CHAPTER 15
STATEMENT OF CASH FLOWS
DISCUSSION QUESTIONS
1. It is costly to accumulate the data needed and to prepare the statement of cash flows.
2. It focuses on the differences between net income and cash flows from operating activities, and the data
needed are generally more readily available and less costly to obtain than is the case for the direct method.
3. In a separate schedule of noncash investing and financing activities accompanying the statement of cash
flows.
6. a. $100,000 gain
b. Cash inflow of $600,000
c. The gain of $100,000 would be deducted from net income in determining net cash flow from operating
activities; $600,000 would be reported as cash flows from investing activities.
7. Cash flows from financing activities—issuance of bonds, $1,960,000 ($2,000,000 98%)
8. a. Cash flows from investing activities—Cash received from the disposal of fixed assets, $15,000
CHAPTER 15 Statement of Cash Flows
BASIC EXERCISES
BE 15–1
a. Investing d. Operating
BE 15–2
Net income ……………………………………………………………………………………….
$286,900
Adjustments to reconcile net income to net cash flow from
operating activities:
Net cash flow from operating activities ………………………………………………
$283,605
BE 15–3
Net income ……………………………………………………………………………………….
$75,800
Changes in current operating assets and liabilities:
3,380
Net cash flow from operating activities ………………………………………………
$66,730
BE 15–4
Cash flows from (used for) operating activities:
Net income……………………………………………………………….. $396,200
Adjustments to reconcile net income to net cash flow
from operating activities:
CHAPTER 15 Statement of Cash Flows
BE 15–5
The gain on the sale of land is subtracted from net income in the operating activities section.
Gain on sale of land …………………………………………………………………………… $ (30,000)
BE 15–6
Cash flows from (used for) financing activities:
BE 15–7
20Y2
20Y1
a. Net cash flow from operating activities ………………………….
$ 476,000
$ 455,000
Cash used to purchase property, plant, and
(341,600)*
(302,400)**
$ 134,400
$ 152,600
b. The change in free cash flow from $152,600 to $134,400 represents a decline.
Appendix 2 BE 15–8
Sales …………………………………………………………………………………………………….. $225,000
CHAPTER 15 Statement of Cash Flows
EXERCISES
EX. 15–1
There were net additions to the net loss reported on the income statement to convert the net
loss from the accrual basis to the cash basis. For example, depreciation is an expense in
The cash flows from operating activities detail is provided as follows for class discussion:
Cash flows from (used for) operating activities:
Net income (loss)
$ (723)
Adjustments to reconcile net income (loss) to net cash flow
Depreciation and amortization
Special charges
389
Debt and lease discount amortization
Share based compensation
Other, net
251
Changes in current operating assets and liabilities:
Decrease (increase) in accounts receivable
(21)
Decrease (increase) in other assets
Increase (decrease) in accounts payable
285
Increase (decrease) in advanced ticket sales
246
Increase (decrease) in frequent flyer deferred revenue
Increase (decrease) in other liabilities
415
Net cash flow from operating activities
CHAPTER 15 Statement of Cash Flows
Ex. 15–2
a. Cash payment, $510,000
e.
Cash payment, $30,000
Cash receipt, $392,000
c. Cash receipt, $72,400
g.
Cash payment, $225,000
h.
Cash payment, $1,025,000
Ex. 15–3
a. operating
g.
financing
h.
investing
c. financing
financing
investing
Ex. 15–4
a. added
g.
added
h.
added
c. added
added
added
e. added
deducted
CHAPTER 15 Statement of Cash Flows
Ex. 15–5
a. Net income …………………………………………………………………….. $93,700
Adjustments to reconcile net income to net cash flow
from operating activities:
Depreciation …………………………………………………………….. 31,200
Changes in current operating assets and liabilities:
Net cash flow from operating activities…………………………….. $128,550
b. Cash flows from operating activities shows the cash inflow or outflow from a company’s
day–to-day operations. Net income reports the excess of revenues over expenses for a
company using the accrual basis of accounting. Revenues are recorded when they are
Ex. 15–6
a. Cash flows from (used for) operating activities:
Net income ………………………………………………………………………. $214,000
Adjustments to reconcile net income to net cash flow
from operating activities:
b. Yes. The amount of cash flows from operating activities reported on the statement of cash
flows is not affected by the method of reporting such flows.
