P12-6A, consider the additional question.
1. Assume that the 2017 balance of accounts receivable, accounts payable,
and income taxes payable changed to $75,000, $39,000 and $4,500 respectively,
Show the impact of these changes on the operating section of the statement of
cash flows.
P12-6A Solution
Cash flows from operating activities
Cash receipts from customers $960,000 (1)
Less cash payments:
Computations:
(1) Cash receipts from customers
Revenues $970,000
(2) Cash payments for operating expenses
(3) Cash payments for income taxes
REWE COMPANY
Partial Statement of Cash Flows
For the Year Ended December 31, 2017
P12-6A Solution to additional question
1. Assume that the 2017 balance of accounts receivable, accounts payable,
and income taxes payable changed to $75,000, $39,000 and $4,500 respectively,
Show the impact of these changes on the operating section of the statement of
cash flows.
Cash flows from operating activities
Cash receipts from customers $955,000 (1)
Less cash payments:
Computations:
(1) Cash receipts from customers
(2) Cash payments for operating expenses
Operating expenses per income statement
(3)
Cash payments for income taxes
REWE COMPANY
Partial Statement of Cash Flows
For the Year Ended December 31, 2017
P12-7A Prepare a statement of cash flows–indirect method, and compute cash-based ratios
Presented below are the financial statements of Warner Company.
Assets 2017 2016
Cash $35,000 $20,000
Accounts receivable 20,000 14,000
Inventory 28,000 20,000
Property, plant, and equipment 60,000 78,000
Accumulated depreciation (32,000) (24,000)
Total $111,000 $108,000
Liabilities and Stockholders’ Equity
Accounts payable $19,000 $15,000
Income taxes payable 7,000 8,000
Bonds payable 17,000 33,000
Common stock 18,000 14,000
Retained earnings 50,000 38,000
Total $111,000 $108,000
Sales Revenue $242,000
Cost of goods sold
175,000
Gross profit 67,000
Selling expenses $18,000
Administrative expenses 6,000 24,000
Income from operations 43,000
Interest expense 3,000
Income before income taxes 40,000
Income tax expense 8,000
Net income $32,000
Additional data:
1. Depreciation expense was $17,500.
2. Dividends declared and paid were $20,000.
3. During the year equipment was sold for $8,500 cash. This equipment cost $18,000
originally and had accumulated depreciation of $9,500 at the time of sale.
Instructions
(a) Prepare a statement of cash flows using the indirect method.
(b) Compare these cash-based measures:
(1) Current cash debt coverage.
(2) Cash debt coverage.
(3) Free cash flow.
For the Year Ended December 31, 2017
WARNER COMPANY
Comparative Balance Sheet
December 31
WARNER COMPANY
Income Statement
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a “?” .
(a)
Cash flows from operating activities
Net income Value
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation expense Value
Increase in accounts receivable Value
Increase in inventory Value
Increase in accounts payable Value
Decrease in income taxes payable Value ?
Net cash provided by operating activities ?
Cash flows from investing activities
Sale of equipment Value
Cash flows from financing activities
Issuance of common stock Value
Redemption of bonds Value
Payment of dividends Value
Net cash used by financing activities ?
Net increase in cash ?
Cash at beginning of period Value
Cash at end of period ?
(b)(1) Current cash debt coverage
2017 2016
Accounts payable Value Value
Income taxes payable Value Value
Total current liabilities ? ?
Average current liabilities ?
Net cash provided by operating activities Value
Average current liabilities Value
Current cash debt coverage ?
(b)(2) Cash debt coverage
2017 2016
Accounts payable Value Value
WARNER COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2017
Income taxes payable Value Value
Bonds payable Value Value
Total liabilities ? ?
Average total liabilities ?
Net cash provided by operating activities Value
Average total liabilities Value
Cash debt coverage ?
(b)(3) Free cash flow
Net cash provided by operating activities Value
Less: Capital expenditures Value
Cash dividends Value
Free cash flows ?
After you have completed P12-7A, consider the additional question.
1. Assume that 2017 balance for accounts receivable, inventory and
accounts payable changed to $19,000, $31,000 and $21,000
respectively. Show the impact of these changes on the statement of
cash flows and the ratios.
P12-7A Solution
(a)
Cash flows from operating activities
Sale of equipment 8,500
Cash flows from financing activities
Issuance of common stock 4,000
(b)(1) Current cash debt coverage
2017 2016
Accounts payable $19,000 $15,000
Income taxes payable 7,000 8,000
WARNER COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2017