25 Minutes, Easy
a.
Cash flows from investing activities:
Purchases of marketable securities (75,000)$
Proceeds from sales of marketable securities (1) 132,000
Loans made to borrowers (210,000)
Supporting computations:
(1) Proceeds from sales of marketable securities:
Cost of securities sold (credit entries to
Marketable Securities account) 90,000$
Add: Gain on sales of marketable securities 42,000
Proceeds from sales of marketable securities 132,000$
(2) Proceeds from sales of plant assets:
Cost of plant assets sold or retired 120,000$
Less: Accumulated depreciation on plant assets
sold or retired 75,000
Less: Loss on sales of plant assets 33,000
Proceeds from sales of plant assets 12,000$
Schedule of noncash investing and financing activities:
Purchases of plant assets 196,000$
c.
Cash must be generated to cover the company’s investment needs through operating or
PROBLEM 13.2A
HAMPTON, INC.
For the Year Ended December 31, Current Year
Partial Statement of Cash Flows
HAMPTON, INC.
Collections on loans 162,000
Cash paid to acquire plant assets (see part b) (60,000)
25 Minutes, Easy
a.
Cash flows from investing activities:
Purchases of marketable securities (78,000)$
Proceeds from sales of marketable securities (1) 46,000
Loans made to borrowers (55,000)
Supporting computations:
(1) Proceeds from sales of marketable securities:
Cost of securities sold (credit entries to
Marketable Securities account) 62,000$
Less: Loss on sales of marketable securities 16,000
Proceeds from sales of marketable securities 46,000$
(2) Proceeds from sales of plant assets:
Cost of plant assets sold or retired 140,000$
Less: Accumulated depreciation on plant assets
Add: Gain on sales of plant assets 12,000
Proceeds from sales of plant assets 52,000$
Schedule of noncash investing and financing activities:
Purchases of plant assets 170,000$
c.
Management has more control over the timing and amount of outlays for investing activities
than for operating activities. Many of the outlays for operating activities are contractual,
PROBLEM 13.3A
HOLMES EXPORT CO.
Collections on loans 62,000
Cash paid to acquire plant assets (see part b) (60,000)
30 Minutes, Medium
a.
Cash flows from operating activities:
Cash received from customers (1) 2,920,000$
Interest and dividends received (2) 171,000
Cash provided by operating activities 3,091,000$
(1) Cash received from customers:
Net sales 2,850,000$
Add: Decrease in accounts receivable 70,000
Cash received from customers 2,920,000$
(2) Interest and dividends received:
Dividend income (cash basis) 104,000$
Interest income 70,000
Subtotal 174,000$
Less: Increase in accrued interest receivable 3,000
Interest and dividends received 171,000$
(3) Cash paid to suppliers and employees:
Cost of goods sold 1,550,000$
Add: Increase in inventories 35,000
Net purchases 1,585,000$
Cash paid to suppliers of merchandise 1,577,000$
Operating expenses 980,000$
Less: Depreciation expense 115,000
Add: Increase in short-term prepayments 5,000
Cash paid for operating expenses:
Cash paid to suppliers and employees
(4) Interest paid:
Interest expense 185,000$
Less: Increase in accrued interest payable 9,000
Interest paid 176,000$
(5) Income taxes paid:
Income tax expense 90,000$
Add: Decrease in accrued income taxes payable 13,000
Cash paid to suppliers of merchandise:
PROBLEM 13.4A
TREECE, INC.
For the Year Ended December 31, 2018
Partial Statement of Cash Flows
TREECE, INC.
Interest paid (4) (176,000)
Income taxes paid (5) (103,000)
Net cash flow from operating activities 336,000$
PROBLEM 13.4A
TREECE, INC. (concluded)
b.
In addition to more aggressive collection of accounts receivable, management could increase
cash flows from operations by (only two required):
25 Minutes, Medium
Cash flows from operating activities:
Net income 223,000$
Add: Depreciation expense 115,000$
Decrease in accounts receivable 70,000
Increase in accounts payable to suppliers 8,000
PROBLEM 13.5A
TREECE, INC.
For the Year Ended December 31, 2018
Partial Statement of Cash Flows
TREECE, INC. (INDIRECT)
Less: Increase in accrued interest receivable 3,000$
Increase in inventories 35,000
Increase in short-term prepayments 5,000
45 Minutes, Strong
a.
