ALTERNATE PROBLEMS
AP12–1.
Req. 1
Related
Cash
Balance sheet at December 31
Flow
Section
Current
Year
Prior
Year
Change
Δ in Cash
Cash
$34,000
$29,000
+5,000
10
Net increase in Cash
O
Accounts receivable
45,000
28,000
+17,000
3
Subtract from net income the increase in A/R
O
Merchandise inventory
32,000
38,000
Property and equipment
121,000
100,000
+21,000
7
Payment in cash for equipment
depreciation
$170,000
O
Accounts payable
$36,000
$27,000
+9,000
Add to net income the increase in Wages Payable
Note payable, long-term
46,000
8
Cash used for repayment of note principal
additional paid-in capital
$170,000
4
Add to net income the decrease in Inventory
Income statement for current year
Sales
$135,000
Other expenses
37,800
Net Income
Cost of goods sold
70,000
Financial Accounting, 10e 12-37
AP12–1. (continued)
Ingersol Construction Supply Company
Statement of Cash Flows
For the Year Ended December 31, Current Year
Cash flows from operating activities:
Net income
$27,200 1
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense
$ 5,000
2
Increase in accounts receivable
(17,000)
3
Decrease in merchandise inventory
6,000
4
Increase in accounts payable
5
Increase in wages payable
6
Cash flows from investing activities:
Cash flows from financing activities:
(15,000)
9
Net increase in cash during the year
Req. 2
There was an increase in cash for Ingersol Construction Supply Company this year of
$5,000. Operating activities provided a positive cash flow of $31,000. This inflow of
AP12–2.
Req.1
Related Cash
Balance sheet at December 31
Flow Section
Current
Year
Prior
Year
Change
Δ in Cash
Cash
$64,000
$65,000
-1,000
10
Net decrease in Cash
O
Accounts receivable
15,000
20,000
–5,000
3
Add to net income the decrease in A/R
O
Inventory
22,000
20,000
+2,000
4
Subtract from net income the increase in Inventory
Property and equipment
150,000
7
Payment in cash for equipment
Add to net income the increase in Taxes Payable
Note payable, long-term
86,000
75,000
8
Borrow additional note principal
Income statement for current year
Sales
$190,000
Cost of goods sold
Other expenses
Net Income
Financial Accounting, 10e 12-39
AP12–2. (continued)
Audio House, Inc.
Statement of Cash Flows
For the Year Ended December 31, Current Year
Cash flows from operating activities:
Net income
$40,000
1
Adjustments to reconcile net income to net
cash provided by operating activities:
(11,000)
Net cash provided by operating activities
48,000
Cash flows from investing activities:
Cash payments to purchase fixed assets
(60,000)
7
Cash flows from financing activities:
Cash receipts from borrowing on long-term
note
11,000
8
Cash receipts from issuing stock
Cash dividends paid
( 5,000)
Net decrease in cash during the year
Req. 2
There was an overall decrease in cash of $1,000. This resulted from an inflow of
AP12–3.
Req. 1
Related
Cash
Balance sheet at December 31
Flow
Section
Current
Year
Prior
Year
Change
Δ in Cash
Cash
$34,000
$29,000
+5,000
10
Net increase in Cash
O
Accounts receivable
45,000
28,000
+17,000
3
Subtract from Sales to compute collections from
customers
O
Merchandise inventory
32,000
38,000
-6,000
4
Subtract from CGS to compute payments to suppliers
Property and equipment
7
Payment in cash for equipment
depreciation
O
Accounts payable
5
Wages payable
Note payable, long-term
40,000
46,000
-6,000
8
Cash used for repayment of note principal
additional paid-in capital
1
Increased for net income of $27,200 and decreased
Income statement for current year
Cost of goods sold
Other expenses
Net Income
Sales
$135,000
AP12–3. (continued)
Ingersol Construction Supply Company
Statement of Cash Flows
For the Year Ended December 31, current year
Cash flows from operating activities:
Collections from customers ($135,000 –
$17,000)
$118,000
3
Payments to suppliers ($70,000 – $6,000 –
4,5
Payments for other expenses
(6,800)
Payments for taxes
(6,000)
Net cash provided by operating activities
31,000
Cash flows from investing activities:
Cash payments to purchase fixed assets
(21,000) 7
Cash flows from financing activities:
Cash payments for dividends
(15,000)
1
Cash payments on long-term note
(6,000)
Cash receipts from issuing stock
Net increase in cash during the year
Req. 2
There was an increase in cash for Ingersol Construction Supply Company this year of
$5,000. Operating activities provided a positive cash flow of $31,000. This inflow of
CONTINUING PROBLEM
CON12-1.
