FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Cash flows from financing activities:
Payment of cash dividends (37,700)$
Issuance of common stock 6,900
Payment of long-term note payable
(59,000)
Net cash used for financing activities (89,800)
Chapter 12: The Statement of Cash Flows Page 78 of 93
Net increase in cash $17,600
Noncash investing and financing activities:
Payment of short-term note payable by
issuing common stock
To suppliers (95,100)$
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E12-76
(20-30 min.)
Requirement
Solution:
(All amounts in thousands)
a. Collections = $ 23,996 = $ 23,984 + ($609 − $597)
Sales
Decrease in
Accounts
Receivable
+
Chapter 12: The Statement of Cash Flows Page 79 of 93
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
d. Payment of
Increase in Income
Tax Payable
Tax Expense
−
Chapter 12: The Statement of Cash Flows Page 80 of 93
e. Proceeds from
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E12-77
(20 min.)
Requirement
Solution:
Req. 1a.
=−
1. Determine the following items for Crown Specialties during 2016:
a. Gain or loss on the sale of property and equipment
b. Amount of long-term debt issued for something other than cash
Book value of
assets sold
Loss on sale of
property and
equipment
Proceeds from
sale of assets
Chapter 12: The Statement of Cash Flows Page 81 of 93
Req. 1b.
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P12-78
Requirement
Solution:
Assets:
Cash and cash equivalents 14,000$ 153,500$ Given
Accounts receivable (net) 95,000 28,700 ($95,000 – $66,300)
1. Prepare the December 31, 2016, balance sheet for Northtown, Inc.
December
31, 2015
December
31, 2016
Chapter 12: The Statement of Cash Flows Page 82 of 93
Long-term debt
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Decision Case 1
(45-60 min.)
Requirements
Solution:
Req. 1 (indirect method for operating activities)
Cash flows from operating activities:
Net income 97$
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation expense
46$
Amortization of patents
11
1. Prepare a statement of cash flows for 2016 in the format that best shows the
relationship between net income and operating cash flow. The company sold no
plant assets or long- term investments and issued no notes payable during 2016.
There were no noncash investing and financing transactions during the year. Show
all amounts in thousands.
2. Answer the board members’ question: Why is the cash balance so low? Point
out the two largest cash payments during 2016. (Challenge)
3. Considering net income and the company’s cash flows during 2016, was it a
good year or a bad year? Give your reasons
(Thousands)
T-Bar-M Camp, Inc.
Statement of Cash Flows
Year Ended December 31, 2016
Chapter 12: The Statement of Cash Flows Page 83 of 93
Cash flows from investing activities:
Purchase of property, plant, and
Cash flows from financing activities:
Net (decrease) in cash (46)$
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 2
The cash balance at the end of 2016 is low because:
• The camp paid $110,000 to buy new property, plant, and equipment.
Chapter 12: The Statement of Cash Flows Page 84 of 93
Req. 3
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Decision Case 2
(15-25 min.)
Solution:
Four-Star Catering looks like the better investment because:
1.
2.
Operations provide far more cash for Four-Star than for Applied Technology.
Operations should be the main source of cash for a healthy company.
Four-Star is investing more in long-term plant assets than Applied is. Four-Star is
laying a more solid foundation in revenue-producing assets than Applied is.
Based on their cash flows, which company looks better? Give your reasons. (Challenge)
Chapter 12: The Statement of Cash Flows Page 85 of 93
3.
4.
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Ethical Issues
Requirements
Solution:
Req. 1
Cash flows from operating activities: Without With
Reclassification Reclassification
Net income 37,000$ 37,000$
Req. 4
1. Using only the amounts given, compute net cash provided by operations, both
without and with the reclassification of the receivables. Which reporting makes
Columbia look better?
2. Identify the ethical issue(s).
3. Who are the stakeholders?
4. Analyze the issue from the (a) economic, (b) legal, and (c) ethical standpoints. What
is the potential impact on all stakeholders?
5. What should the board do?
6. Under what conditions would the reclassification of the receivables be considered
ethical?
Chapter 12: The Statement of Cash Flows Page 86 of 93
Increase in accounts
Net cash (used for) provided
by operating activities $ (43,000) $ 37,000
Columbia looks better with the reclassification because net
cash flow from operations is positive.
Req. 2
Req. 3
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Economic analysis: The plan to reclassify accounts receivable would have an
immediate positive impact on Columbia and its employees because it might enable
Columbia to obtain the loan it desperately needs. However, this might be to the
detriment of present and future creditors, because if Columbia can’t collect the
receivables, it may not be able to pay off its loans to creditors.
