Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 16
Chapter 16
Reporting the Statement of Cash Flows
QUESTIONS
1. The purpose of the cash flow statement is to report all major cash receipts (inflows) and
cash payments (outflows) during a period. It helps users to answer questions such as:
• How does a company obtain its cash?
• Where does a company spend its cash?
• What explains the change in the cash balance?
2. On a statement of cash flows, investing activities include cash outflows from purchases
of long-term investments such as stocks and bonds, from purchases of plant assets
3. On a statement of cash flows, financing activities include cash inflows such as those
that result from issuing preferred or common stock, and from borrowing by issuing
4. The direct method of reporting cash flows from operating activities itemizes the major
5. On a statement of cash flows prepared according to the direct method, operating
activities generally include cash receipts from the sale of goods and services, cash
6. The indirect method of reporting cash flows from operating activities begins with net
8. The amount of the land purchase that was paid for in cash ($400,000) should be reported
on the statement of cash flows as an investing activity. Also, a schedule of noncash
938
10. Yes; even though a company reports positive net income for the year, it may still show a
net cash outflow from operating activities. When net income is reconciled to the net
11. Depreciation is not a source or a use of cash, even though it must be added to net
12. (a) Indirect method. (b) The decrease in accounts (trade) receivable represents an
amount by which the company had freed up cash versus cash being tied up in accounts
13. Google’s statement of cash flows shows several major financing activities for the year
ended December 31, 2015 ($ millions):
Net payments related to stock-based award activities …………………………………… $ (1,612)
14. Samsung’s net cash (all is KRW millions) from operating activities is ₩40,061,761; its
15. Samsung’s investing activities yielding cash outflows and inflows for the year ended
December 31, 2015, follow. Its cash outflows are listed in parentheses (₩ in millions):
Net decrease (increase) in short-term financial instruments …………………………... ₩ (5,762,783)
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 16
939
QUICK STUDIES
Quick Study 16-1 (10 minutes)
1. (I) Investing 6. (F) Financing
Quick Study 16-2 (20 minutes)
Statement of cash flow items in sequential order 1 through 13 on left OR
textbook order on right:
1.
d
8.
k
6
a.
5
h.
2.
f
9.
j
3
b.
3.
b
10.
g
4
c.
9
4.
c
11.
i
1
d.
8
k.
5.
h
12.
m
e.
7
6.
a
13.
e
2
7.
l
g.
Quick Study 16-3 (20 minutes)
Cash Flows from Operations (Indirect)
Case X
Case Y
Case Z
Net Income ……………………………………………………
$ 4,000
$100,000
$72,000
(44,000)
940
Quick Study 16-4 (10 minutes)
Cash flows from operating activities
Net income ……………………………………………………………………….
$18,200
Quick Study 16-5 (10 minutes)
a. Reconstructed journal entry for equipment sale:
b. We reconstruct the T-account for Accumulated Depreciation—Equipment
941
Quick Study 16-6 (10 minutes)
a. Reconstructed journal entry for building sale:
Cash ……………………………………………………………………. 130,000
b. We reconstruct the T-account for Accumulated Depreciation—Building to
c. We reconstruct the T-account for Building to determine its purchases of
Quick Study 16-7 (10 minutes)
942
Quick Study 16-8 (15 minutes)
Investing Activities
Quick Study 16-9 (10 minutes)
Part 1
Part 2
Quick Study 16-10 (15 minutes)
Financing Activities
Cash dividends paid …………………………………………………………………………
Actual ending notes payable ……………………………………..
(29,000)
$40,000
Quick Study 16-11 (10 minutes)
Cash flows from operating activities
Net income ……………………………………………………………………….
$30,000
Adjustments to reconcile net income to operating cash flow
Quick Study 16-12 (15 minutes)
Computation of cash inflow from sale of furniture
Quick Study 16-13 (15 minutes)
1. Computation of cash paid for dividends
Beginning retained earnings ……………………………………..
$ 8,400
Net income ……………………………………………………………….
Actual ending retained earnings ………………………………..
(35,600)
$ 2,800
2. Computation of cash payments for notes
Beginning notes payable …………………………………………..
$69,000
944
Quick Study 16-14B (10 minutes)
1. Cash received from customers = Sales + Accounts receivable decrease
Quick Study 16-15B (10 minutes)
1. Cash paid for inventory
2. Cash paid for operating expenses
Quick Study 16-16B (10 minutes)
Cash flows from operating activities
Quick Study 16-17 (10 minutes)
1. Moore is probably in the strongest position of the three competing companies
on the basis of the statement of cash flows. Moore’s cash flows from
2. Sykes’s cash flow on total assets ratio is slightly stronger than that for Moore.
Quick Study 16-18A (10 minutes)
The balance sheet equation can be arranged so that the algebraic total of all
946
Quick Study 16-19 (25 minutes)
Part 1
MONTGOMERY, INC.
Statement of Cash Flows (Indirect Method)
For Year Ended December 31, 2018
Cash flows from operating activities
Net income …………………………………………………………………………
$ 10,500
Depreciation expense ……………………………………………………….
