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CHAPTER 12 • THE STATEMENT OF CASH FLOWS 12-41
PROBLEM 12-10 (Concluded)
3. Statement of cash flows:
TERRIER COMPANY
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2016
(IN THOUSANDS OF DOLLARS)
Cash Flows from Operating Activities
Net income ........................................................................................ $ 70
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense .................................................................. 20
Increase in accounts receivable .................................................. (10)
Net cash provided by operating activities .......................................... $ 80
4. In addition to the bonds issued in exchange for land, Terrier issued $150,000 of
bonds for cash. The money raised from this issuance was needed to help finance
the addition of $200,000 in plant and equipment.
12-42 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
MULTI-CONCEPT PROBLEMS
LO 4,5 PROBLEM 12-11 STATEMENT OF CASH FLOWS—DIRECT METHOD
1. Changes in account balances and explanations (in thousands of dollars):
Net Change
Dr. (Cr.) Explanation
Cash (9)
Accounts receivable 15
Accounts payable (7)
Other accrued liabilities (6)
Income taxes payable 2
CHAPTER 12 • THE STATEMENT OF CASH FLOWS 12-43
PROBLEM 12-11 (Continued)
Conversion of income statement items to a cash basis (in thousands of dollars):
Income Statement Amount Adjustment Cash Flows
Sales revenue $550 $550
– Increase in accounts receivable (15)
Cash collected $535
Cost of goods sold 350 $350
– Decrease in inventory (15)
– Increase in accounts payable (7)
Cash payments $328
General and
12-44 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
PROBLEM 12-11 (Concluded)
Statement of cash flows:
GLENDIVE CORP.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2016
(IN THOUSANDS OF DOLLARS)
Cash Flows from Operating Activities
Cash collections from customers ...................................................... $ 535
Cash payments for:
Inventory ...................................................................................... $(328)
General and administrative .......................................................... (45)
Interest ........................................................................................ (15)
Cash Flows from Financing Activities
Repayment of long-term loan ...................................................... $ (30)
Issuance of additional stock ........................................................ 150
Payment of cash dividends .......................................................... (7)
Net cash provided by financing activities .......................................... $ 113
Net decrease in cash ........................................................................ $ (9)
Cash balance, June 30, 2015 ........................................................... 40
Cash balance, June 30, 2016 ........................................................... $ 31
2. It is true that the amount of cash flow from operating activities is the same regard-
less of which method (direct or indirect) is used. The two methods, however, differ in
CHAPTER 12 • THE STATEMENT OF CASH FLOWS 12-45
LO 4,6 PROBLEM 12-12 STATEMENT OF CASH FLOWS—INDIRECT METHOD
1. Changes in account balances and explanations (in thousands of dollars):
Net Change
Dr. (Cr.) Explanation
Cash (9)
Accounts receivable 15
Inventory (15)
12-46 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
PROBLEM 12-12 (Concluded)
Statement of cash flows:
GLENDIVE CORP.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2016
Increase in accounts payable ...................................................... 7
Increase in other accrued liabilities .............................................. 6
Decrease in income taxes payable .............................................. (2)
Net cash provided by operating activities .......................................... $ 128
*Book value $30 – proceeds $25
2. It is true that the amount of cash flow from operating activities is the same regard-
less of which method (direct or indirect) is used. The two methods, however, differ in
the information reported to the reader of the statement of cash flows. The direct me-
thod shows the actual inflows and outflows of cash, while the indirect method arrives
at the same amount by reconciling net income to cash flow from operating activities.