Chapter 12: The Statement of Cash Flows Page 87 of 93
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Apple, Inc.
(40-50 min.)
Requirement
Solution:
Req. 1
1. By which method does Apple Inc. report cash flows from operating activities? How can
you tell?
2. What type of activity (operating, financing, or investing) generated the most cash flows
for Apple in 2014? Which activity type(s) used cash in 2014? Judging by the statement of
cash flows only, is Apple a healthy company? Explain your answer.
3. Suppose Apple Inc., reported net cash flows from operating activities by using the direct
method. Compute the following amounts for the year ended December 31, 2014 (ignore
the statement of cash flows, and use only Apple Inc.’s income statement and balance
sheet).
a. Calculate collections from customers and others. Prepare a T-account for Gross
Accounts Receivable. Prepare another T-account for Allowance for Doubtful Accounts.
Calculate the beginning and ending gross amounts of Gross Accounts Receivable by
adding the beginning and ending balances of Allowance for Doubtful Accounts ($99 million
and $86 million, respectively) to the net accounts receivable at both the beginning and end
of the year. Assume that all sales are on account. Also assume that the company uses the
percentage of
net sales method for estimating doubtful accounts expense and that the company
estimates this amount at 0.5%.
b. Calculate payments to suppliers. Apple Inc. calls its cost of goods sold “Cost of Sales.”
Assume all inventory is purchased on account and that all cash payments to suppliers
are made from accounts payable.
c. Evaluate 2014 for Apple Inc. in terms of net income, total assets, stockholders’ equity,
cash flows from operating activities, and overall results. Be specific. (Challenge)
Apple uses the indirect method to report operating cash flows. You can tell
because the statement begins with net income.
Chapter 12: The Statement of Cash Flows Page 88 of 93
Req. 2
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 3
a. The Balance Sheet provides the balance of Allowance for Doubtful accounts.
Beg. Bal. ($13,102 + $99) 13,201
Sales (income statement) 182,795 Write-offs (see below) 927
Collections ($13,201 +
$182,795 – $927 – $17,546) 177,523
End. Bal. ($17,460 + $86) 17,546
Gross Accounts Receivable, Vendors and Customers
Chapter 12: The Statement of Cash Flows Page 89 of 93
Payments for = Cost of + Increase in
inventory sales Inventory Accounts Payable
other operating operating Prepaid Accrued Liabilities
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Total = Payment +
Payments for for operating expenses
Supplies inventory
Paymnets for other
Chapter 12: The Statement of Cash Flows Page 90 of 93
· Net income increased from 2013 by $2,473 million.
· Total assets increased from 2013 by $24,839 million.
· Net cash flow from operations increased from 2013 by $6,047 million.
Overall, 2014 was a good year for Apple Inc.
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Under Armour, Inc.
(20-30 min.)
Requirement 1
Solution:
What is(are) Under Armour, Inc.’s, main source(s) of cash? Is this good news or
bad news to its managers, stockholders, and creditors? What is Under Armour,
Inc.’s, main use of cash? Is this good news or bad news? Discuss your
The main source of cash is operating activities ($219 million). This is good
news. This indicates that Under Armour, Inc.’s basic operations are generating
Chapter 12: The Statement of Cash Flows Page 91 of 93
Requirement 2
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Requirement 3
Solution:
3. Did Under Armour, Inc., buy or sell more plant assets during 2014 than in the
previous two years? How can you tell?
In 2014, Under Armour’s additions to property, plant, and equipment were more
than previous years’ additions. This is evident in the investing section of the
Chapter 12: The Statement of Cash Flows Page 92 of 93
Requirement 4
Requirement 5
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Group Projects
(2-3 hours)
Solution:
Student responses will vary on this assignment.
Project 1. Each member of the group should obtain the annual report of a different
company. Select companies in different industries. Evaluate each company’s trend of
cash flows for the most recent two years. In your evaluation of the companies’ cash
flows, you may use any other information that is publicly available—for example, the
other financial statements (income statement, balance sheet, statement of
stockholders’ equity, and the related notes), and news stories from magazines and
newspapers. Rank the companies’ cash flows from best to worst, and write a two-page
report on your findings.
Project 2. Select a company and obtain its annual report, including all the financial
statements. Focus on the statement of cash flows and, in particular, the cash flows from
operating activities. Specify whether the company uses the direct method or the indirect
method to report operating cash flows. As necessary, use the other financial statements
(income statement, balance sheet, and statement of stockholders’ equity) and the notes
to prepare the company’s cash flows from operating activities by using the other
method
Chapter 12: The Statement of Cash Flows Page 93 of 93