Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 12
Chapter 12
Reporting Cash Flows
QUESTIONS
1. The purpose of the cash flow statement is to report all major cash receipts (inflows) and
cash payments (outflows) during a period. It helps users to answer questions such as:
• How does a company obtain its cash?
• Where does a company spend its cash?
• What explains the change in the cash balance?
2. On a statement of cash flows, investing activities include cash outflows from purchases
of long-term investments such as stocks and bonds, from purchases of plant assets
3. On a statement of cash flows, financing activities include cash inflows such as those
that result from issuing preferred or common stock, and from borrowing by issuing
4. The direct method of reporting cash flows from operating activities itemizes the major
5. On a statement of cash flows prepared according to the direct method, operating
activities generally include cash receipts from the sale of goods and services, cash
6. The indirect method of reporting cash flows from operating activities begins with net
7. Payments of cash dividends should be reported on the statement of cash flows as
financing activities.
8. The amount of the land purchase that was paid for in cash ($400,000) should be reported
on the statement of cash flows as an investing activity. Also, a schedule of noncash
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 12
10. Yes; even though a company reports positive net income for the year, it may still show a
net cash outflow from operating activities. When net income is reconciled to the net
11. Depreciation is not a source or a use of cash, even though it must be added to net
12. (a) Indirect method. (b) The increase in accounts (trade) receivable represents an
amount by which the company had tied up cash versus cash being freed up in accounts
13. Google’s statement of cash flows shows several major financing activities ($ millions):
Net payments related to stock-based award activities …………………………………… $(4,166)
14. Samsung’s net cash (all is KRW millions) from operating activities is ₩62,162,041; its
net cash used in investing activities is ₩(49,385,216), and its net cash used in financing
activities is ₩(12,560,867).
15. Samsung’s investing activities yielding cash outflows and inflows follow. Its cash
outflows are listed in parentheses (₩ millions):
Net decrease (increase) in short-term financial instruments …………………………... ₩ 387,627
Disposal of short-term available-for-sale financial assets ………………………………. 499,856
Acquisition of short-term available-for-sale financial assets ………………………….. –
703
Quick Study 12-1 (10 minutes)
1. (I) Investing 6. (F) Financing
Quick Study 12-2 (20 minutes)
Statement of cash flow items in sequential order 1 through 13 on left OR
textbook order on right:
1.
d
8.
k
6
a.
5
h.
2.
f
9.
j
3
b.
3.
b
10.
g
4
c.
9
4.
c
11.
i
1
d.
8
k.
6.
a
13.
e
2
7.
l
10
g.
Quick Study 12-3 (10 minutes)
Cash Flows from Operating Activities (Indirect)
Net Income ……………………………………………………………….
$20,000
Adjustments to reconcile net income to net cash
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Quick Study 12-4 (10 minutes)
Cash Flows from Operating Activities (Indirect)
Net Income ……………………………………………………………….
$15,000
Adjustments to reconcile net income to net cash
provided by operating activities
Quick Study 12-5 (20 minutes)
Cash Flows from Operating Activities (Indirect)
Twix
Dots
Skor
Net Income ……………………………………………………..
$ 4,000
$100,000
$72,000
Adjustments to reconcile net income to net
cash provided by operating activities
(10,000)
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 12
Quick Study 12-6 (15 minutes)
Cash flows from operating activities
Net income ……………………………………………………………………….
$18,200
Quick Study 12-7 (15 minutes)
Cash flows from operating activities
Net income ……………………………………………………………………….
$30,000
Adjustments to reconcile net income to operating cash flow
Quick Study 12-8 (10 minutes)
Computation of cash inflow from sale of furniture
Cost of furniture sold (given) …………………………………………………
$52,500
Accumulated depreciation at end of prior year (given) ……………
Increase from depreciation expense (given) …………………………..
Actual accumulated depreciation at end of current yr (given) …
Accumulated depreciation on sold furniture ……………………….
Cash received from sale of furniture at book value ……………..
$12,500
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 12
Quick Study 12-9 (10 minutes)
a. Increase of $8,000. The cost, accumulated depreciation, and resulting loss
do not affect investing cash flows. Only cash received of $8,000 affects
Quick Study 12–10 (10 minutes)
1. Reconstructed journal entry for equipment sale:
Cash ………………………………………………………………………. 37,000
2. We reconstruct the T-account for Accumulated Depreciation—Equipment
to determine its Depreciation Expense of $60,000.
3. We reconstruct the T-account for Equipment to determine its purchases of
equipment of $120,000.
