25 Minutes, Medium
a.
Cash flows from operating activities:
Net income 928,000$
Add: Depreciation expense 49,000$
Increase in accounts payable to suppliers 5,000
Increase in accrued interest payable 2,000 56,000
Subtotal 984,000$
Less: Increase in accounts receivable 10,000$
PROBLEM 13.5B
ROYCE INTERIORS, INC.
For the Year Ended December 31, 2018
Partial Statement of Cash Flows
ROYCE INTERIORS, INC.
(INDIRECT)
Increase in accrued interest receivable 4,000
Increase in inventories 25,000
45 Minutes, Strong
a.
Cash flows from operating activities:
Cash received from customers (1) 3,340,000$
Interest received (2) 65,000
Cash provided by operating activities 3,405,000
Cash paid to suppliers and employees (3) (2,334,000)$
Cash flows from investing activities:
Purchases of marketable securities (50,000)$
Proceeds from sales of marketable securities (6) 65,000
Loans made to borrowers (30,000)
Collections on loans 27,000
Cash paid to acquire plant assets (350,000)
Proceeds from sales of plant assets (7) 22,000
Proceeds from short-term borrowing 56,000$
Payments to settle short-term debts (70,000)
Proceeds from issuing common stock (8) 160,000
Net increase (decrease) in cash and cash equivalents 453,000$
Supporting computations:
(1)
Net sales 3,400,000$
Less: increase in accounts receivable 60,000
Cash received from customers 3,340,000$
(2) Interest received:
Interest income 60,000$
Interest received 65,000$
Cash received from customers:
PROBLEM 13.6B
FOXBORO TECHNOLOGIES
Interest paid (4) (23,000)
Income taxes paid (5) (125,000)
Net cash flow from operating activities 923,000$
(3) Cash paid to suppliers and employees:
Cost of goods sold 1,500,000$
Less: Decrease in inventory 30,000
(4) Interest paid:
Interest expense 27,000$
Less: Increase in accrued interest payable 4,000
Interest paid 23,000$
(5) Income taxes paid:
Income tax expense 115,000$
Add: Decrease in income taxes payable 10,000
Income taxes paid 125,000$
(6) Proceeds from sales of marketable securities:
Cost of marketable securities sold (credit entries
to the Marketable Securities account) 40,000$
Proceeds from sales of marketable securities 65,000$
(7) Proceeds from sales of plant assets:
Proceeds from sales of plant assets 22,000$
(8) Proceeds from issuing capital stock:
Amounts credited to Capital Stock account 60,000$
Add: Amounts credited to Additional Paid-in
Proceeds from issuing capital stock 160,000$
Cash paid for purchases of merchandise:
PROBLEM 13.6B
FOXBORO TECHNOLOGIES
(continued)
Net purchases 1,470,000$
Operating expenses 900,000$
Less: Depreciation (a noncash expense) 75,000
Add: Increase in prepayments 8,000
Cash paid for operating expenses 842,000
●
●
c.
On the contrary, the fact that cash flows from investing and financing activities are negative
attests to the strength of the cash position of the company. The amount of cash increased
PROBLEM 13.6B
FOXBORO TECHNOLOGIES (concluded)
In addition to cost of goods sold, operating expenses required the payment of a
$1,500,000. The primary reasons for the difference are as follows:
40 Minutes, Strong
a.
Cash flows from operating activities:
Net income 562,000$
Add: Depreciation expense 125,000
Increase in accounts payable 37,000
Cash flows from investing activities:
Cash paid to acquire plants assets (see schedule) (2,000,000)$
Net cash used for investing activities (2,000,000)
Cash flows from financing activities:
Short-term borrowing from bank 1,490,000$
Supplementary Schedule: Noncash Investing and Financing Activities
PROBLEM 13.7B
LGIN
For the Year Ended December 31, 2018
Statement of Cash Flows
LGIN
Less: Increase in accounts receivable 865,000$
Decrease in accrued expenses payable 17,000 882,000
Net cash provided by (used in) operating activities (158,000)$
b.
c.
