Solutions Chapter 13 – Set B Exercises – Libby 7e
E13–1B.
Cash flows from operating activities—indirect method
Net income …………………………………………………………………………………..
$26,625
Depreciation expense ……………………………………………………………………
9,500
E13–2B.
Req. 1
Cash flows from operating activities—indirect method
Net loss ……………………………………………………………………………………….
($5,900
)
Depreciation expense ……………………………………………………………………
8,000
Amortization of copyrights ………………………………………………………………
Accounts receivable decrease ($7,000 – $12,000) …………………………...
5,000
Salaries payable increase ($16,000 – $2,000) ………………………………….
Other accrued liabilities decrease ($1,500 – $5,700) ………………………….
)
Req. 2
The first reason for the net loss was the depreciation expense. This is a non-cash
expense. Depreciation expense, along with decreased working capital requirements
(current assets – current liabilities), turned the net loss into positive operating cash flow
from operations. The reasons for the difference between net income and cash flow are
important because they help the financial analyst determine if the trends are sustainable
or whether they represent one-time events.
E13–3B.
Cash flows from operating activities—indirect method
Net income …………………………………………………………………………………..
$ 17,000
Depreciation expense ……………………………………………………………………
7,200
Accounts receivable decrease ($10,000 – $21,000) …………………………..
Salaries payable increase ($19,000 – $11,000) …………………………………
8,000
Other accrued liabilities decrease ($5,000 – $10,000) ………………………..
)
Accounts receivable decrease ($11,500 – $13,000) ………………………….
1,500
Inventory increase ($15,000 – $9,000) ……………………………………………
Salaries payable increase ($1,950 – $1,800) ……………………………………
$31,775
E13–4B.
Account
Change
Accounts receivable
Decrease
E13–5B.
Req. 1
Cash flows from investing activities
Year 1
Year 2
Proceeds from sale of equipment …….
$17,864
$22,163
Req. 2
Any gain on the sale of the equipment is subtracted from net income to avoid double
Cash flows from operating activities
Year 1
Year 2
Loss (Gain) on sale of equipment …….
$7,751
$(3,436)
Computations:
Year 1
Year 2
Plant and equipment (at cost)
$76,000
$23,500
Net book value
E13–6B.
Req. 1
Cash flows from operating activities—indirect method
Net income …………………………………………………………………………………..
$15,142
Inventories
Increase
Other current assets
Decrease
Accounts payable
Decrease
Deferred revenue
Increase
Other current liabilities
Depreciation and amortization ………………………………………………………..
3,543
Increase in accounts receivable ………………………………………………………
(649
)
Req. 3
The reason the quality of income ratio was greater than one was primarily because of
large non-cash depreciation charges.
E13–7B.
Cash flows from operating activities—indirect method
Net income …………………………………………………………………………………..
$32,625
Depreciation expense ……………………………………………………………………
13,500
Accounts receivable decrease ($8,500 – $12,000) …………………………...
Inventory increase ($14,000 – $5,000) ……………………………………………
Salaries payable increase ($1,750 – $600) ………………………………………
$41,775
E13–8B.
Req. 1
Cash flows from operating activities—indirect method
Net loss …………………………..…………………………………………………………..
($3,500
)
Depreciation expense ……………………………………………………………………
8,000
Amortization of copyrights ………………………………………………………………
Accounts receivable decrease ($4,000 – $15,000) …………………………...
Salaries payable increase ($15,000 – $3,000) ………………………………….
Other accrued liabilities decrease ($1,000 – $5,900) ………………………….
)
Increase in inventory ……………………………………………………………………..
(445
)
Increase in prepaid expense …………………………………………………………..
(168
)
Increase in accounts payable …………………………………………………………
Decrease in taxes payable ……………………………………………………………..
)
Req. 2
The first reason for the net loss was the depreciation expense. This is a non-cash
E13–9B.
Cash flows from operating activities—indirect method
Net income …………………………………………………………………………………..
$ 5,000
Depreciation expense ……………………………………………………………………
9,900
Accounts receivable decrease ($10,000 – $24,000) …………………………..
Salaries payable increase ($21,000 – $10,000) …………………………………
Other accrued liabilities decrease ($4,000 – $9,000) ………………………….
)
E13–10B.
Account
Change
Accounts receivable
Increase
Inventories
Decrease
Other current assets
Accounts payable
Increase
Deferred revenue
Decrease
Other current liabilities
Increase