CHAPTER 12 • THE STATEMENT OF CASH FLOWS 12-47
LO 2,5 PROBLEM 12-13 STATEMENT OF CASH FLOWS—DIRECT METHOD
1. No, the U.S. Treasury bills are not cash equivalents, because they have a maturity in
2. Changes in account balances and explanations (in thousands of dollars):
Net Change
Dr. (Cr.) Explanation
Cash (40)
12-48 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
PROBLEM 12-13 (Continued)
Conversion of income statement items to a cash basis (in thousands of dollars):
Income Statement Amount Adjustment Cash Flows
Sales revenue $2,408 $2,408
– Increase in accounts receivable (110)
Cash collected $2,298
Cost of goods sold 1,100 $1,100
+ Increase in inventory 120
– Increase in accounts payable (60)
CHAPTER 12 • THE STATEMENT OF CASH FLOWS 12-49
PROBLEM 12-13 (Concluded)
Statement of cash flows:
LANG COMPANY
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2016
(IN THOUSANDS OF DOLLARS)
Cash Flows from Operating Activities
Cash collections from customers ...................................................... $ 2,298
Cash payments for:
Inventory ...................................................................................... $(1,160)
Salaries and benefits ................................................................... (850)
Cash Flows from Investing Activities
Sale of U.S. Treasury bills ........................................................... $ 50
Acquisition of land ....................................................................... (10)
Acquisition of buildings and equipment ....................................... (110)
Net cash used by investing activities ................................................ $ (70)
12-50 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
ALTERNATE PROBLEMS
LO 6 PROBLEM 12-1A STATEMENT OF CASH FLOWS—INDIRECT METHOD
1. Changes in account balances and explanations:
Net Change
Dr. (Cr.) Explanation
Cash 2,000
Accounts receivable (2,000)
Inventory 1,000
Prepaid rent 200
CHAPTER 12 • THE STATEMENT OF CASH FLOWS 12-51
PROBLEM 12-1A (Concluded)
Statement of cash flows:
MADISON COMPANY
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2016
Cash Flows from Operating Activities
Net loss ............................................................................................. $(21,800)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense .................................................................. 50,000
Cash Flows from Investing Activities
Acquisition of plant and equipment .............................................. $(50,000)
Cash Flows from Financing Activities
Issuance of bonds payable .......................................................... $ 25,000
Repayment of short-term notes payable ...................................... (2,500)
2. Madison was able to increase its cash balance even though it incurred a net loss
primarily because it had one very large expense that did not require the use of any
cash: depreciation of $50,000. This one adjustment is the major difference between
the net loss of $21,800 and the net cash flow from operating activities of $29,500.
12-52 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
LO 8 PROBLEM 12-2A STATEMENT OF CASH FLOWS USING A WORK SHEET—
INDIRECT METHOD (APPENDIX)
1. Statement of cash flows work sheet (all amounts are in thousands of dollars)
Balances Cash Inflows (Outflows)
Accounts 12/31/16 12/31/15 Changes Operating Investing Financing
Cash 12.0 10.0 2.0
Accounts Receivable 10.0 12.0 (2.0) 2.0
Inventory 8.0 7.0 1.0 (1.0)
Prepaid Rent 1.2 1.0 0.2 (0.2)
Land 75.0 75.0 0.0
1
Purchase of equipment.
2
Depreciation expense.
3
Retirement of note.
4
Issuance of bonds.
5
Net loss.
CHAPTER 12 • THE STATEMENT OF CASH FLOWS 12-53
PROBLEM 12-2A (Concluded)
2. Statement of cash flows:
MADISON COMPANY
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2016
Cash Flows from Operating Activities
Net loss ............................................................................................. $(21,800)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense .................................................................. 50,000
Decrease in accounts receivable ................................................. 2,000
Cash Flows from Investing Activities
Acquisition of plant and equipment .............................................. $(50,000)
Cash Flows from Financing Activities
Issuance of bonds payable .......................................................... $ 25,000
Repayment of short-term notes payable ...................................... (2,500)
Net cash provided by financing activities .......................................... $ 22,500
12-54 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
LO 5 PROBLEM 12-3A STATEMENT OF CASH FLOWS—DIRECT METHOD
1. Changes in account balances and explanations (in thousands of dollars):
Net Change
Dr. (Cr.) Explanation
Cash (70)
Accounts receivable (85)
Inventory 20
(350) Net income
Total 0
Conversion of income statement items to a cash basis (in thousands of dollars):
Income Statement Amount Adjustment Cash Flows
Sales revenue $2,460 $2,460
+ Decrease in accounts receivable 85
Cash collected $2,545
Cost of goods sold 1,400 $1,400
+ Increase in inventory 20
– Increase in accounts payable (20)
Cash payments $1,400
CHAPTER 12 • THE STATEMENT OF CASH FLOWS 12-55
PROBLEM 12-3A (Continued)
Statement of cash flows:
WABASH CORP.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2016
(IN THOUSANDS OF DOLLARS)
Cash Flows from Operating Activities
Cash collections from customers ...................................................... $ 2,545
Cash payments for:
Cash Flows from Investing Activities
Sale of land.................................................................................. $ 100
Acquisition of plant and equipment .............................................. (250)
Net cash used by investing activities ................................................ $ (150)
Cash Flows from Financing Activities
Repayment of long-term borrowings ............................................ $ (50)
2. Memorandum to the president:
TO: President of Wabash Corp.
