PROBLEM 23.3
MORTONSON PLC
Statement of Cash Flows
For the Year Ended December 31, 2019
(£ in thousands)
Cash flows from operating activities
Cash receipts from customers ………………..
£3,520 (a)
Cash payments:
Payments for merchandise …………………
£1,270
(b)
Heat, light, and power …………………………
Property taxes ……………………………………
Interest ………………………………………………
Miscellaneous ……………………………………
Income taxes ……………………………………..
808
(c)
Net cash provided by operating activities ..
Cash flows from investing activities
Sale of non-trading equity investments
(£10 – £50) …………………………………………
40
Purchase of land (£150 – £70) ………………….
Net cash used by investing activities ………
Increase in cash …………………………………………….
Cash, January 1, 2019 …………………………………….
Purchase of buildings and equipment
(a) Sales revenue ………………………………………..
£3,800
Deduct ending accounts receivable …………
780
3,020
Add beginning accounts receivable …………
500
Cash receipts (collections from
PROBLEM 23.3 (Continued)
(b) Cost of goods sold …………………………..…….
£1,200
Add ending inventory …………………………....
720
Goods available for sale ………………….
Deduct beginning inventory ……………………
560
Purchases ………………………………………
Deduct ending accounts payable…………….
420
Add beginning accounts payable ……………
330
Cash purchases (payments for
(c) Income taxes …………………………………………
£818
Deduct ending income taxes payable ………
40
Add beginning income taxes payable ……..
30
PROBLEM 23.4
MICHAELS LTD
Statement of Cash Flows
For the Year Ended December 31, 2019
(Direct Method)
Cash flows from operating activities
Cash receipts:
Cash received from customers …………………….
£1,152,450a
Dividends received ………………………………………
2,400
£1,154,850
Cash payments:
Cash paid to suppliers …………………………………
Cash paid for operating expenses ………………..
Taxes paid …………………………………………………..
Interest paid ………………………………………………..
Net cash provided by operating activities ……………..
Cash flows from investing activities
Sale of short-term investments
(£8,000 + £4,000) ………………………………………
12,000
Sale of land (£175,000 – £125,000) + £8,000 ……
58,000
Net cash used by investing activities ……………
Cash flows from financing activities
Proceeds from issuance of ordinary shares ……
Principal payment on long-term debt …………….
Dividends paid …………………………………………….
Net cash used by financing activities ……………
(6,800)
Net increase in cash ……………………………………………
6,000
Cash, January 1, 2019 …………………………………………
4,000
Cash, December 31, 2019 ……………………………………
£ 10,000
Increase in Accounts Receivable …………………………
(7,550)
Cash received from customers …………………………..
Increase in Inventory ……………………………………………
PROBLEM 23.4 (Continued)
cOperating Expenses……………………………………..
£276,400
Depreciation/Amortization Expense ……………….
Decrease in Prepaid Rent ………………………………
Increase in Prepaid Insurance ………………………..
Increase in Supplies ………………………………………
Increase in Salaries and Wages Payable …………
dIncome Tax Expense …………………………………….
£39,400
Increase in Income Taxes Payable ………………….
(1,000)
Taxes paid ……………………………………………..
£38,400
£51,750
Decrease in Bond Payable ……………………………..
PROBLEM 23.5
(a)
Net Cash Flow from Operating Activities
Cash received from customers ………………………..
€524,8501
Cash payments:
Cash payments to suppliers ………………………..
€375,7502
Cash payments for operating expenses ……….
**Increase in accrued payables
(b) MARCUS AG
Statement of Cash Flows
For the Year Ended December 31, 2019
Cash flows from operating activities
Net income ……………………………………………….
€42,500
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation expense ………………………….
Gain on sale of investments ………………..
Loss on sale of machinery …………………..
Increase in accounts receivable (net) …..
Increase in inventory …………………………..
Increase in accounts payable ………………
Increase in accrued payables ………………
Net cash provided by operating activities …..
PROBLEM 23.5 (Continued)
Cash flows from investing activities
Addition to buildings ……………………………..
Sale of investments …………………………..…..
Sale of machinery ………………………………….