Cash flows from operating activities:
Cash received from customers (1) 3,140,000$
Interest received (2) 42,000
Cash provided by operating activities 3,182,000
Cash flows from investing activities:
Purchases of marketable securities (60,000)$
Proceeds from sales of marketable securities (6) 72,000
Loans made to borrowers (44,000)
Collections on loans 28,000
Cash paid to acquire plant assets (500,000)
Proceeds from sales of plant assets (7) 24,000
Net cash used in investing activities: (480,000)
Cash flows from financing activities:
Proceeds from short-term borrowing 82,000$
Payments to settle short-term debts (92,000)
Proceeds from issuing common stock (8) 180,000
Net cash provided for financing activities 50,000
Net increase (decrease) in cash and cash equivalents (80,000)$
Supporting computations:
(1)
Net sales 3,200,000$
Less: increase in accounts receivable 60,000
Cash received from customers 3,140,000$
(2) Interest received:
Interest received 42,000$
Cash received from customers:
PROBLEM 13.6A
21st CENTURY TECHNOLOGIES
For the Year Ended December 31, 2018
Statement of Cash Flows
21st CENTURY TECHNOLOGIES
Cash paid to suppliers and employees (3) (2,680,000)$
Interest paid (4) (38,000)
Income taxes paid (5) (114,000)
Net cash flow from operating activities 350,000$
(3) Cash paid to suppliers and employees:
Cost of goods sold 1,620,000$
Less: Decrease in inventory 60,000
Net purchases 1,560,000
Add: Decrease in accounts payable to suppliers 16,000
(4) Interest paid:
Interest expense 42,000$
Less: Increase in accrued interest payable 4,000
Interest paid 38,000$
(5) Income taxes paid:
Income tax expense 100,000$
Add: Decrease in income taxes payable 14,000
Income taxes paid 114,000$
(6) Proceeds from sales of marketable securities:
Cost of marketable securities sold (credit entries
to the Marketable Securities account) 38,000$
Add: Gain reported on sales of marketable securities 34,000
Proceeds from sales of marketable securities 72,000$
(7) Proceeds from sales of plant assets:
Less: Loss reported on sales of plant assets 12,000
Proceeds from sales of plant assets 24,000$
(8) Proceeds from issuing capital stock:
Amounts credited to Capital Stock account 20,000$
Proceeds from issuing capital stock 180,000$
Cash paid for purchases of merchandise:
PROBLEM 13.6A
21st CENTURY TECHNOLOGIES
(continued)
a.
Operating expenses 1,240,000$
Less: Depreciation (a noncash expense) 150,000
Cash paid for operating expenses 1,104,000
($1,576,000 + $1,104,000) 2,680,000$
b. (1)
c.
To the extent that receivables increase, the company has not yet collected cash from its
PROBLEM 13.6A
21st CENTURY TECHNOLOGIES (concluded)
The primary reason why cash provided by operating activities substantially exceeded net
60 Minutes, Strong
a.
Balance sheet effects:
Beginning Ending
Balance Balance
Cash and cash equivalents 80,000
(x)
43,000 37,000
Accounts receivable 100,000 (3) 750,000 850,000
Cash effects:
Operating activities:
Net income (1) 440,000
Depreciation expense (2) 147,000
Increase in accounts receivable (3) 750,000
Increase in accounts payable (4) 33,000
Decrease in accrued
13,000
Investing activities:
Cash paid for plant assets
Financing activities:
Short-term borrowing
Issuance of capital stock
Subtotals 2,570,000 2,613,000
Net decrease in cash
PROBLEM 13.7A
Changes
Credit
Changes
Effect of Transactions
SATELLITE WORLD
Sources
Uses
SATELLITE WORLD
Worksheet for a Statement of Cash Flows
For the Year Ended December 31, 2018
Assets
Debit
Plant and equipment (net of
Liabilities & Owners’ Equity
Notes payable (short-term) 0 (7) 1,450,000 1,450,000
Accounts payable 30,000 (4) 33,000 63,000
Accrued expenses payable 45,000 (5) 13,000 32,000
Notes payable (long-term) 390,000 (6) 350,000 740,000
Capital stock (no par) 200,000 (8) 500,000 700,000
b.
Cash flows from operating activities:
Net income 440,000$
Add: Depreciation expense 147,000
Increase in accounts payable 33,000
Subtotal 620,000$
Less: Increase in accounts receivable 750,000$
Cash flows from financing activities:
Short-term borrowing from bank 1,450,000$
Issuance of capital stock 500,000
Net cash provided by financing activities 1,950,000
Purchase of plant assets 2,200,000$
Supplementary Schedule: Noncash Investing and Financing Activities
PROBLEM 13.7A
SATELLITE WORLD
For the Year Ended December 31, 2018
Statement of Cash Flows
SATELLITE WORLD (continued)
Decrease in accrued expenses payable 13,000 763,000
Net cash provided by (used in) operating activities (143,000)$
Cash flows from investing activities:
Cash paid to acquire plants assets (see schedule) 1,850,000$
Net cash used for investing activities (1,850,000)
c.
d.
