1. Cash equivalents such as money market funds and CDs are highly liquid investments that can be
readily converted into cash. They are treated as cash.
2. Operating activities are the ongoing, day-to-day, revenue-generating activities of an organization.
Investing activities involve the sale or purchase of long-term assets. Financing activities stem
from long-term liabilities and equity sources.
6. (1) Compute the change in cash for the period.
(2) Compute the cash flows from operating activities.
(3) Identify the cash flows from investing activities.
7. Accrual accounting allows a firm to recognize revenues before they are collected or to pay for
inputs before they are expensed. This practice creates the possibility of having a negative
operating cash flow while still reporting a positive net income.
8. Accrual accounting allows a firm to collect revenues that were recognized in a prior period and to
15 STATEMENT OF CASH FLOWS
DISCUSSION QUESTIONS
15-1
CHAPTER 15 Statement of Cash Flows
10. A decrease in a current liability means that cash payments to creditors were greater than the
expenses recognized during the period. An increase in a noncash current asset means that
more cash was paid than the expenses recognized. (As assets expire, they become expenses.)
13. Worksheets are an efficient, logical way of organizing the data needed to prepare a statement of
cash flows.
14. The worksheet approach is based on a transaction analysis. Using the beginning and ending
balances on the balance sheet, transactions are analyzed that impact cash flows. Debit and
15-2
CHAPTER 15 Statement of Cash Flows
15-1. c
15-2. b
15-11. e
15-12. c
MULTIPLE-CHOICE QUESTIONS
15-3
CHAPTER 15 Statement of Cash Flows
CE 15-17
a. Investing—use of cash
b. Financing—source of cash
CE 15-18
1. Change in cash: $1,130,000 – $700,000 = $430,000
CE 15-19
Net income……………………………………………………………………………
…
$ 900,000
Add (deduct) adjusting items:
CE 15-20
Sale of equipment…………………………………………………………………… $ 380,000
CORNERSTONE EXERCISES
CHAPTER 15 Statement of Cash Flows
CE 15-21
Issuance of bonds payable………………………………………………
…
$ 385,000
Payment of mortgage……………………………………..………………
…
(100,000)
CE 15-22
1.
Cash flows from operating activities:
Net income……………………………………..……
$ 900,000
Add (deduct) adjusting items:
Decrease in accounts receivable………………
167,500
2. The sum of the operating, investing, and financing cash flows must equal the
change in cash flow.
Blaylock Company
Statement of Cash Flows
For the Year Ended December 31, 201
4
15-5
…
CHAPTER 15 Statement of Cash Flows
CE 15-23
Income Cash
Statement Flows
Revenues……………………………………
…
$1,200,000 $ 68,500 * $1,268,500
Gain on sale of equipment………………
…
50,000 (50,000)
CE 15-24
2013 Debit
Assets:
Cash…………………………
…
$ 54,000 (1) $57,000 $111,000
Accounts receivable………
…
33,000 (2) 3,800 36,800
…
Liabilities and stockholders’ equity:
Accounts payable…………
…
$ 24,000 (7) 12,000 $ 36,000
…
Credit
Worksheet: Young Company
At December 31, 201
4
Adjustments
Transactions
2014
CE 15-24 (Continued)
Cash flows from operating activities:
Net income…………………………………………
…
(12) $30,000
…
…
…
Cash flows from investing activities:
Sale of equipment…………………………………
…
(4) 4,800
Cash flows from financing activities:
