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(b)(2) Cash debt coverage
2017 2016
Accounts payable $19,000 $15,000
Income taxes payable 7,000 8,000
P12-7A Solution to 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.
(a)
Cash flows from operating activities
Net income $32,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Cash flows from financing activities
Issuance of common stock 4,000
(b)(1) Current cash debt coverage
2017 2016
Accounts payable $21,000 $15,000
WARNER COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2017
Net cash provided by operating activities $38,500
(b)(2) Cash debt coverage
2017 2016
Accounts payable $21,000 $15,000
Income taxes payable 7,000 8,000
(b)(3) Free cash flow
Net cash provided by operating activities $38,500
Less: Capital expenditures 0
P12-8A Prepare a statement of cash flows--direct 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.
Further analysis reveals the following.
1. Accounts payable pertains to merchandise suppliers.
2. All operating expenses except for depreciation were paid in cash.
3. All depreciation expense is in the selling expense category'
4. All sales and purchases are on account.
Instructions
(a) Prepare a statement of cash flows for Warner Company using the direct method.
For the Year Ended December 31, 2017
WARNER COMPANY
Comparative Balance Sheet
December 31
WARNER COMPANY
Income Statement
(b) Compute free cash flow.
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
Cash receipts from customers Value (1)
Less cash payments:
To suppliers Value (2)
For operating expenses Value (3)
For interest Value
For income taxes
Value (4) 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 ?
Computations:
(1) Cash receipts from customers
Sales Value
Deduct: Increase in accounts receivable Value
Cash receipts from customers ?
(2) Cash payments to suppliers
Cost of goods sold Value
Add: Increase in inventory Value
Cost of purchases ?
Deduct: Increase in accounts payable
4,000
Cash payments to suppliers ?
(3) Cash payments for operating expenses
WARNER COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2017
Operating expenses Value
Deduct: Depreciation Value
Cash payments for operating expenses ?
(4) Cash payments for income taxes
Income tax expense Value
Add: Decrease in income taxes payable Value
Cash payments for income taxes ?
(b) Free cash flow
Net cash provided by operating activities Value
Less: Capital expenditures Value
Cash dividends Value
Free cash flows ?
After you have completed P12-8A, 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.
P12-8A Solution
(a)
Cash flows from operating activities
Cash receipts from customers $236,000 (1)
Less cash payments:
To suppliers $179,000 (2)
Cash flows from financing activities
Issuance of common stock 4,000
Redemption of bonds (16,000)
Computations:
(1) Cash receipts from customers
(2) Cash payments to suppliers
Cost of goods sold $175,000
(3) Cash payments for operating expenses
WARNER COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2017
(4) Cash payments for income taxes
Income tax expense $8,000
Add: Decrease in income taxes payable 1,000
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.
(a)
Cash flows from operating activities
Cash receipts from customers $237,000 (1)
Less cash payments:
Cash flows from financing activities
Issuance of common stock 4,000
Redemption of bonds (16,000)
Computations:
(1) Cash receipts from customers
(2) Cash payments to suppliers
Cost of goods sold $175,000
WARNER COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2017
(3) Cash payments for operating expenses
(4) Cash payments for income taxes
Income tax expense $8,000
Add: Decrease in income taxes payable 1,000
P12-6B Prepare the operating activities section --direct method
Mosley's Company's income statement contained the condensed information below.
Service revenue $850,000
Operating expenses, excluding depreciation $506,000
Depreciation expense 56,000
Loss on disposal of plant assets 4,000 $566,000
Income before income taxes $284,000
Income tax expense 80,000
Net income 204,000
Mosley's balance sheet contained the comparative data at December 31, below.
2014 2013
Accounts receivable $72,000 $65,000
Accounts payable 27,000 35,000
Income taxes payable 23,000 18,000
Accounts payable pertains 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
Add: Decrease in accounts payable Value
Cash payments for operating expenses ?
(3) Cash payments for income taxes
For the Year Ended December 31, 2014
MOSLEY COMPANY
Income Statement
For the Year Ended December 31, 2014
MOSLEY COMPANY
Partial Statement of Cash Flows
Income tax expense per income statement Value
Deduct: Increase in income taxes payable Value
Cash payments for income taxes ?
After you have completed P12-6B, consider the additional question.
1. Assume that 2014 balances for accounts receivable, accounts payable and income
taxes payable changed to $75,000, $26,500, and $22,000. Show the impact on the
statement of cash flows and on the cash-based ratios.
P12-6B Solution
Cash flows from operating activities
Cash receipts from customers $843,000 (1)
Computations:
(1) Cash receipts from customers
(2) Cash payments for operating expenses
(3) Cash payments for income taxes
MOSLEY COMPANY
Partial Statement of Cash Flows
For the Year Ended December 31, 2014
P12-6B Solution to additional question
1. Assume that 2014 balances for accounts receivable, accounts payable and income
taxes payable changed to $75,000, $26,500, and $22,000. Show the impact on the
statement of cash flows and on the cash-based ratios.
Cash flows from operating activities
Cash receipts from customers $840,000 (1)
Less cash payments:
Computations:
(1) Cash receipts from customers
(2) Cash payments for operating expenses
(3) Cash payments for income taxes
MOSLEY COMPANY
Partial Statement of Cash Flows
For the Year Ended December 31, 2014