Satellite World does not appear headed for insolvency. First, the company has a $5.5
PROBLEM 13.7A
SATELLITE WORLD (concluded)
Satellite World’s credit sales resulted in $750,000 in new receivables, which were
uncollected as of year-end. These credit sales all were included in the computation of net
60 Minutes, Strong
a.
Balance sheet effects:
Beginning Ending
Balance Balance
Cash and cash equivalents 10,000 (x) 50,000 60,000
Marketable securities 20,000 (8) 15,000 5,000
Liabilities & Owners’ Equity
Accounts payable 50,000 (6) 23,000 73,000
Accrued expenses payable 17,000 (7) 3,000 14,000
Notes payable 245,000 (10) 10,000 (9) 18,000 253,000
Capital stock 120,000 (11) 15,000 135,000
Retained earnings 58,000 (1) 34,000 20,000
(2) 4,000
Totals 490,000 123,000 123,000 495,000
Cash effects:
Operating activities:
Net loss (1) 34,000
Depreciation expense (3) 35,000
Decrease in accounts receivable (4) 17,000
Increase in inventory (5) 2,000
Increase in accounts payable
Decrease in accrued (7) 3,000
Loss on sale of marketable
Investing activities:
Proceeds from sale of
marketable securities (8) 14,000
Cash paid for plant assets (9) 2,000
Financing activities
Dividends paid (2) 4,000
Payment of note payable
Issuance of capital stock (11) 15,000
Subtotals 105,000 55,000
Net increase in cash (x) 50,000
Totals 105,000 105,000
Sources
Uses
MIRACLE TOOL, INC.
Worksheet for a Statement of Cash Flows
For the Year Ended December 31, 2018
Assets
Debit
PROBLEM 13.8A
Changes
Credit
Changes
MIRACLE TOOL, INC.
Accounts receivable 40,000 (4) 17,000 23,000
Plant and equipment (net of
accumulated depreciation) 300,000 (9) 20,000 (3) 35,000 285,000
Totals 490,000 495,000
b.
Cash flows from operating activities:
Net loss (34,000)$
Add: Depreciation expense 35,000
Decrease in accounts receivable 17,000
Cash flows from investing activities:
Proceeds from sale of marketable securities 14,000$
Cash paid to acquire plants assets (see supplementary schedule) (2,000)
Net cash used in investing activities 12,000
Cash flows from financing activities:
Dividends paid (4,000)$
Payment of note payable (10,000)
Issuance of capital stock 15,000
Net cash provided for financing activities 1,000
Purchase of plant assets 20,000$
Supplementary Schedule: Noncash Investing and Financing Activities
PROBLEM 13.8A
MIRACLE TOOL, INC.
For the Year Ended December 31, 2018
Statement of Cash Flows
MIRACLE TOOL, INC. (continued)
Increase in accounts payable 23,000
Less: Increase in inventory 2,000$
Net cash provided by operating activities 37,000$
c.
d.
e.
f.
The company’s principal revenue source—sales of tools—is declining. If nothing is done, it
is likely that the annual net losses will increase, and that operating cash flows will turn
PROBLEM 13.8A
MIRACLE TOOL, INC. (continued)
This company is contracting its operations. Its investment in marketable securities,
Miracle Tool, Inc. has substantially more cash than it did a year ago. Nonetheless, the
Miracle Tool, 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
•
PROBLEM 13.8A
MIRACLE TOOL, INC. (concluded)
If management decides to continue business operations, it should consider taking the following
actions:
Expand the company’s product lines! The combination tool alone can no longer support
profitable operations. Also, dependency upon a single product—especially a faddish
•
•
•
•
improve profitability, but will help cash flows. (As explained above, the company’s current
30 Minutes, Medium
a.
Cash flows from operating activities:
Cash received from customers (1) 3,040,000$
Interest and dividends received 40,000
Cash flows from investing activities:
Loans made to borrowers (690,000)$
Collections on loans 300,000
Cash paid to acquire plant assets (1,700,000)
Proceeds from sales of plant assets (3) 490,000
Net cash used for investing activities: (1,600,000)
Proceeds from issuing bonds payable 2,000,000$
Supporting computations:
(1)
Cash sales 230,000$
Collections on accounts receivable 2,810,000
Cash received from customers 3,040,000$
(2) Cash paid to suppliers and employees:
Cash payments for operating expenses 930,000
Cash paid to suppliers and employees 2,150,000$
(3) Proceeds from sales of plant assets:
Book value of plant assets sold 520,000$
Less: Loss on sales of plant assets 30,000
Proceeds from sales of plant assets 490,000$
SOLUTIONS TO PROBLEM SET B
Note to instructor: The transfer from the money market fund to the general bank account is not
considered a cash receipt because a money market fund is a cash equivalent.
