FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
S12-1
(10 min.)
Solution:
a.
State how the statement of cash flows helps investors and creditors perform each of the
following functions:
a. Predict future cash flows
b. Evaluate management decisions
Predict future cash flows by reporting past cash receipts and payments,
The statement of cash flows helps investors and creditors:
Chapter 12: The Statement of Cash Flows Page 1 of 93
b.
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
S12-2
(10-15 min.)
Solution:
DATE:
TO: Managers of Sowell Enterprises Inc.
FROM: Student Name
SUBJECT: Purposes of the statement of cash flows
Write a brief memo, in your own words, to explain to the managers of Sowell
Enterprises, Inc., the purposes of the statement of cash flows.
Chapter 12: The Statement of Cash Flows Page 2 of 93
Student responses may vary.
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
S12-3
(5-10 min.)
Solution:
1 Increase in net income
2 Decreases rather than increases in current assets other than cash
Suppose Chadwell’s operating activities provided, rather than used, cash.
Identify three things under the indirect method that could cause operating cash
flows to be positive.
Three things that could cause operating cash flows to be positive (under the
indirect method) are:
Chapter 12: The Statement of Cash Flows Page 3 of 93
3 Increases rather than decreases in current liabilities
4
5 Loss on the sale of long-term assets
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
S12-4
(15-30 min.)
Solution:
DATE:
TO: Managers of Jolson Hotels, Inc.
FROM: Student Name
SUBJECT: Assessment of 2016 and Outlook for the Future
Write a memo giving Jolson Hotels’ top executives your assessment of 2016
operations and your outlook for the future. Focus on the information content of
the cash flows data.
2016 was not a good year. Most of the increase in net income resulted from the
gain on the insurance proceeds from fire damage to a building, which means that
normal operations were not very profitable. This is confirmed by the increase in
receivables, which hints that collections are lagging.
Chapter 12: The Statement of Cash Flows Page 4 of 93
cash provided by financing activities is from debt, the additional debt could be
difficult to repay since operating activities did not generate cash.
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Show how Smythe should report cash flows from operating activities for 2016.
Smythe uses the indirect method.
Chapter 12: The Statement of Cash Flows Page 5 of 93
net cash provided by operating activities:
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
S12-6
(10 min.)
Solution:
O+ a. Increase in accounts O- h.
payable
O+ b. Decrease in
Consider the following items in preparing the company’s statement of cash flows.
Identify each item as an operating activity—addition to net income (O+) or subtraction
from net income (O−), an investing activity (I), a financing activity (F), or an activity
that is not used to prepare the cash flows statement by the indirect method (N). Place
the appropriate symbol in the blank space.
Decrease in accrued liabilities
Chapter 12: The Statement of Cash Flows Page 6 of 93
O+ d. Loss on sale of land expense
O+ e.
Gain on sale of
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
S12-7
(10 min.)
Solution:
Cash flows from operating activities:
Net income $70,000*
Adjustments to reconcile net income to
Prepare the operating activities section of Williams’ statement of cash flows for the
year ended June 30, 2016. Williams Corporation uses the indirect method for
operating cash flows.
Williams Corporation
Statement of Cash Flows (partial)
Year ended June 30, 2016
Chapter 12: The Statement of Cash Flows Page 7 of 93
net cash provided by operating activities:
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
S12-8
(15 min.)
Solution:
Cash flows from operating activities:
Net income $ 70,000*
Adjustments to reconcile net income to
net cash provided by operating activities:
Use the data in SE12-7 to prepare Williams Corporation’s statement of cash flows for
the year ended June 30, 2016. Williams uses the indirect method for operating
Williams Corporation
Statement of Cash Flows
Year ended June 30, 2016
Chapter 12: The Statement of Cash Flows Page 8 of 93
Net cash provided by operating activities 56,000
Cash flows from investing activities:
Cash flows from financing activities:
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
S12-9
(10 min.)
Solution:
a.
Plant Assets, net
Beg.bal. + −Depreciation −= End.bal.
Book value of
assets sold
Compute the following investing cash flows; enter all amounts in thousands.
a. Acquisitions of plant assets (all were for cash). Pratt Computer Sales sold no plant
assets.
b. Proceeds from the sale of investments. Pratt Computer Sales purchased no
investments.
Acquisitions of plant assets = $86,000, as follows:
Acquisition
s
Chapter 12: The Statement of Cash Flows Page 9 of 93
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
S12-10
(15 min.)
Solution:
a. New borrowing on long-term notes payable = $11,000 ($64,000 − $53,000)
b. Issuance of common stock = $11,000 ($41,000 − $30,000)
Use the Pratt Computer Sales data in SE12-9 to compute the following; enter all
amounts in thousands.
a. New borrowing or payment of long-term notes payable. Pratt Computer Sales
had only
one long-term note payable transaction during the year.
b. Issuance of common stock or retirement of common stock. Pratt Computer
Sales had only one common stock transaction during the year.
c. Payment of cash dividends (same as dividends declared).
Chapter 12: The Statement of Cash Flows Page 10 of 93
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
S12-11
(15 min.)
Solution:
a.