LGIN does not appear headed for insolvency. First, the company has a $4.5 million line of
PROBLEM 13.7B
LGIN (concluded)
LGIN’s credit sales resulted in $865,000 in new receivables, which were uncollected as of
year-end. These credit sales all were included in the computation of net income, but those
cash” to finance their growth.
60 Minutes, Strong
a.
Balance sheet effects:
Beginning Ending
Balance Balance
Cash and cash equivalents 22,000 (x) 38,000 60,000
27,000 (8) 15,000 12,000
Liabilities & Owners’ Equity
50,000 (6) 20,000 70,000
16,000 (7) 2,000 14,000
50,000 (1) 34,000 12,000
Totals
Capital stock (no par value)
Retained Earnings
Notes payable
Cash effects:
Operating activities:
(1) 34,000
(3) 29,000
(4) 5,000
Increase in inventory (5) 8,000
(6) 20,000
(7) 2,000
(8) 4,000
(8) 11,000
Cash paid for plant assets (9) 8,000
Net increase in cash (x) 38,000
Sale of capital stock
Dividends paid
Payment of notes payable
marketable securities
Proceeds from sale of
Loss on sale of marketable
securities
Net loss
Depreciation expense
Decrease in accrued
expenses payable
Decrease in accounts rec.
Increase in accounts pay.
Marketable securities
Sources
Uses
Accounts payable
Accrued expenses payable
PURCELLS, INC.
PROBLEM 13.8B
Changes
Changes
PURCELLS, INC.
Worksheet for a Statement of Cash Flows
Assets
For the Year Ended December 31, 2018
Debit
Credit
40,000 (4) 5,000 35,000
Plant and equipment (net of
accumulated depreciation)
Accounts receivable
PROBLEM 13.8B
PURCELLS, INC.
(continued)
b.
Cash flows from operating activities:
Net loss (34,000)$
Add: Depreciation expense 29,000
Cash flows from investing activities:
Proceeds from sales of marketable securities 11,000$
Cash paid to acquire plants assets (see supplementary schedule) (8,000)
Net cash provided by investing activities 3,000
Cash flows from financing activities:
Dividends paid (4,000)$
Payment of note payable (10,000)
issuance of capital stock 35,000
Net cash provided by financing activities 21,000
Net increase (decrease) in cash 38,000$
Supplementary Schedule: Noncash Investing and Financing Activities
PURCELLS, INC.
For the Year Ended December 31, 2018
Statement of Cash Flows
Less: Increase in inventory 8,000$
Net cash provided by operating activities 14,000$
c.
d.
e.
f.
This company is contracting its operations (or collapsing). Its investment in marketable
securities, receivables, and plant assets all are declining. Further, the income statement
The company’s principal revenue source—sales of Pulsas—is declining. If nothing is done,
it is likely that the annual net losses will increase, and that operating cash flows soon will
Purcells, Inc. has substantially more cash than it did a year ago. Nonetheless, the
PROBLEM 13.8B
PURCELLS, INC. (continued)
Purcells, Inc. achieved its positive cash flow from operating activities basically by
liquidating assets and by not paying its bills. It has converted most of its accounts
receivable into cash, which probably means that credit sales have declined substantially
•
PROBLEM 13.8B
PURCELLS, INC. (concluded)
If management decides to continue business operations, it should take the following actions:
Expand the company’s product lines! The Pulsas alone can no longer support profitable
operations. Also, dependency upon a single product—especially a faddish product with a
•
•
•
•
25 Minutes, Strong
a.
b.
Two of the unusual factors appearing in the current statement of cash flows should be
considered in assessing the company’s ability to pay future dividends. First, the company
SOLUTIONS TO CASES
ANOTHER LOOK AT ALLISON CORPORATION
CASE 13.1
Based on past performance, it does not appear that Allison Corporation can continue to pay
annual dividends of $40,000 without straining the cash position of the company. In a typical
15 Minutes, Easy
a.
b.