Operating activities
Net income 71,993$
Adjustments to reconcile net income to net cash provided by
operating activitites:
Investing activities
Acquisition of businesses (5,934)
Purchases of property and equipment (19,844)
Sale of property and equipment 200
Net cash used in investing activities (25,578)
Financing activities
Proceeds from revolving line of bank credit 749,349
Payments on revolving line of bank credit (700,749)
Consolidated Statements of Cash Flows
(In thousands)
for the year ended December 31
POOL CORPORATION
CASES AND PROJECTS
ANNUAL REPORT CASES
CP12–1.
Req. 1:
Req. 2
The increase in merchandise inventory was the largest change in operating assets
Req. 3:
American Eagle Outfitters’ three largest investing and financing uses of cash over
CP12–2.
Req. 1 The company uses the indirect method.
Req. 2 Tax payments of $6,142 thousand were made (located near the bottom of the
Statement of Cash Flows).
Req. 3 “Share–based compensation” is an expense paid with common stock rather
CP12–3.
Req. 1
American Eagle
Outfitters
Express, Inc.
Quality of
Cash flow from operations
$118,567
income ratio
Net income
Req. 2
Industry
Average
American Eagle
Outfitters
Express, Inc.
Quality of Income =
2.61
1.93
6.12
Req. 3
American Eagle
Outfitters
Express, Inc.
Capital
=
Cash flow from operations
$394,426
=
2.33
$118,567
=
2.06
ratio
Req. 4
Industry
Average
American Eagle
Outfitters
Express, Inc.
Capital Acquisitions =
3.13
2.33
2.06
FINANCIAL REPORTING AND ANALYSIS CASES
CP12–4.
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.
Statement of Cash Flows
For the Quarter Ended May 31
Cash flows from operating activities:
Net income ……………………………………………………………..
$ 163,837
Add (deduct) to reconcile net income to net cash flow:
Depreciation expense …………………………………………………..
276,304
Amortization expense …………………………………………………..
5,901
Accounts receivable increase ………………………….. ………….
Inventories increase ……………………………………………………..
Other current assets increase ………………………………………
Accounts payable increase …………………………………………..
280,935
Accrued liabilities increase …………………………………………..
164,087
Income taxes payable decrease …………………………………..
Net cash inflow from operating activities ………………..
Cash flows from investing activities:
Property and equipment purchased ………………………….
(1,081,121)
Other assets decrease …………………………………………………
50,055
Net cash outflow from investing activities
(1,031,066)
Cash flows from financing activities:
Repayment of short-term debt …………………………………
(1,000,000)
Repayment of long-term debt ……………………………………….
(2,355,029)
Issuance of long-term debt ………………………………………
Net cash inflow from financing activities …………………
Net increase in cash during the quarter …………………………..
Cash and cash equivalents, February 29 …………………………
Cash and cash equivalents, May 31 ……………………………….
CP12–5.
Date: (today’s date)
To: Supervising Analyst
From: (your name)
Re: Evaluation of Carlyle Golf, Inc.’s Planned Expansion
While many companies experience losses and negative cash flows during the early
years of their operations, the cash situation for Carlyle Golf is a major concern. The
company has announced plans to increase inventory by $2.2 million but there is no
CRITICAL THINKING CASE
CP12–6.
Req. 1
The payment from Merrill Lynch to Enron does not automatically make the Nigerian
barge transaction a sale. When a loan is established between a lender and borrower, a
The four revenue recognition criteria discussed in Chapter 3 are:
1) delivery has occurred or services have been rendered,
4) collection is reasonably assured.
Without knowing about the secret side deal, it’s not obvious which of the four criteria
have not been fulfilled. Knowing about the side deal, however, makes it clear that the
first criterion has not been fulfilled. At the time of the initial transaction (and receipt of
cash from Merrill Lynch) Enron had a continuing obligation to ensure that Merrill Lynch
was repaid six months later. In other words, Enron had not performed all of the acts
promised to Merrill Lynch.
Req. 2
By recording the transaction as a regular sale, Enron reports the cash received as a
Req. 3
Most financial statement users view cash flows from operating activities as recurring
sources of cash into the future. If $100,000 of cash is generated from operations this
FINANCIAL REPORTING AND ANALYSIS TEAM PROJECT
CP12–7.