=−
Collections
from
customers
Increase in Accounts
Receivable
Service Revenue
Collections from customers = $759,000, as follows:
Use the Pratt Computer Sales data in SE12-9 to compute the following; enter all amounts
in thousands.
a. Collections from customers
b. Payments for inventory
Chapter 12: The Statement of Cash Flows Page 11 of 93
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
S12-12
(10-15 min.)
Solution:
a. Payments to employees = $46,000, as follows:
−
Use the Pratt Computer Sales data in SE12-9 to compute the following; enter all
amounts in thousands.
a. Payments to employees
b. Payments of other expenses
=
Increase in Salary Payable
Payments
to
employees
Salary
Expense
Chapter 12: The Statement of Cash Flows Page 12 of 93
=
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
S12-13
(15 min.)
Solution:
Cash flows from operating activities:
Collections from customers $570,000
Payments to suppliers and employees (410,000)
Net cash provided by operating activities $160,000
Prepare the company’s statement of cash flows for the year ending December 31,
2016. Format operating activities by the direct method.
Laughlin Horse Farms, Inc.
Statement of Cash Flows
Year Ended December 31, 2016
Chapter 12: The Statement of Cash Flows Page 13 of 93
Cash flows from investing activities:
Cash flows from financing activities:
Issued note payable to borrow money $24,000
Net increase in cash $2,000
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
S12-14
(5 min.)
Solution:
Cash flows from operating activities:
Collections from customers
202,000$
Prepare the operating activities section of Mulberry Golf Club, Inc.’s, statement of cash
flows for the year ended September 30, 2016. Mulberry Golf Club uses the direct
method for operating cash flows.
Mulberry Golf Club, Inc.
Statement of Cash Flows (partial)
Year ended September 30, 2016
Chapter 12: The Statement of Cash Flows Page 14 of 93
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
S12-15
(15 min.)
Solution:
Cash flows from operating activities:
Collections from customers 202,000$
Payments to suppliers (111,000)
Use the data in SE12-14 to prepare Mulberry Golf Club, Inc.’s, statement of cash flows
for the year ended September 30, 2016. The company uses the direct method for
operating cash flows.
Mulberry Golf Club, Inc.
Statement of Cash Flows
Year ended September 30, 2016
Chapter 12: The Statement of Cash Flows Page 15 of 93
Net cash provided by operating activities 2,000$
Cash flows from investing activities:
Net cash provided by investing activities 19,000
Cash flows from financing activities:
Proceeds from issuance of common stock 17,000$
Payment of dividends (7,500)
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E12-16A
(10-15 min.)
Solution:
F- a. Payment of long-term F+ k. Issuance of long-term note
debt payable to borrow cash
O- l. Increase in prepaid expenses
O+ b. Increase in salary
payable O- m. Decrease in accrued liabilities
Identify each of Bloomfield‘s transactions as operating (O), investing (I), financing (F),
noncash investing and financing (NIF), or a transaction that is not reported on the
statement of cash flows (N). Indicate whether each item increases (+) or decreases
(−) cash. The indirect method is used for operating activities.
Chapter 12: The Statement of Cash Flows Page 16 of 93
F- h. Payment of cash
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E12-17A
(5-10 min.)
Solution:
a. Investing h. Financing
b. Financing i. Financing
Indicate whether each of the following transactions affects an operating activity, an
investing activity, a financing activity, or a noncash investing and financing activity:
Chapter 12: The Statement of Cash Flows Page 17 of 93
d. Operating k. Operating
e. Operating l. Operating
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E12-18A
(10-15 min.)
Requirement
Solution:
Cash flows from operating activities:
Net income 40,000$
Adjustments to reconcile net income to
net cash used for operating activities:
1. Prepare the cash flows from operating activities by section of the statement of
cash flows using the indirect method. Use the format of the operating activities
section of Exhibit 12-6. Also evaluate the operating cash flow of Midwest
Distributors. Give the reason for your evaluation.
Chapter 12: The Statement of Cash Flows Page 18 of 93
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E12-19A
(15-20 min.)
Requirement
Solution:
Cash flows from operating activities:
Net income 10,000$
Adjustments to reconcile net income to
net cash provided by operating activities:
1. Prepare the company’s net cash provided by (used for) operating activities section
of the statement of cash flows for the month of July. Use the indirect method. Do you
see any potential problems in the company’s cash flows from operations? How can
you tell?
Chapter 12: The Statement of Cash Flows Page 19 of 93
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E12-20A
(20-30 min.)
Requirements
Solution:
Req. 1
Cash flows from operating activities:
Net income 29,900$
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation expense
33,000$
Decrease in accounts receivable
14,000
Req. 2
1. Prepare Nyman’s statement of cash flows for the year ended December 31, 2016,
using the indirect method.
2. Evaluate Nyman’s cash flows for the year. In your evaluation, mention all three
categories of cash flows and give the reason for your evaluation.
Nyman Travel Products, Inc.
Statement of Cash Flows
Year Ended December 31, 2016
Chapter 12: The Statement of Cash Flows Page 20 of 93
Increase in inventory
13,000
Net cash provided by operating activities
Cash flows from investing activities:
Acquisition of plant assets (90,000)$
Cash flows from financing activities:
Proceeds from issuance of common stock
60,000$
Noncash investing and financing activities: