Problem 16-3B (Continued)
Part 2
Gazelle Corporation’s dividend payments of $53,600 represent 34% of the
$158,100 net income for the year, and 41% of cash inflow provided by
978
Problem 16-4BA (60 minutes)
GAZELLE CORPORATION
Spreadsheet for Statement of Cash Flows
For Year Ended December 31, 2017
December
31, 2016
Analysis of Changes
December
31, 2017
Debit
Credit
Balance sheet—debits
Cash ………………………………………………….
$123,450
Accounts receivable …………………………
(b)
$ 3,650
77,100
Inventory …………………………………………..
Prepaid expenses ……………………………..
15,100
Equipment ………………………………………..
51,000
$718,500
Balance sheet—credits
Accum. depreciation—Equip. …………..
(g)
22,850
(f)
38,600
$110,750
Accounts payable ……………………………..
(e)
84,250
17,750
Short–term notes payable ………………….
15,000
Long–term notes payable ………………….
(k)
47,500
70,000
Common stock, $5 par value …………….
15,000
30,000
30,000
Retained earnings …………………………….
53,600
$718,500
Statement of cash flows
Operating activities
Net income ………………………………………..
(a)
Decrease in accounts receivable ………
Decrease in merch. inventory …………..
Decrease in prepaid expenses ………….
(d)
1,900
Decrease in accounts payable ………….
84,250
Depreciation expense ……………………….
38,600
Loss on sale of equipment ……………….
(g)
2,100
Investing activities
Receipt from sale of equipment ………..
(g)
26,050
Payment to purchase equipment ……..
43,250
Financing activities
Borrowed on short–term note ……………
5,000
Issued common stock for cash ………..
45,000
Payments of cash dividends …………….
53,600
Noncash investing and financing
activities
979
Problem 16-4BA (Concluded)
GAZELLE CORPORATION
Statement of Cash Flows
For Year Ended December 31, 2017
Cash flows from operating activities
Net income ………………………………………………………………………………
Adjustments to reconcile net income to net
cash provided by operating activities
Income statement items not affecting cash
Depreciation expense ……………………………………………………….
38,600
Loss on disposal of equipment …………………………………………..
Changes in current assets and current liabilities
Decrease in accounts receivable ($80,750 – $77,100) …………….
Decrease in inventory ($250,700 – $240,600) ……………………
10,100
Decrease in prepaid expenses ($17,000 – $15,100) ………………..
Decrease in accounts payable ($102,000 – $17,750) ………………
Net cash provided by operating activities …………………………..
Cash flows from investing activities
Cash received from sale of equipment …………………………..………
26,050
Cash paid for equipment ……………………………………………………….
Net cash used in investing activities ………………………………………
Cash flows from financing activities
Cash borrowed on short–term note ………………………………………..
Cash paid on long–term note …………………………………………………..
Cash received from issuing stock (3,000 x $15) ……………………….
45,000
Cash paid for dividends ……………………………………………………….
Net increase in cash…………………………………………………………………..
980
Problem 16-5BB (40 minutes)
GAZELLE CORPORATION
Statement of Cash Flows
For Year Ended December 31, 2017
Cash flows from operating activities
Cash received from customers (Note 1) …………………
$1,188,650
Cash paid for inventory (Note 2) …………………………..
Cash paid for other expenses (Note 3) …………………..
Cash paid for income taxes ………………………………….
Net cash provided by operating activities ……………..
Cash flows from investing activities
Cash received from sale of equipment ………………….
Cash paid for equipment ………………………………………
Net cash used in investing activities …………………….
Cash flows from financing activities
Cash borrowed on short-term note ……………………….
Cash paid on long-term note ………………………………..
Cash received from issuing stock (3,000 x $15) ………
Net increase in cash ……………………………………………….
Noncash investing and financing activities
Supporting calculations
981
Problem 16-6B (35 minutes)
SATU COMPANY
Statement of Cash Flows
For Year Ended December 31, 2017
Cash flows from operating activities
Net income ……………………………………………………………………..
