Problem 12-3B (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
operations of $130,200.
Problem 12-4BA (60 minutes)
GAZELLE CORPORATION
Spreadsheet for Statement of Cash Flows
For Year Ended December 31, 2016
December
31, 2015
Analysis of Changes
December
31, 2016
Debit
Credit
Balance sheet—debits
Cash ………………………………………………….
$ 61,550
$123,450
Accounts receivable …………………………
80,750
(b)
$ 3,650
77,100
Inventory …………………………………………..
250,700
(c)
10,100
240,600
Prepaid expenses ……………………………..
17,000
15,100
Equipment ………………………………………..
51,000
$610,000
$718,500
Balance sheet—credits
$ 95,000
38,600
$110,750
Accounts payable ……………………………..
102,000
17,750
Short–term notes payable ………………….
10,000
15,000
Long–term notes payable ………………….
77,500
70,000
Common stock, $5 par value …………….
200,000
15,000
0
30,000
30,000
Retained earnings …………………………….
$610,000
$718,500
Statement of cash flows
Operating activities
Net income ………………………………………..
Decrease in accounts receivable ………
Decrease in merch. inventory …………..
10,100
Decrease in prepaid expenses ………….
1,900
Decrease in accounts payable ………….
84,250
Depreciation expense ……………………….
Loss on sale of equipment ……………….
2,100
Investing activities
Receipt from sale of equipment ………..
Payment to purchase equipment ……..
43,250
Financing activities
Borrowed on short-term note ……………
5,000
Issued common stock for cash ………..
Payments of cash dividends …………….
53,600
Problem 12-4BA (Concluded)
GAZELLE CORPORATION
Statement of Cash Flows
For Year Ended December 31, 2016
Cash flows from operating activities
Net income ………………………………………………………………………………
$158,100
Adjustments to reconcile net income to net
cash provided by operating activities
Income statement items not affecting cash
Depreciation expense ……………………………………………………….
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) ……………………
Decrease in prepaid expenses ($17,000 – $15,100) ………………..
Decrease in accounts payable ($102,000 – $17,750) ………………
Net cash provided by operating activities …………………………..
Cash received from sale of equipment …………………………………..
Cash paid for equipment ……………………………………………………….
Net cash used in investing activities ………………………………………
Cash borrowed on short–term note ………………………………………..
Cash paid on long–term note …………………………………………………..
Cash received from issuing stock (3,000 x $15) ……………………….
Cash paid for dividends ……………………………………………………….
Problem 12-5BB (40 minutes)
GAZELLE CORPORATION
Statement of Cash Flows
For Year Ended December 31, 2016
Cash flows from operating activities
Cash received from customers (Note 1) …………………
$1,188,650
Cash paid for inventory (Note 2) …………………………..
(669,150)
Cash paid for other expenses (Note 3) …………………..
(360,950)
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
Purchased equipment for $113,250 by signing a $70,000 long-term note payable
and paying $43,250 in cash.
Supporting calculations
(2) Cost of Decrease in Decrease in
goods sold inventory payables =
–
+
Problem 12-6B (35 minutes)
SATU COMPANY
Statement of Cash Flows
For Year Ended December 31, 2016
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
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 paid for equipment ……………………………………………….
Cash received from issuing stock (3,000 x $21) ……………..
Cash paid for dividends ………………………………………………..
Problem 12-7BA (50 minutes)
SATU COMPANY
Spreadsheet for Statement of Cash Flows
For Year Ended December 31, 2016
December
31, 2015
Analysis of Changes
December
31, 2016
Debit
Credit
Balance sheet—debits
Cash ………………………………………………….
$ 28,400
$ 58,750
Accounts receivable …………………………
25,860
(b)
$ 5,638
20,222
Inventory …………………………………………..
Equipment ………………………………………..
$272,080
$352,389
Balance sheet—credits
$ 31,000
$ 46,700
Accounts payable ……………………………..
20,372
Income taxes payable ……………………….
Common stock, $5 par value …………….
25,000
40,000
20,000
68,000
Retained earnings …………………………….
$272,080
$352,389
Statement of cash flows
Operating activities
Net income ………………………………………..