Week 4: $100 ($60 + $100 − $30 − $20 − $10)
Week 2: $20 [$(20) + $100 − $30 − $20 − $10]
Week 3: $60 ($20 + $100 − $30 − $20 − $10)
In Week 1 you have two problems. The first is that you do not have enough cash to pay your
rent on Wednesday. But you will by Friday, so your payment may be a couple of days late.
(But what’s going to happen next month? Is there some “handwriting on the wall”?)
CASE 13.2
Ending cash balances:
CASH BUDGETING FOR YOU AS A STUDENT
Cash
Increase No effect No effect
b. (1)
(2)
(3)
(4)
If the costs of producing inventory are rising, use of the FIFO (first-in, first-out)
Changing from an accelerated method to the straight-line method of depreciation will
Requiring dealers to pay more quickly will speed up cash collections from customers,
proposal upon net income; see discussion in paragraph (4), part b.
Net Cash Flows from
Operating Activities
Net Income
CASE 13.3
LOOKIN’ GOOD?
45 Minutes, Medium
a.
(1)
Proposals
Increase No effect No effect
No effect Increase Increase
(or decrease)* (or decrease)*
No effect No effect Increase
(3)
(4)
(6)
(7)
(2)
(5)
(5)
(6)
(7)
CASE 13.3
LOOKIN’ GOOD? (concluded)
Passing up cash discounts will delay many cash outlays by about 20 days. In the long run,
Incurring short-term interest charges of 10% to replace long-term interest charges of 13%
Dividend payments do not enter into the determination of net income or net cash flow from
15 Minutes, Easy
a.
c. (1)
d.
CASE 13.4
PEAK PRICING
In the opinion of the authors, peak pricing normally is an ethical business practice. But
there are exceptions, and management should think carefully about its responsibilities.
The statement is not valid because it addresses only the peak-period aspect of a peak-pricing
Hotels in Palm Springs charge their highest daily rates during the sunny but
b.
The alternative to peak pricing is a single all-the-time price. In this case, excess demand is
20 Minutes, Medium
IMPROVING THE STATEMENT OF CASH FLOWS
CASE 13.5
The first four parts of this case have no written requirements. Part (d) requires students to
write a synopsis, based on their research in the Securities & Exchange Commission’s (SEC)
web site, of a speech given by SEC staff member Scott Taub, in which he makes a specific
reference to the statement of cash flows.
Following are several points that are appropriate for inclusion in the student’s response to
this case:
ETHICS, FRAUD & CORPORATE GOVERNANCE
Improvement can come by looking at reporting as a communications exercise rather
than a compliance exercise.
30 Minutes, Medium
CASE 13.6
FROM TWO COMPANIES
INTERNET
c.
Based on the following information from the 2015 financial statements
of the two companies, Amazon’s positive cash flow from operations in 2015 exceeded
d.
e.
Companies that may have negative cash flows from operations are companies that are
Companies with established products or services in established industries will often
COMPARING CASH FLOW INFORMATION
b.
2015 2014 2013
OPERATING ACTIVITIES
Consolidated net income 7,366$ 7,124$ 8,626$
Depreciation and amortization 1,970 1,976 1,977
Stock-based compensation expense 236 209 227
(in millions)
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31
Deferred income taxes 73 (40) 648
Foreign currency adjustments (137) 415 168
Other operating charges 929 761 465
Net change in operating assets and liabilities (157) (439) (932)
(in millions)
2015 2014 2013
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 14,557$ 8,658$ 8,084$
OPERATING ACTIVITIES:
Net income (loss) 596 (241)$ 274$
Adjustments to reconcile net income (loss) to net cash from operating activities:
6,281 4,746 3,253
Depreciation of property and equipment, including internal-
use software and website development, and other
amortization, including capitalized content costs
AMAZON.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31
(in millions)