Net cash used by investing activities ………
Purchase of equity investments
Cash flows from financing activities
Reduction in long-term notes payable …….
(10,000)
Cash dividends paid …………………………..….
(21,125)
Net cash used by financing activities ………
(31,125)
Net increase in cash………………………………………
Cash, January 1, 2019 ……………………………………
PROBLEM 23.6
(a) Both the direct method and the indirect method for reporting cash
flows from operating activities are acceptable in preparing a statement
of cash flows according to IFRS; however, the IASB encourages the
use of the direct method. Under the direct method, the statement of
(b) The Statement of Cash Flows for Chapman Company, for the year ended
May 31, 2019, using the direct method, is presented below.
CHAPMAN COMPANY
Statement of Cash Flows
For the Year Ended May 31, 2019
Cash flows from operating activities
Cash received from customers ………………….
$1,238,250
Cash payments:
To suppliers ……………………………………..
$684,000
To employees …………………………………..
For other expenses …………………………..
For interest ……………………………………….
For income taxes ………………………………
43,000
Net cash provided by operating activities …..
Cash flows from investing activities
Purchase of plant assets…………………………...
Cash flows from financing activities
Cash received from ordinary shares issue ….
$ 20,000
Cash paid
For dividends ……………………………………
(105,000)
To retire bonds payable …………………….
Net cash used by financing activities …………
Net increase in cash ………………………………………….
Cash, June 1, 2018 ……………………………………………
20,000
PROBLEM 23.6 (Continued)
Note 1: Non-cash investing and financing activities:
Issuance of ordinary shares for plant assets $70,000.
Supporting Calculations:
Collections from customers
Sales ……………………………………………………….
$1,255,250
Less: Increase in accounts receivable ………
17,000
Cash collected from customers ……….
$1,238,250
Cash paid to suppliers …………………………………….
Less: Decrease in inventory ……………………..
Increase in accounts payable ………….
8,000
Cash paid to suppliers …………………….
$ 684,000
Cash paid to employees
Salary expense …………………………………………
$ 252,100
Add: Decrease in salaries and wages
payable…………………………………………
24,750
Cash paid to employees …………………..
$ 276,850
Cash paid for other expenses
Other expenses ………………………………………..
$ 8,150
Add: Increase in prepaid expenses …………..
2,000
Cash paid for other expenses …………..
$ 10,150
Cash paid for interest
Interest expense ……………………………………….
$ 75,000
Less: Increase in interest payable …………….
2,000
Cash paid for interest ……………………..
$ 73,000
Cash paid for income taxes:
Income tax expense (given)……………………….
PROBLEM 23.6 (Continued)
(c) The calculation of the cash flow from operating activities for Chapman
Company, for the year ended May 31, 2019, using the indirect method,
is presented below.
CHAPMAN COMPANY
Statement of Cash Flows
For the Year Ended May 31, 2019
Cash flows from operating activities
Net income ………………………………………………..
$130,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense ………………………..
Decrease in merchandise inventory…….
Increase in accounts payable ……………..
Increase in interest payable ………………..
Increase in accounts receivable ………….
Increase in prepaid expenses ……………..
PROBLEM 23.7
(a) Net Cash Provided by Operating Activities
Cash receipts from customers
HK$925,000 (1)
Cash payments:
Cash payments to suppliers
Cash payments for operating expenses
Cash payments for income taxes
Net cash provided by operating activities
(1) (Sales Revenue) less (Increase in Accounts Receivables)
HK$950,000 – HK$25,000 = HK$925,000
(2) (Cost of Goods Sold) plus (Increase in Inventory) less
(Increase in Accounts Payable)
HK$600,000 + HK$14,000 – HK$6,000 = HK$608,000
(3) (Operating Expenses) less (Depreciation Expense) less
(Bad Debt Expense)
HK$45,000 – HK$2,000 = HK$43,000
PROBLEM 23.7 (Continued)
(b) SHI GROUP
Statement of Cash Flows
For the Year Ended December 31, 2019
Cash flows from operating activities
Net income ………………………………………………………………..
HK$67,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation expense ………………………………………….
HK$22,000
Gain on sale of equity investments ………………………
Loss on sale of equipment …………………………………..