Equipment
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 12
Quick Study 12–11 (10 minutes)
1. Reconstructed journal entry for building sale:
Cash ……………………………………………………………………. 130,000
2. We reconstruct the T-account for Accumulated Depreciation—Building to
determine its Depreciation Expense of $45,000.
3. We reconstruct the T-account for Building to determine its purchases of
buildings of $280,000.
Quick Study 12–12 (15 minutes)
Investing Activities
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 12
Quick Study 12–13 (15 minutes)
Computation of cash inflow from sale of furniture
Cost of furniture sold (given) …………………………..………………
$55,000
$25,400
Quick Study 12–14 (10 minutes)
a. Decrease of $16,000. The carrying value and gain do not affect financing
Quick Study 12–15 (10 minutes)
Part 1
Computation of cash received from the sale of common stock
Increase in Common stock ($105,000 – $100,000) …………………………….
$ 5,000
Increase in Paid-in capital in excess of par ($567,000-$342,000) ………
Cash received from the sale of common stock ……………………………..
Total “expected” retained earnings……………………………………………………
Cash paid for dividends …………………………………………………………………….
Quick Study 12-16 (15 minutes)
Financing Activities
Cash dividends paid …………………………………………………………………………
Cash provided by financing activities ……………………………………………….
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Quick Study 12-17 (15 minutes)
1. Computation of cash paid for dividends
Beginning retained earnings ……………………………………..
$ 8,400
Net income ……………………………………………………………….
Total “expected” retained earnings…………………………...
Actual ending retained earnings ………………………………..
(35,600)
$ 2,800
2. Computation of cash payments for notes
Beginning notes payable …………………………………………..
$69,000
Total “expected” notes payable …………………………………
Actual ending notes payable ……………………………………..
(29,000)
$40,000
Quick Study 12–18 (20 minutes)
VPI CO.
Statement of Cash Flows (Indirect Method)
For Current Year Ended December 31
Cash flows from operating activities
Net income …………………………………………………………………………
$23,000
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation expense ……………………………………………………….
Gain on sale of machinery ………………………………………………..
Decrease in accounts receivable ………………………………………
Increase in inventory ……………………………………………………….
Increase in accounts payable ……………………………………………
Cash flows from investing activities
Cash received from sale of machinery …………………………..
9,500
Net cash provided by investing activities …………………………..
9,500
Cash flows from financing activities
Cash received from issuing stock ………………………………………
Cash paid for dividends ……………………………………………………..
Net increase in cash ……………………………………………………….
40,000
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Quick Study 12-19 (10 minutes)
1. High to Low: Mancala, $70,000; Yahtzee, $60,000; and Cluedo, $(24,000).
Quick Study 12–20A (10 minutes)
a.
Credit
d.
Debit
Quick Study 12–21B (10 minutes)
Cash Receipts from Operations (Direct)
Sales revenue ………………………………………………
$30,000
Interest revenue ……………………………………………
Decrease in accounts receivable …………………..
Increase in interest receivable ………………………
Quick Study 12–22B (10 minutes)
Cash Payments to Suppliers (Direct)
Cost of goods sold …………………………..…………..
$42,000
Decrease in inventory …………………………………..
Increase in accounts payable ……………………….
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 12
Quick Study 12–23B (10 minutes)
Cash Payments for Operations (Direct)
Operating expenses ……………………………………..
$27,000
Decrease in accrued liabilities ………………………
6,000
Increase in prepaid expenses ……………………….
Quick Study 12–24B (15 minutes)
Case A:
Interest revenue ………………………………………………..
$5,000
Interest receivable, beginning of year ………………..
$ 600
Interest receivable, end of year………………………….
(1,700)
Less increase in interest receivable …………………..
Case B:
Wages expense ………………………………………………..
Wages payable, beginning of year …………………….
Wages payable, end of year …………………………..
Plus decrease in wages payable ……………………….
Alternative Solution:
Interest Receivable†
Wages Payable¥
2,200
Beg. Bal.
9,000
Wages Expense
Cash Paid
1,000
End. Bal.
Quick Study 12–25B (10 minutes)
1. Cash received from customers = Sales + Accounts receivable decrease
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Quick Study 12–26B (10 minutes)
1. Cash paid for inventory
2. Cash paid for operating expenses
Quick Study 12–27B (10 minutes)
Cash flows from operating activities
Receipts from sales to customersa ………………………………..