$202,767
Adjustments to reconcile net income to net
cash provided by operating activities
Income statement items not affecting cash
Changes in current assets and current liabilities
Decrease in accounts receivable ($25,860 – $20,222) ……
Increase in inventory ($165,667 – $140,320) …………………..
Decrease in accounts payable ($157,530 – $20,372) ……..
Decrease in taxes payable ($6,100 – $2,100) …………………
Net cash provided by operating activities …………………….
Cash flows from investing activities
Cash paid for equipment ……………………………………………….
Cash received from issuing stock (3,000 x $21) ……………..
Cash paid for dividends ………………………………………………..
Problem 16-7BA (50 minutes)
SATU COMPANY
Spreadsheet for Statement of Cash Flows
For Year Ended December 31, 2017
December
31, 2016
Analysis of Changes
December
31, 2017
Debit
Credit
Balance sheet—debits
Cash ………………………………………………….
$ 58,750
Accounts receivable …………………………
20,222
Inventory …………………………………………..
(c)
165,667
Equipment ………………………………………..
(g)
$352,389
Balance sheet—credits
Accum. depreciation—Equip. …………..
(f)
15,700
$ 46,700
Accounts payable ……………………………..
(d)
137,158
20,372
Income taxes payable ……………………….
(e)
Common stock, $5 par value …………….
15,000
40,000
48,000
68,000
Retained earnings …………………………….
$352,389
Statement of cash flows
Operating activities
Net income ………………………………………..
(a)
202,767
Decrease in accounts receivable ……..
(b)
Increase in merch. inventory …………….
25,347
Decrease in accounts payable ………….
Decrease in income taxes payable ……
Depreciation expense ……………………….
Investing activities
Payment for equipment …………………….
30,250
Financing activities
Issued common stock for cash ………..
(h)
Paid cash dividends ………………………….
983
Problem 16-7BA (concluded)
SATU COMPANY
Statement of Cash Flows
For Year Ended December 31, 2017
Cash flows from operating activities
Net income ……………………………………………………………………..
$202,767
Adjustments to reconcile net income to net
cash provided by operating activities
Income statement items not affecting cash
Changes in current assets and current liabilities
Net cash provided by operating activities …………………….
Cash paid for equipment ……………………………………………….
Cash received from issuing stock (3,000 x $21) ……………..
Cash paid for dividends ………………………………………………..
984
Problem 16-8BB (35 minutes)
SATU COMPANY
Statement of Cash Flows
For Year Ended December 31, 2017
Cash flows from operating activities
Cash received from customers (Note 1) ………………
$756,438
Cash paid for inventory (Note 2) …………………………
Cash paid for other operating expenses ……………..
Cash paid for income taxes (Note 3) ……………………
Net cash provided by operating activities ……………
Cash flows from investing activities
Cash paid for equipment …………………………………….
Cash flows from financing activities
Cash received from issuing stock (3,000 x $21) ……
Cash paid for cash dividends ……………………………..
Net cash provided by financing activities ……………
Net increase in cash ………………………………………………
Supporting calculations
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 16
985
SERIAL PROBLEM — SP 16
Serial Problem — SP 16, Business Solutions (45 minutes)
BUSINESS SOLUTIONS
Statement of Cash Flows (Indirect)
For Quarter Ended March 31, 2018
Cash flows from operating activities
Net income ………………………………………………………………………………
$ 18,833
Adjustments to reconcile net income to net
cash provided by operating activities
Income statement items not affecting cash
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 16
986
Reporting in Action — BTN 16-1
1. Apple uses the indirect method of reporting operating cash flows. We
2. In all three fiscal years, Apple’s cash flows from operating activities
markedly exceed its cash dividends paid, as shown in the table below:
3. In fiscal 2015, the largest item in reconciling the difference between net
income and cash flow from operations was depreciation and amortization
4. In fiscal 2015, the largest cash inflow from investing activities was $107,447
million from proceeds from sales of marketable securities. The largest cash
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 16
987
Comparative Analysis — BTN 16-2
1. Apple’s cash flow on total assets ratio ($ millions)
Current Year = Operating cash flows/Average total assets
Google’s cash flow on total assets ratio ($ millions)
Current Year = Operating cash flows/Average total assets
2. The cash flow on total assets ratio reflects the return on average assets by
using actual operating cash flows instead of net income. This return
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 16
988
Ethics Challenge — BTN 16-3
1. The business actions available include
2. As a business owner, Katie Murphy certainly can exercise discretion over
business actions. However, the underlying economic realities should
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 16
989
Communicating in Practice — BTN 16-4
Here is a sample of what the body of the memorandum might include:
TO: Diana Wood
FROM: (Your Name)
SUBJECT: Statement of Cash Flows
DATE: _________________
I am pleased to hear your business is more profitable this year than last.