CHAPTER 15 Statement of Cash Flows
Ex. 15–7
a. Cash flows from (used for) operating activities:
Net income ……………………………………………………………………. $508,000
Adjustments to reconcile net income to net cash flow
from operating activities:
Net cash flow from operating activities …………………………... $525,410
Note: The change in dividends payable would be used to adjust the dividends
declared in obtaining the cash paid for dividends in the financing activities section
of the statement of cash flows.
b. Cash flows from operating activities reports the cash inflow or outflow from a company’s
day–to-day operations. Net income reports the excess of revenues over expenses for a
accrual basis of accounting.
Ex. 15–8
Cash flows from investing activities:
Cash received from sale of equipment ……………………………………………………….. $105,900
Ex. 15–9
Cash flows from investing activities:
Cash received from sale of equipment ……………………………………………………….. $20,200
CHAPTER 15 Statement of Cash Flows
Ex. 15–10
Cash flows from (used for) investing activities:
Cash received from sale of land ………………………………………………………….. $ 106,800
Cash paid for purchase of land …………………………………………………………… (134,300)
Ex. 15–11
Dividends declared …………………………………………………………………………………. $1,200,000
Decrease in dividends payable ………………………………………………………………… 150,000
Dividends paid to stockholders during the year ……………………………………….. $1,350,000
Ex. 15–12
Cash flows from (used for) financing activities:
Ex. 15–13
Cash flows from (used for) investing activities:
Cash paid for purchase of land …………………………………………………………… $(246,000)
Ex. 15–14
Cash flows from (used for) financing activities:
CHAPTER 15 Statement of Cash Flows
Ex. 15–15
a. Net cash flow from (used for) operating activities ……………………… $357,500
Increase in accounts receivable …………………………..…………………… 14,300
Increase in prepaid expenses …………………………………………………… 2,970
Note to Instructors: The net income must be determined by working backward through the
“Cash flows from operating activities” section of the statement of cash flows. Hence,
those items that were added (deducted) to determine net cash flows from operating
activities must be deducted (added) to determine net income.
b. Curwen’s net income differed from cash flows from operations because of:
• $29,480 of depreciation expense which has no effect on cash flows from operating
activities,
CHAPTER 15 Statement of Cash Flows
Ex. 15–16
a.
National Beverage Co.
Cash Flows from Operating Activities
(in thousands)
Cash flows from (used for) operating activities:
Net income
$49,311
Adjustments to reconcile net income to net
Depreciation
Gain on disposal of property
Other items involving noncash expenses
1,383
Changes in current operating assets and
liabilities:
Net cash flow from operating activities
b. National Beverage is doing well financially. The company has positive earnings and
positive net cash flow from operating activities. The increase in accounts receivable is a
positive sign, indicating an increase in sales.
CHAPTER 15 Statement of Cash Flows
Ex. 15–17
a.
Olson-Jones Industries Inc.
Statement of Cash Flows
For the Year Ended December 31, 20Y2
Cash flows from (used for) operating activities:
Net income
$ 62
Adjustments to reconcile net income to net
26
liabilities:
Increase in accounts receivable
(6)
Increase in inventories
(18)
Increase in accounts payable
14
Net cash flow from operating activities
$ 38
Cash flows from (used for) investing activities:
Cash received from sale of land
Cash paid for purchase of equipment
(30)
Net cash flow from investing activities
Cash flows from (used for) financing activities:
Cash received from sale of common stock
$ 60
Net cash flow from financing activities
Net increase in cash
Cash balance, January 1, 20Y2
Cash balance, December 31, 20Y2
* Dividends = $24 – $5 = $19
b. Olson-Jones Industries Inc.’s net income was more than the cash flows from operations
because of:
• $26 of depreciation expense, which has no effect on cash.
• A $40 gain on the sale of land. The proceeds from this sale of $120, which include the
gain, are reported in the investing activities section of the statement of cash flows.
CHAPTER 15 Statement of Cash Flows
Ex. 15–18
1. The increase in accounts receivable should be deducted from net income in the “Cash
flows from operating activities” section.
2. The gain on the sale of investments should be deducted from net income in the “Cash
flows from operating activities” section.
A correct statement of cash flows would be as follows:
Shasta Inc.