Reduction in bonds payable……………………
…
(9) 7,000
…
Debit Credit
Transactions
15-7
CHAPTER 15 Statement of Cash Flows
E 15-25
a. Investing—source of cash f. Investing—use of cash
E 15-26
a. Added to f. Added to
E 15-27
1. Note: Balances refer to prepaid rent account.
2. In determining operating cash flow under the indirect method, any increase in a
E 15-28
1. Cash flows from operating activities:
Net income……………………………………………………………………… $ 61,725
Add (deduct) adjusting items:
EXERCISES
15-8
CHAPTER 15 Statement of Cash Flows
E 15-28 (Continued)
2. From Requirement 1, the net operating cash without the change in accounts
payable is $8,475 ($18,600 – $10,125). Thus, the change in accounts payable
3. The operating cash flows are only $18,600, about half of what would be needed.
However, Hepworth has a large cash balance ($126,000) including this year’s
E 15-29
1. Cash flows from investing activities:
Purchase of bonds……………………………………………………………
…
$(200,000)
…
2. The negative cash flow from investing can be covered using cash from operating
and financing activities. Sources of cash for investment include operating cash
E 15-30
Cash flows from financing activities:
CHAPTER 15 Statement of Cash Flows
E 15-31
2013 2014
2.
Cash flows from operating activities:
Net income……………………………………………….…………………
…
$40,000
3. Change in Accounts Receivable = Operating Cash Flows without
Accounts Receivable
Indirect Method
Change
Oliver Company
Operating Cash Flows
15-10
CHAPTER 15 Statement of Cash Flows
E 15-32
Cash flows from operating activities:
Income Cash
Statement Flows
E 15-33
a. Financing activities
b. Operating activities—added to net income
c. Operating activities—deducted from net income
Adjustments
Oliver Company
Operating Cash Flows
Direct Method
E 15-34
Cash flows from operating activities:
Net income…………………………………….…………………………
…
$156,000
…
…
E 15-35
Cash flows from operating activities:
Income Cash
Statement Flows
Revenues…………………………
.
$ 1,500,000 $ (20,000) * $1,480,000
Adjustments
Direct Method
Piura Merchandising Corporation
Cash Flows from Operating Activities
For the Year Ended December 31, 2013
15-12
CHAPTER 15 Statement of Cash Flows
P 15-36
Cash flows from operating activities:
Net income………………………………………………… $ 63,000
Add (deduct) adjusting items:
Decrease in accounts receivable……………………
…
27,000
P 15-37
Income Cash
Cash flows from operating activities:Statement Flows
Revenues……………………………………
…
$ 297,000 $ 27,000 * $324,000
Cost of goods sold………………………
…
(175,500) (27,000) **
(39,600) *** (242,100)
…
PROBLEMS
Adjustments
Solpoder Corporation
Statement of Cash Flows
For the Year Ended December 31, 201
4
Statement of Cash Flows
For the Year Ended December 31, 2014
Direct Method
Solpoder Corporation
15-13
…
CHAPTER 15 Statement of Cash Flows
P 15-38
Cash flows from operating activities:
Net loss…………………………………………………
…
$ (800)
Add (deduct) adjusting items:
Depreciation expense…………………………………
…
6,000
P 15-39
Income Cash
Cash flows from operating activities: Statement Flows
For the Year Ended September 30, 2014
Roberts Company
Statement of Cash Flows
Adjustments
Roberts Company
Operating Cash Flows
For the Year Ended September 30, 2014
…
CHAPTER 15 Statement of Cash Flows
P 15-40
1. and 2.
Cash flows from operating activities:
Net income…………………………………………… $ 450,000
Add (deduct) adjusting items:
Decrease in accounts receivable………………
…
68,750
Cash flows from financing activities:
Mortgage received………………………………….
…
$ 250,000
Dividends…………………………………………….
…
(225,000)
Booth Manufacturing
Statement of Cash Flows
For the Year Ended December 31, 201
4
15-15
…
…
CHAPTER 15 Statement of Cash Flows
P 15-41
1. and 2.
Income
Statement Adjustments Cash Flows
Cash flows from operating activities:
Revenues…………………………….……
…
$1,200,000 $ 68,750 a$1,268,750
Gain on sale of equipment………………
…
50,000 (50,000) —
Booth Manufacturing
Operating Cash Flows
For the Year Ended September 30, 2014
15-16
…