Decrease in accounts receivable …………………………..
Increase in inventory ……………………………………………………….
Decrease in accounts payable ………………………………………….
Decrease in salaries payable …………………………………………….
(100)
Cash flows from investing activities
Cash paid for equipment (Note 1) …………………………..…………..
(8,400)
Cash flows from financing activities
Cash received from stock issuance …………………………..
$ 30,400
947
Quick Study 16-19 (Concluded)
Part 2
The company’s operating cash flows are negative, $(1,750). This is not a good
Quick Study 16-20 (15 minutes)
2. IFRS and US GAAP differ on the classification of the following cash flows
as operating, investing or financing:
Cash flow source U.S. GAAP IFRS _
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 16
948
EXERCISES
Exercise 16-1 (25 minutes)
Statement of Cash Flows
Noncash
Operating
Activities
Investing
Activities
Financing
Activities
Investing &
Financing
Activities
Not Reported
on Statement
or in Notes
a. Declared and paid a
cash dividend
X
c. Paid cash to settle
long-term note payable
X
increased in the year
increased in the year
)
Net cash provided by operating activities ………………………………………….
Exercise 16-2 (20 minutes)
Cash flows from operating activities—indirect method
Net income ……………………………………………………………………………………
$ 24,000
Adjustments to reconcile net income to net cash provided by
950
Exercise 16-3 (30 minutes)
1.
Cash flows from operating activities—indirect method
Net income (loss) ……………………………………………………….…………………….
$ (16,000
)
)
Net cash provided by operating activities ………………………………………….
Adjustments to reconcile net income to net cash provided by
2. One reason for the net loss was depreciation expense. Depreciation
expense is added to net income to adjust for the effects of a noncash
3. Differences between cash flow from operations and net income can be
Exercise 16-4 (30 minutes)
Cash flows from operating activities
Net income ……………………………………………………………………
$ 481,540
Adjustments to reconcile net income to net cash
Exercise 16-5 (20 minutes)
Cash flows from operating activities
Net income ……………………………………………………………………
$374,000
Adjustments to reconcile net income to net cash
Exercise 16-6 (10 minutes)
Cash flows from operating activities
Net income …………………………………………………………………….
$400,000
Adjustments to reconcile net income to operating cash flow
$436,000
Exercise 16-7 (10 minutes)
Cash flows from investing activities
Exercise 16-8 (10 minutes)
Cash flows from financing activities
Exercise 16-9 (20 minutes)
PEUGEOT S.A.
Statement of Cash Flows (Indirect Method)
For Year Ended December 31, 2014
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Net increase in cash …………………………………………………..
Cash and cash equivalents, Dec 31, 2013 ……………………
Exercise 16-10 (15 minutes)
2016: $102,920 / $1,240,000 = 8.3%
954
Exercise 16-11 (40 minutes)
Part 1
IKIBAN, INC.
Statement of Cash Flows (Indirect Method)
For Year Ended June 30, 2017
Cash flows from operating activities
Net income ……………………………………………………………….
$ 99,510
Adjustments to reconcile net income to net cash
provided by operating activities
22,700
Cash flows from investing activities
Cash received from sale of equip. (Note 1) ………………..
10,000
Cash flows from financing activities
Cash received from stock issuance …………………………..
60,000
Net increase in cash ……………………………………………………
$ 43,500
Cash balance at prior year-end ……………………………………
Exercise 16-11 (Part 1 continued)
(1)
Cost of equipment sold (Given) ……………………………………………………….….
$ 48,600
Gain on sale of equipment (Given) ………………………………………………………
2,000
Cash paid for new equipment (given) …………………………………………………..
$ 57,600
Bal., 6/30/2016
115,000
Bal., 6/30/2016
Bal., 6/30/2017
124,000
Bal., 6/30/2017
(2)
Carrying value of notes retired ……………………………………………………………
$ 30,000
(3)
Retained Earnings
Bal., 6/30/2016
24,100
Bal., 6/30/2017
33,300
Part 2
Cash flow on total assets ratio = Operating cash flows / Average total assets
Interpretation: A 49.6% result on the cash flow on total assets ratio is
956
Exercise 16-12B (40 minutes)
Part 1
IKIBAN, INC.
Statement of Cash Flows (Direct Method)
For Year Ended June 30, 2017
Cash flows from operating activities
Cash received from customers (Note 1) ………..
$664,000
Cash paid for inventory (Note 2) …………………..
Cash paid for operating expenses (Note 3) ……
Cash paid for income taxes (Note 4) ……………..
Cash flows from investing activities
Cash received from sale of equip. (Note 5) ……
10,000
Cash flows from financing activities
Cash received from stock issuance ………………
60,000
Cash paid to retire notes (Note 6) …………………
Cash paid for dividends (Note 7) …………………..
Net increase in cash ……………………………………….
Cash balance at prior year-end ……………………….
(See notes on next page)