Decrease in accounts receivable ……..
Increase in merch. inventory …………….
Decrease in accounts payable ………….
Decrease in income taxes payable ……
Depreciation expense ……………………….
Investing activities
Payment for equipment …………………….
Financing activities
Issued common stock for cash ………..
Paid cash dividends ………………………….
________
60,000
Problem 12-7BA (concluded)
SATU COMPANY
Statement of Cash Flows
For Year Ended December 31, 2016
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 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 dividends ………………………………………………..
Cash balance at beginning of 2016 ………………………………….
Problem 12-8BB (35 minutes)
SATU COMPANY
Statement of Cash Flows
For Year Ended December 31, 2016
Cash flows from operating activities
Cash received from customers (Note 1) ………………
$756,438
Cash paid for inventory (Note 2) …………………………
(431,705)
Cash paid for other operating expenses ……………..
(173,933)
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
SERIAL PROBLEM — SP 12
Serial Problem — SP 12 (45 minutes)
BUSINESS SOLUTIONS
Statement of Cash Flows (Indirect)
For Quarter Ended March 31, 2017
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
Depreciation expense–Office Equipment …………………………..
400
Depreciation expense–Computer Equipment …………………….
555
375
Reporting in Action — BTN 12-1
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:
$ millions
Fiscal 2014
Fiscal 2013
Fiscal 2012
3. In fiscal 2014, the largest item in reconciling the difference between net
income and cash flow from operations was depreciation and amortization
4. In fiscal 2014, the largest cash inflow from investing activities was $189,301
million from proceeds from sales of marketable securities. The largest cash
Comparative Analysis — BTN 12-2
1. Apple’s cash flow on total assets ratio ($ 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
4. Many business decision makers (such as analysts) feel that the cash flow
Ethics Challenge — BTN 12-3
1. The business actions available include
a. Encourage early collection of receivables to reduce the accounts
2. As a business owner, Katie Murphy certainly can exercise discretion over
Communicating in Practice — BTN 12-4
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.
The statement of cash flows (operating section) can be prepared using either
Taking It to the Net — BTN 12–5
2. The largest reconciling item is for depreciation and amortization totaling
3. The following table shows the net income (or net loss) and the cash flows
from operations for Mendocino Brewing for 2013 and 2014. Over this two–
2013
2014
4. For the recent period, the largest cash outflow for investing was $(895,700)
for purchases of property, equipment and leasehold improvements.
Teamwork in Action — BTN 12-6
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.
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
Teamwork in Action (Continued)
c. Steps to prepare the statement of cash flows:
(i) Compute the net increase or decrease in cash using comparative
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
Teamwork in Action (Concluded)
Part 3
a. Cash receipts from customers = Sales – Increase in Accounts Receivable,
or, + Decrease in Accounts Receivable.
Explanation: Sales reflects what is earned during the period. If Accounts
that much more than the period’s sales, so we add it.
b. Cash paid for inventory requires a two-step computation.
Explanation for (1): If inventory increases, the entity bought more than was
c. Cash paid for wages and operating expenses = Wages and other operating
Explanation: If prepaid expenses increase, the entity paid for more than
was incurred, so we add it. If prepaid expenses decrease, the entity paid
d. Cash paid for interest and taxes = Interest and tax expense + Decrease in
related payable, or, – Increase in related payable.
Entrepreneurial Decision — BTN 12–7
1. It is common that businesses must pay cash in advance for items such as rent,
advertising, supplies, and facilities expansion. Consequently, those costs are
2. The company can potentially raise cash financing for expansion by selling
Entrepreneurial Decision — BTN 12–8
Memorandum
To: Jenna and Matt Wilder
From: Your name
Subject: Performance evaluation of Mountain High
Date: Current Date
I have completed my evaluation of your company, Mountain High. My conclusion
is that Mountain High is performing well. This is in spite of its reported net loss
and its negative net cash flow, which I explain in this memorandum.
First, with respect to the net loss, please note that it includes an $85,000
Hitting the Road — BTN 12-9
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
Global Decision — BTN 12–10
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 (16.6% and 23.6%,