$ 498,000
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EXERCISES
Exercise 12-1 (25 minutes)
Statement of Cash Flows
Noncash
Operating
Activities
Investing
Activities
Financing
Activities
Investing &
Financing
Activities
Not Reported
on Statement
or in Notes
a. Declared and paid a
cash dividend
X
X
f. Purchased land by
issuing common stock
X
g. Inventory increased
in the year
X
h. Sold equipment for
cash, yielding a loss
X
decreased in the year
increased in the year
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 12
Exercise 12-2 (20 minutes)
Cash flows from operating activities—indirect method
Net income ……………………………………………………………………………………
$ 24,000
Net cash provided by operating activities ………………………………………….
$ 43,000
Adjustments to reconcile net income to net cash provided by
operating activities
Exercise 12-3 (30 minutes)
Cash flows from operating activities—indirect method
Net income (loss) ……………………………………………………………………………..
$ (16,000
)
Adjustments to reconcile net income to net cash provided by
)
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Exercise 12-4 (30 minutes)
Cash flows from operating activities
Net income …………………………………………………………………………….
$ 481,540
Adjustments to reconcile net income to net cash
Exercise 12-5 (20 minutes)
Cash flows from operating activities
Net income ……………………………………………………………………………..
$374,000
Adjustments to reconcile net income to net cash
provided by operating activities
Income statement items not affecting cash
Net cash provided by operating activities ………………………………….
$466,600
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Exercise 12-6 (10 minutes)
Cash flows from operating activities
Net income …………………………………………………………………….
$400,000
Adjustments to reconcile net income to operating cash flow
$436,000
Exercise 12-7 (20 minutes)
Cash flows from operating activities—indirect method
Net income ……………………………………………………………………………………
$ 8,500
)
)
)
Net cash provided by operating activities ………………………………………….
$ 5,500
Adjustments to reconcile net income to net cash provided by
operating activities
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 12
Exercise 12-8 (10 minutes)
Cash flows from investing activities
Exercise 12-9 (10 minutes)
Cash flows from financing activities
Sale of common stock ……………………………………………………………..
$ 64,000
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 12
Exercise 12–10 (20 minutes)
1.
a. Cash ……………………………………………………………………. 8,000
2.
a. Machinery ……………………………………………………………. 10,000
3.
a. Cash ……………………………………………………………………. 2,000
4.
a. Notes Payable ………………………………………………………. 40,000
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Exercise 12-11 (40 minutes)
Part 1
IKIBAN, INC.
Statement of Cash Flows (Indirect Method)
For Year Ended June 30, 2019
Cash flows from operating activities
Net income ……………………………………………………………….
$ 99,510
Adjustments to reconcile net income to net cash
provided by operating activities
Income statement items not affecting cash
Depreciation expense …………………………………………….
58,600
Gain on sale of plant assets ……………………………………
Increase in accounts receivable ……………………………..
Decrease in inventory ……………………………………………
22,700
Decrease in prepaid expenses ………………………………..
Decrease in wages payable …………………………………….
Decrease in income taxes payables ………………………..
Cash flows from investing activities
Cash received from sale of equip. (Note 1) ………………..
10,000
Cash paid for equipment (Note 1—given) ………………….
(57,600)
Net cash used in investing activities …………………………
(47,600)
Cash flows from financing activities
Cash received from stock issuance …………………………..
60,000
Cash paid to retire notes (Note 2—given) ………………….
Cash paid for dividends (Note 3) ……………………………….
Net cash used in financing activities …………………………
Net increase in cash ……………………………………………………
$ 43,500
Cash balance at prior year-end ……………………………………
44,000
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Exercise 12-11 (Part 1 continued)
(1)
Cost of equipment sold (given) ……………………………………………………………
$ 48,600
Accumulated depreciation of equipment sold* ……………………………………..
(40,600)
Book value of equipment sold …………………………………………………………….
8,000
Gain on sale of equipment (given) ……………………………………………………….
2,000
Cash receipt from sale of equipment ……………………………………………………
$ 10,000
Cost of equipment sold ………………………………………………………………………
$ 48,600
Plus net increase in the equipment account balance …………………………..
9,000
Cash paid for new equipment (given) …………………………..………………………
$ 57,600
Bal., 6/30/2018
115,000
Bal., 6/30/2018
Purchase
Sale 48,600
Sale (plug) *40,600
Depr. Expense
Bal., 6/30/2019
124,000
Bal., 6/30/2019
(2)
Carrying value of notes retired ……………………………………………………………
$ 30,000
Cash payment to retire notes ………………………………………………………………
$ 30,000
(3)
Retained Earnings
Bal., 6/30/2018
24,100
Dividends (plug)
Net income
99,510
Bal., 6/30/2019
33,300
Part 2
Interpretation: A 49.6% result on the cash flow on total assets ratio is
indicative of very good performance.