21
Statement of
Cash Flows
ANSWERS TO DISCUSSION QUESTIONS AND
CRITICAL THINKING/ETHICAL CASE
1. The three main sections of the statement of cash flows are: cash flows from
2. Net income from operations
+ Depreciation Expense
3. In the direct method, we list each major group of operating cash flows
5. Creditors look at net cash flows from operating activities to see the amount
of net cash generated by operations, which should be a company’s main
6. Financing activities are those transactions involved with raising the money
7. Depreciation is added because it was subtracted on the income statement to
8. The question in this case is whether Debbie Kreiger should release the
statement of cash flows to the public. Although the cash flow statement
SOLUTIONS TO CONCEPT CHECKS
1. a. Added
2.
Cash Flows from Operating Activities (indirect method):
Net Income
$2,450
Add (Deduct) Items to Convert Net Income from Accrual Basis
to Cash Basis:
Depreciation Expense
Increase in Merchandise Inventory
Increase in Accounts Receivable
Decrease in Prepaid Insurance
Decrease in Accounts Payable
Increase in Salaries Payable
3.
Cash Flows from Operating Activities (direct method):
Cash received from customers
$8,170
Cash paid for inventory
Cash paid for salaries
Cash paid for insurance
Cash paid for miscellaneous expenses
4.
Cash Flows From Financing Activities:
Issuance of Long-Term Note Payable
Net Cash Provided by Financing Activities
$3,075
5.
Net Change in Cash:
Net Cash Flows Used by Investing Activities
(2,200)
Net Increase in Cash
SOLUTIONS TO SET A EXERCISES
21A–1.
Increase in Inventory
Subtract from Cash Flow from Operations
Decrease in Accounts Payable
Subtract from Cash Flow from Operations
21A-2.
Cash Flows from Operating Activities:
Net Income
$18,000
Basis:
Depreciation Expense
3,800
Increase in Accounts Receivable
(2,400)
Decrease in Prepaid Insurance
57
Increase in Accounts Payable
609
Increase in Salaries Payable
1,000
Net Cash Provided by Operating Activities
21A–3.
Cash Flows from Operating Activities:
Cash Received from Customers
Cash Paid for Inventory
(4,580)
Cash Paid for Salaries
(1,410)
Cash Paid for Insurance
(610)
Cash Paid for Other Expenses
(940)
Net Cash Provided by Operating Activities
$1,600
21B–4. a. OA
SOLUTIONS TO SET B EXERCISES
21B–1.
Increase in Accounts Receivable
Subtract from Cash Flow from Operations
Increase in Prepaid Insurance
Subtract from Cash Flow from Operations
21B-2.
Cash Flows from Operating Activities:
Net Income
$17,900
Basis:
Depreciation Expense
3,900
Increase in Accounts Receivable
(2,200)
Decrease in Prepaid Insurance
56
Increase in Accounts Payable
597
Increase in Salaries Payable
1,150
Net Cash Provided by Operating Activities
21B-3.
Cash Flows from Operating Activities:
Cash Received from Customers
Cash Paid for Inventory
(4,805)
Cash Paid for Salaries
(1,550)
Cash Paid for Insurance
(670)
Cash Paid for Other Expenses
(1,400)
Net Cash Provided by Operating Activities
$ 305
21B–4. a. OA
SOLUTIONS TO SET A PROBLEMS
PROBLEM 21A-1 SALMON COMPANY
STATEMENT OF CASH FLOWS—INDIRECT METHOD
FOR THE YEAR ENDED DECEMBER 31, 2018
Cash Flows from Operating Activities
Net Income
$2
5
5
0
00
Add (Deduct) Items to Convert Net Income from Accrual
Basis to Cash Basis:
Depreciation Expense
7
3
0
0
00
Increase in Accounts Receivable
(9
0
0
00)
Increase in Merchandise Inventory
5
0
Decrease in Prepaid Rent
5
0
0
00
Increase in Short-Term Notes Payable
1
3
0
0
00
Payment of Dividends
(2
0
0
0
Net Cash Used by Financing Activities
(2
0
0
0
0
2
0
0
0
0
PROBLEM 21A-2
SALMON COMPANY
STATEMENT OF CASH FLOWS—DIRECT METHOD
FOR THE YEAR ENDED DECEMBER 31, 2018
Cash Flows from Operating Activities
Cash Received from Customers
$95
7
0
0
00
Cash paid for inventory
$(68
8
5
0
00)
Cash paid for salaries
(6
8
0
0
00)
Cash paid for rent
2
0
0
00)
(86
2
0
00)
$9
5
0
0
00
Purchase of Plant Asset
(6
7
0
0
00)
Retirement of Bonds Payable
0
0
0
00)
Net Increase in Cash
0
2
5
0
0
00
SOLUTIONS TO SET B PROBLEMS
PROBLEM 21B-1
WEBBER COMPANY
STATEMENT OF CASH FLOWS-INDIRECT METHOD
FOR THE YEAR ENDED DECEMBER 31, 2018
Cash Flows from Operating Activities
Net Income
$2
2
5
0
00
Add (Deduct) Items to Convert Net Income from
Accrual Basis to Cash Basis:
Depreciation Expense
7
5
0
0
00
Decrease in Prepaid Rent
4
5
0
00
0
0
4
0
0
00
0
0
Retirement of Bonds Payable
Issuance of Common Stock
Payment of Dividends
8
0
0
00
PROBLEM 21B-2
WEBBER COMPANY
STATEMENT OF CASH FLOWS-DIRECT METHOD
FOR THE YEAR ENDED DECEMBER 31, 2018
Cash Flows from Operating Activities
Cash Received from Customers
$94
7
0
0
00
7
Cash paid for Rent
6
5
0
Cash paid for Miscellaneous Expenses
0
5
0
00)
4
0
0
00
Cash Flows From Investing Activities
Purchase of Plant Asset
($6
1
0
0
00)
1
0
0
00)
Retirement of Bonds Payable
5
0
0
5
5
0
0
00)
Net Increase in Cash
Beginning Balance of Cash
Ending Balance of Cash
FINANCIAL REPORT PROBLEM SOLUTION—Amazon’s Annual Report