Statement of Cash Flows
For the Year Ended December 31, 20Y9
Cash flows from (used for) operating activities:
Net income
$ 360,000
Adjustments to reconcile net income to net
and liabilities:
Increase in accounts receivable
Increase in inventories
Increase in accounts payable
3,600
Decrease in accrued expenses
payable
(2,400)
Net cash flow from operating activities
$ 381,360
Cash flows from (used for) investing activities:
Cash received from sale of investments
$ 240,000
Cash paid for purchase of land
(259,200)
Cash paid for purchase of equipment
(432,000)
Net cash flow used for investing activities
(451,200)
Cash flows from (used for) financing activities:
Cash received from sale of common stock
$ 312,000
Cash paid for dividends
(132,000)
Net cash flow from financing activities
Net increase in cash
$ 110,160
Cash balance, January 1, 20Y9
CHAPTER 15 Statement of Cash Flows
Appendix 2 Ex. 15–19
a. Sales ………………………………………………………………………………………. $753,500
Decrease in accounts receivable balance …………………………………. 48,400
Cash received from customers ………………………………………………… $801,900
Appendix 2 Ex. 15–20
a. Cost of goods sold ………………………………………………………………….. $1,031,550
Decrease in accounts payable …………………………..……………………… 9,660
CHAPTER 15 Statement of Cash Flows
Appendix 2 Ex. 15–21
a. Cash flows from (used for) operating activities:
Cash received from customers …………………………………. $ 522,7601
Computations:
1. Sales…………………………………………………………………………………………… $511,000
Decrease in accounts receivable ………………………………………………….. 11,760
Cash received from customers …………………………………………………….. $522,760
2. Cost of goods sold ………………………………………………………………………. $290,500
Increase in inventories ………………………………………………………………… 3,920
3. Operating expenses other than depreciation …………………………………. $105,000
4. Income tax expense …………………………..………………………………………… $ 21,700
Add decrease in income tax payable …………………………………………….. 2,660
Cash payments for income taxes …………………………………………………. $ 24,360
CHAPTER 15 Statement of Cash Flows
Appendix 2 Ex. 15–22
Cash flows from (used for) operating activities:
Cash received from customers ……………………………………… $ 440,4401
Computations:
1. Sales ……………………………………………………….…………………………….. $445,500
Increase in accounts receivable …………………………..………………….. (5,060)
Cash received from customers ……………………………………………….. $440,440
2. Cost of goods sold …………………………………………………………………. $154,000
3. Operating expenses other than depreciation ……………………………. $115,280
CHAPTER 15 Statement of Cash Flows
PROBLEMS
Prob. 15–1A
Livers Inc.
Statement of Cash Flows
For the Year Ended December 31, 20Y3
Cash flows from (used for) operating activities:
Net income
$ 500,000
Adjustments to reconcile net income to
(75,000)
and liabilities:
Increase in accounts receivable
(50,000)
Increase in inventories
(20,000)
Increase in accounts payable
40,000
Decrease in accrued expenses payable
(5,000)
Net cash flow from operating activities
$ 490,000
Cash flows from (used for) investing activities:
Cash received from sale of investments
$ 175,000
Cash paid for purchase of land
Cash paid for purchase of equipment
(200,000)
Net cash flow used for investing activities
(525,000)
Cash flows from (used for) financing activities:
Cash received from sale of common stock
$ 125,000
Cash paid for dividends*
Net cash flow from financing activities
40,000
Net increase in cash
$ 5,000
Cash balance, January 1, 20Y3
Cash balance, December 31, 20Y3
$ 155,000
* Cash paid for dividends = $90,000 + $25,000 – $30,000 = $85,000
CHAPTER 15 Statement of Cash Flows
Prob. 15–1A (Concluded)
(Optional)
Livers Inc.
Spreadsheet (Work Sheet) for Statement of Cash Flows
For the Year Ended December 31, 20Y3
Balance,
Transactions
Balance,
Account Title
Dec. 31, 20Y2
Debit
Credit
Dec. 31, 20Y3
Accounts receivable (net)
(j) 100,000
(i) 500,000
(h) 200,000
1,400,000
Accum. depr.—equipment
(500,000)
(g) 100,000
(600,000)
Accounts payable
(300,000)
(f) 40,000
(340,000)
Accrued expenses payable
(50,000)
(e) 5,000
(45,000)
Dividends payable
(25,000)
(d) 5,000
(30,000)
Common stock, $4 par
(600,000)
(c) 100,000
(700,000)
Paid-in capital in excess
of par—common stock
(175,000)
(c) 25,000
(200,000)
Retained earnings
(950,000)
(b) 90,000
(a) 500,000
870,000
Operating activities:
Net income
(a) 500,000
Depreciation
(g) 100,000
Gain on sale of investments
(j) 75,000
Increase in accounts
receivable
(l) 50,000
Increase in inventories
(k) 20,000
Increase in accounts payable
(f) 40,000
Decrease in accrued
expenses payable
(e) 5,000
Investing activities:
Purchase of equipment
(h) 200,000
Purchase of land
(i) 500,000
Sale of investments
(j) 175,000
Financing activities:
Declaration of cash dividends
(b) 90,000
Sale of common stock
(c) 125,000
Increase in dividends payable
(d) 5,000
Net increase in cash
(m) 5,000
Totals
Note to Instructors: The letters in the debit and credit columns are included for
reference purposes only.