However, I have been thinking about what you said regarding the statement of
cash flows and have some thoughts as to why you found it confusing.
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 16
990
Taking It to the Net — BTN 16-5
3. The following table shows the net income (or net loss) and the cash flows
from operations for Mendocino Brewing for 2014 and 2015. Over this two–
year period, Mendocino has generated consistently positive cash flows
4. For the recent period, the largest cash outflow for investing was $642,400
for purchases of property, equipment and leasehold improvements.
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 16
991
Teamwork in Action — BTN 16-6
Part 1
a. The reporting objective of the statement of cash flows is to provide
information about important cash inflows and outflows for business
decision makers. It answers specific questions such as:
• How does a company obtain its cash?
• Where does a company spend its cash?
• What is the change in the cash balance?
b. The statement can be prepared using the direct method or the indirect
method for reporting cash flows from operating activities.
Similarities
• Both methods report the same net cash flow from operating activities.
• Both methods classify cash flows into operating, financing, and
investing categories.
Differences
• Cash flow from operating activities is determined differently. The direct
method determines all operating cash inflows and outflows, and then
subtracts total operating outflows from inflows. The indirect method
starts with net income and applies a series of adjustments to reconcile
this accrual basis number to a cash basis number.
• The direct method requires an extra section reconciling net income to
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 16
992
Teamwork in Action (Continued)
c. Steps to prepare the statement of cash flows:
(i) Compute the net increase or decrease in cash using comparative
balance sheet data. This is the target number or the number the
statement will explain and prove.
d. Common analyses made from information in the statement of cash flows
include assessing a company’s:
• Ability to generate future cash flows.
• Ability to pay dividends.
Part 2
Adjusting Net Income to Cash Flow from Operating Activities
Items to Add
Items to Subtract
a.
Noncash expenses
Noncash revenues
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 16
993
Teamwork in Action (Concluded)
Part 3
a. Cash receipts from customers = Sales – Increase in Accounts Receivable,
or, + Decrease in Accounts Receivable.
b. Cash paid for inventory requires a two-step computation.
c. Cash paid for wages and operating expenses = Wages and other operating
d. Cash paid for interest and taxes = Interest and tax expense + Decrease in
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 16
994
Entrepreneurial Decision — BTN 16-7
1. It is common that small businesses must pay cash in advance for items such
as rent, advertising, supplies, and facilities expansion. Consequently, those
2. As a privately owned company, it can potentially raise cash financing for
Entrepreneurial Decision — BTN 16-8
Memorandum
To: Jenna and Matt Wilder
From: Your name
Subject: Performance evaluation of Mountain High
Date: Current Date
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 16
995
Hitting the Road — BTN 16-9
1. The Motley Fool’s Website defines cash flow as earnings before interest,
taxes, depreciation, and amortization (EBITDA). The school’s justification
for this definition includes: “Interest income and expense, as well as taxes, are
all tossed aside because cash flow is designed to focus on the operating business
2. Some analysts tend to focus on this particular earnings definition
(earnings before interest and taxes or EBIT) as it purportedly allows a
3. Answer depends on the links visited and chosen for the report.
Global Decision — BTN 16-10
1. Samsung’s cash flow on total assets ratio follows (in KRW millions):
Current Year = Operating cash flows / Average total assets
2. For the current and prior years, Samsung’s ratios (17.0% and 16.6%,