Increase in accounts receivable (net) …………………..
Increase in inventory (HK$75,000 – HK$61,000) ……
(HK$12,000 – HK$10,000)
Net cash provided by operating activities ……………………
Cash flows from investing activities
Purchase of equity investments
[HK$55,000 – (HK$85,000 – HK$35,000)] …………………..
(5,000)
Sale of equity investments (HK$35,000 + HK$15,000) ……..
Sale of equipment
Net cash provided by investing activities ……………………
Purchase of equipment
Cash flows from financing activities
Payment of LT notes payable (HK$62,000 –HK$70,000)
(8,000)
Cash dividends paid [(HK$95,000 + HK$67,000) –HK$92,000]
(70,000)
Issuance of ordinary shares ……………………………………….
35,000*
Net cash used by financing activities ………………………….
(43,000)
Net increase in cash ……………………………………………………….…..
19,000
Cash, January 1, 2019 …………………………………………………………
51,000
Non-cash investing and financing activities**
PROBLEM 23.8
(a) GRECO CORPORATION
Statement of Cash Flows
For the Year Ended December 31, 2019
Cash flows from operating activities
Net income …………………………………………………. $15,750(a)
Adjustments to reconcile net income to net
cash provided by operating activities:
Loss on sale of equipment ……………………. $ 5,200(b)
Cash flows from investing activities
Sale of equity investments ………………………….. 4,500
Sale of equipment ………………………………………. 2,500
Purchase of equipment (cash) …………………….. (15,000)
Increase in cash ……………………………………………… 25,500
Cash, January 1, 2019 …………………………………….. 13,000
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest …………………………………… $2,000
Income taxes …………………………... $5,000
PROBLEM 23.8 (Continued)
Non-cash investing and financing activities:**
Retired notes payable by issuing ordinary shares ….. $ 5,000
Supporting Computations:
(a) Ending retained earnings ……………………………………… $20,750
Beginning retained earnings …………………………………. (5,000)
Net income ……………………………………………………. $15,750
(b) (1) For a severely financially troubled firm:
Operating: Probably a small cash inflow or a cash outflow.
(2) For a recently formed firm which is experiencing rapid growth:
Operating: Probably a cash inflow.
LO: 2,4, Bloom: AP, Difficulty: Moderate, Time: 30–40, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FC: Reporting, AICPA PC: Problem Solving
TIME AND PURPOSE OF CONCEPTS FOR ANALYSIS
CA 23.1 (Time 30–35 minutes)
CA 23.2 (Time 30–35 minutes)
CA 23.3 (Time 30–35 minutes)
Purpose—to help a student identify whether a transaction creates a cash inflow or a cash outflow. The
CA 23.4 (Time 20–30 minutes)
Purpose—to help the student identify the sections of the statement of cash flows. The student is
CA 23.5 (Time 30–40 minutes)
Purpose—to identify and explain reasons and purposes for preparing a statement of cash flows, to
CA 23.6 (Time 20–30 minutes)
Purpose—provides the student the opportunity to examine the effects of a securitization on the statement
SOLUTIONS TO CONCEPTS FOR ANALYSIS
CA 23.1
(a) The main purpose of the statement of cash flows is to provide information about cash receipts and
(b) The following are weaknesses in form and format of Maloney Corporation’s Statement of Sources
and Uses of Cash:
1. The title of the statement should be Statement of Cash Flows.
the employee share option plans, and for changes in current assets and liabilities.
3. The format used should separate the cash flows into investing, financing, and operating
activities. Non-cash investing and financing activities, if significant, should be shown in a note to
the financial statements.
4. Individual items should not be grouped together, as was the case for the $14,000 item.
(c) 1. (i) The $25,000 share-option plan wage and salary expense should be included in the
2. The expenditures for plant asset acquisitions should not be reported net of the proceeds from
3. Share dividends or share splits need not be disclosed in the statement because these
transactions do not significantly affect financial position.
4. The issuance of the 16,000 ordinary shares in exchange for the preference shares should be
5. The presentation of the combined total of depreciation and depletion is probably acceptable.
The general rule is that related items should be shown separately in proximity when the result