CHAPTER 15 Statement of Cash Flows
Prob. 15–2A
Yellow Dog Enterprises Inc.
Statement of Cash Flows
For the Year Ended December 31, 20Y8
Cash flows from (used for) operating activities:
Net income
$ 250,000
Adjustments to reconcile net income to
Decrease in accounts receivable
20,000
Increase in inventories
(70,000)
Increase in prepaid expenses
(10,000)
Increase in accounts payable
25,000
Net cash flow from operating activities
$ 350,000
Cash flows from (used for) investing activities:
Cash paid for equipment
$ (420,000)
Net cash flow used for investing activities
Cash flows from (used for) financing activities:
Cash received from sale of common stock
Cash paid for dividends
Cash paid to retire mortgage note payable
Net cash flow from financing activities
Net decrease in cash
Cash balance, January 1, 20Y8
Cash balance, December 31, 20Y8
$ 95,000
Note to Instructors: The disposal of fully depreciated equipment is not included in the cash
flow statement because there is no associated cash flow. This transaction strictly involves
the removal of $90,000 from the equipment and accumulated depreciation—equipment
accounts.
CHAPTER 15 Statement of Cash Flows
Prob. 15–2A (Concluded)
(Optional)
Yellow Dog Enterprises Inc.
Spreadsheet (Work Sheet) for Statement of Cash Flows
For the Year Ended December 31, 20Y8
Account Title
Balance,
Dec. 31, 20Y7
Transactions
Balance, Dec.
31, 20Y8
Debit
Credit
Cash
110,000
(l) 15,000
95,000
Accounts receivable (net)
280,000
(k) 20,000
Inventories
450,000
Prepaid expenses
15,000
Equipment
800,000
(h) 420,000
(g) 90,000
1,130,000
Accum. depr.—equipment
(190,000)
(g) 90,000
(235,000)
Accounts payable
(75,000)
(e) 25,000
(100,000)
Mortgage note payable
(500,000)
(d) 500,000
0
Common stock, $10 par
(200,000)
(c) 300,000
(500,000)
Paid-in capital in excess
of par—common stock
(100,000)
(c) 300,000
(400,000)
Retained earnings
(580,000)
(b) 45,000
(a) 250,000
(785,000)
Totals
0
1,135,000
1,135,000
0
Operating activities:
Net income
Depreciation
Decrease in accts. receivable
Increase in inventories
(j) 70,000
Increase in prepaid expenses
(i) 10,000
Increase in accounts payable
Investing activities:
Purchase of equipment
(h) 420,000
Financing activities:
Payment of cash dividends
(b) 45,000
Sale of common stock
Payment of mortgage note
(d) 500,000
Net decrease in cash
Totals
1,045,000
1,045,000
Note to Instructors: The letters in the debit and credit columns are included for reference
purposes only.
CHAPTER 15 Statement of Cash Flows
Prob. 15–3A
Whitman Co.
Statement of Cash Flows
For the Year Ended December 31, 20Y2
Cash flows from (used for) operating activities:
Net loss
$ (35,320)
Adjustments to reconcile net loss to
net cash flow from operating activities:
Increase in accounts receivable
(66,960)
Increase in inventories
(105,480)
Decrease in prepaid expenses
5,760
Decrease in accounts payable
(35,820)
Net cash flow used for operating activities
Cash flows from (used for) investing activities:
Cash received from land sold
$151,200
Cash paid for acquisition of building
(561,600)
Cash paid for purchase of equipment
(104,400)
Net cash flow used for investing activities
(514,800)
Cash flows from (used for) financing activities:
Cash received from issuance of
bonds payable
$270,000
Cash received from issuance of
common stock
Cash paid for dividends
(32,400)
Net cash flow from financing activities
Net decrease in cash
Cash balance, January 1, 20Y2
Cash balance, December 31, 20Y2
* Depreciation = $26,280 + $29,340
** Loss on sale of land = $151,200 – $163,800