Cash received from customers:
PROBLEM 13.1B
WELCH COMPANY
For the Year Ended December 31, Current Year
Statement of Cash Flows
WELCH COMPANY
Cash paid to suppliers and employees (2) (2,150,000)$
Interest paid (130,000)
Income taxes paid (65,000)
Net cash flow from operating activities 735,000$
25 Minutes, Easy
a.
Cash flows from investing activities:
Purchases of marketable securities (65,000)$
Proceeds from sales of marketable securities (1) 89,000
Supporting computations:
(1) Proceeds from sales of marketable securities:
Cost of securities sold (credit entries to
Marketable Securities account) 74,000$
Add: Gain on sales of marketable securities 15,000
Proceeds from sales of marketable securities 89,000$
(2) Proceeds from sales of plant assets:
Cost of plant assets sold or retired 150,000$
Less: Accumulated depreciation on plant assets
Less: Loss on sales of plant assets 10,000
Proceeds from sales of plant assets 80,000$
b.
Schedule of noncash investing and financing activities:
Purchases of plant assets 245,000$
Less: Portion financed through issuance of long-term debt 160,000
Cash paid to acquire plant assets 85,000$
c.
Cash must be generated to cover the company’s investment needs through operating or financing
PROBLEM 13.2B
MARY’S FASHIONS
For the Year Ended December 31, Current Year
Partial Statement of Cash Flows
MARY’S FASHIONS
Loans made to borrowers (175,000)
Collections on loans 50,000
Cash paid to acquire plant assets (see part b) (85,000)
Proceeds from sales of plant assets (2) 80,000
25 Minutes, Easy
a.
Cash flows from investing activities:
Purchases of marketable securities (59,000)$
Proceeds from sales of marketable securities (1) 52,000
Supporting computations:
(1) Proceeds from sales of marketable securities:
Cost of securities sold (credit entries to
Marketable Securities account) 60,000$
Less: Loss on sales of marketable securities 8,000
Proceeds from sales of marketable securities 52,000$
(2) Proceeds from sales of plant assets:
Cost of plant assets sold or retired 100,000$
Less: Accumulated depreciation on plant assets
Plus: Gain on sales of plant assets 9,000
Proceeds from sales of plant assets 34,000$
b.
Schedule of noncash investing and financing activities:
c.
Management has more control over the timing and amount of outlays for investing activities
PROBLEM 13.3B
RPZ IMPORTS
For the Year Ended December 31, Current Year
Partial Statement of Cash Flows
RPZ IMPORTS
Loans made to borrowers (40,000)
Collections on loans 31,000
30 Minutes, Medium
a.
Cash flows from operating activities:
Cash received from customers (1) 2,590,000$
Interest and dividends received (2) 91,000
Cash provided by operating activities 2,681,000$
(1) Cash received from customers:
Net sales 2,600,000$
Less: Increase in accounts receivable 10,000
Cash received from customers 2,590,000$
(2) Interest and dividends received:
Dividend income 55,000$
Interest income 40,000
Less: Increase in accrued interest receivable 4,000
Interest and dividends received 91,000$
(3) Cash paid to suppliers and employees:
Cost of goods sold 1,300,000$
Add: Increase in inventories 25,000
Net purchases 1,325,000$
Less: Increase in accounts payable to suppliers 5,000
Cash paid to suppliers of merchandise 1,320,000$
Operating expenses 300,000$
Less: Depreciation expense 49,000
Add: Increase in short-term prepayments 1,000
Add: Decrease in accrued operating expenses payable 4,000
(4) Interest paid:
Interest expense 60,000$
Less: Increase in accrued interest payable 2,000
Interest paid 58,000$
(5) Income taxes paid:
Income tax expense 110,000$
Add: Decrease in accrued income taxes payable 2,000
Cash paid to suppliers and employees
Cash paid to suppliers of merchandise:
Cash paid for operating expenses:
PROBLEM 13.4B
ROYCE INTERIORS, INC.
For the Year Ended December 31, 2018
Partial Statement of Cash Flows
ROYCE INTERIORS, INC.
Cash paid to suppliers and employees (3) (1,576,000)
Income taxes paid (5) (112,000)
PROBLEM 13.4B
ROYCE INTERIORS, INC. (concluded)
b.
Management could increase cash flows from operations by (only two required):
Reducing the amount of inventories being held.
More aggressive collection of accounts receivable.
Reducing the amount of short-term prepayments of expenses.