FROM: Student’s name
DATE: January 20, 2017
SUBJECT: Cash flows
12-56 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
PROBLEM 12-3A (Concluded)
Although net income on an accrual basis was $350,000, net cash flow from op-
erating activities was even higher, $430,000. However, the favorable cash flow dur-
ing the year was used for various purposes. First, significant additions were made to
LO 6 PROBLEM 12-4A STATEMENT OF CASH FLOWS—INDIRECT METHOD
1. Changes in account balances and explanations (in thousands of dollars):
Net Change
Dr. (Cr.) Explanation
Cash (70)
Accounts receivable (85)
Inventory 20
CHAPTER 12 • THE STATEMENT OF CASH FLOWS 12-57
PROBLEM 12-4A (Continued)
Statement of cash flows:
WABASH CORP.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2016
(IN THOUSANDS OF DOLLARS)
Cash Flows from Operating Activities
Net income ........................................................................................ $ 350
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense .................................................................. 25
Decrease in accounts receivable ................................................. 85
Cash Flows from Investing Activities
Sale of land.................................................................................. $ 100
Acquisition of plant and equipment .............................................. (250)
Net cash used by investing activities ................................................ $(150)
Cash Flows from Financing Activities
Repayment of long-term borrowings ............................................ $ (50)
2. Memorandum to the president:
TO: President of Wabash Corp.
FROM: Student’s name
DATE: January 20, 2017
SUBJECT: Cash flows
You recently expressed concern to me regarding the decrease in cash during 2016
12-58 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
PROBLEM 12-4A (Concluded)
Although net income on an accrual basis was $350,000, net cash flow from op-
erating activities was even higher, $430,000. However, the favorable cash flow dur-
ing the year was used for various purposes. First, significant additions were made to
LO 8 PROBLEM 12-5A STATEMENT OF CASH FLOWS USING A WORK SHEET—
INDIRECT METHOD (APPENDIX)
1. Statement of cash flows work sheet (all amounts are in thousands of dollars):
Balances Cash Inflows (Outflows)
Accounts 12/31/16 12/31/15 Changes Operating Investing Financing
Cash 140 210 (70)
Accounts Receivable 60 145 (85) 85
Inventory 200 180 20 (20)
Prepayments 15 25 (10) 10
Land 600 700 (100)1 100
Totals 0 0 0 430 (150) (350)
Net increase
(decrease) in cash (70)
1
Sale of land. 5Issuance of common stock.
CHAPTER 12 • THE STATEMENT OF CASH FLOWS 12-59
PROBLEM 12-5A (Continued)
2. Statement of cash flows:
WABASH CORP.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2016
(IN THOUSANDS OF DOLLARS)
Cash Flows from Operating Activities
Net income ........................................................................................ $ 350
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation expense .................................................................. 25
Cash Flows from Investing Activities
Sale of land.................................................................................. $ 100
Acquisition of plant and equipment .............................................. (250)
Net cash used by investing activities ................................................ $(150)
Cash Flows from Financing Activities
Repayment of long-term borrowings ............................................ $ (50)
3. Memorandum to the president:
TO: President of Wabash Corp.
FROM: Student’s name
12-60 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
PROBLEM 12-5A (Concluded)
Although net income on an accrual basis was $350,000, net cash flow from op-
erating activities was even higher, $430,000. However, the favorable cash flow dur-
ing the year was used for various purposes. First, significant additions were made to
LO 5 PROBLEM 12-6A STATEMENT OF CASH FLOWS—DIRECT METHOD
1. Changes in account balances and explanations (in thousands of dollars):
Net Change
Dr. (Cr.) Explanation
Cash 15
Accounts receivable (50)
Inventory 0
Prepayments 1
Land 100 Purchase (c)
