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CHAPTER 12 • THE STATEMENT OF CASH FLOWS 12-61
PROBLEM 12-6A (Continued)
Conversion of income statement items to a cash basis (in thousands of dollars):
Income Statement Amount Adjustment Cash Flows
Sales revenue $350 $350
+ Decrease in accounts receivable 50
Interest expense 10 $ 10
– Increase in interest payable (10)
Cash payments $ 0
Net income (loss) $ (60) Net cash flow from operations $ 99
Statement of cash flows:
PLUTO INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2016
(IN THOUSANDS OF DOLLARS)
Cash Flows from Operating Activities
Cash collections on account ............................................................. $ 400
Cash payments for:
Inventory ...................................................................................... $(110)
12-62 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
PROBLEM 12-6A (Concluded)
2. Memorandum to the president:
TO: President of Pluto Inc.
FROM: Student’s name
DATE: January 20, 2017
SUBJECT: Cash flows
up of our accounts payable by $40,000 had the effect of improving our cash flow for
the year.
The gross profit percentage of 57% is very strong. However, operating expenses
need to be decreased relative to gross profit if we are to improve our bottom line in
the future. A portion of the operating expenses is the depreciation of $40,000. Be-
cause this represents the write-off of a sunk cost (the cost of plant and equipment
CHAPTER 12 • THE STATEMENT OF CASH FLOWS 12-63
LO 6 PROBLEM 12-7A STATEMENT OF CASH FLOWS—INDIRECT 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
12-64 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
PROBLEM 12-7A (Continued)
Statement of cash flows:
PLUTO INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2016
(IN THOUSANDS OF DOLLARS)
Cash Flows from Operating Activities
Net loss ............................................................................................. $ (60)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation expense .................................................................. 40
Cash Flows from Investing Activities
Acquisition of land ....................................................................... $(100)
Acquisition of plant and equipment .............................................. (250)
Net cash used by investing activities ................................................ $(350)
Cash Flows from Financing Activities
CHAPTER 12 • THE STATEMENT OF CASH FLOWS 12-65
PROBLEM 12-7A (Concluded)
2. Memorandum to the president:
TO: President of Pluto Inc.
FROM: Student’s name
DATE: January 20, 2017
SUBJECT: Cash flows
up of our accounts payable by $40,000 had the effect of improving our cash flow for
the year.
The gross profit percentage of 57% is very strong. However, operating expenses
need to be decreased relative to gross profit if we are to improve our bottom line in
the future. A portion of the operating expenses is the depreciation of $40,000. Be-
12-66 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
LO 8 PROBLEM 12-8A 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 25 10 15
Accounts Receivable 30 80 (50) 50
Inventory 100 100 0
Prepayments 36 35 1 (1)
Land 300 200 1001 (100)
Plant and Equipment 500 250 2502 (250)
CHAPTER 12 • THE STATEMENT OF CASH FLOWS 12-67
PROBLEM 12-8A (Continued)
2. Statement of cash flows:
PLUTO INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2016
(IN THOUSANDS OF DOLLARS)
Cash Flows from Operating Activities
Net loss ................................................................................................... $ (60)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation expense ........................................................................ 40
Cash Flows from Investing Activities
Acquisition of land ............................................................................. $ (100)
Acquisition of plant and equipment .................................................... (250)
Net cash used by investing activities ...................................................... $ (350)
Cash Flows from Financing Activities
Additional long-term borrowings ........................................................ $ 350
3. Memorandum to the president:
TO: President of Pluto Inc.
FROM: Student’s name
DATE: January 20, 2017
SUBJECT: Cash flows
You recently expressed concern to me regarding the large loss we sustained during
2016 in spite of the net increase in cash during the year. Following are my thoughts,
12-68 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
PROBLEM 12-8A (Concluded)
The gross profit percentage of 57% is very strong. However, operating expenses
need to be decreased relative to gross profit if we are to improve our bottom line in
the future. A portion of the operating expenses is the depreciation of $40,000. Be-
LO 6 PROBLEM 12-9A YEAR-END BALANCE SHEET AND STATEMENT OF CASH
FLOWS—INDIRECT METHOD
1. Changes in account balances and explanations (in thousands of dollars):
Net Change
Dr. (Cr.) Explanation
Cash ?
Accounts receivable 15 h. sales exceeded cash
collections
Land 200 g. note was exchanged for land,
a noncash activity
CHAPTER 12 • THE STATEMENT OF CASH FLOWS 12-69
PROBLEM 12-9A (Continued)
Statement of cash flows:
POODLE COMPANY
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2016
(IN THOUSANDS OF DOLLARS)
Cash Flows from Operating Activities
Net income .............................................................................................. $ 50
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense ........................................................................ 25
Increase in accounts receivable ........................................................ (15)
Decrease in current liabilities ............................................................. (20)
Net cash provided by operating activities ................................................ $ 40
Cash Flows from Investing Activities
Acquisitions of plant and equipment .................................................. $ (60)
PROBLEM 12-9A (Concluded)
2. Balance sheet:
POODLE COMPANY
BALANCE SHEET
DECEMBER 31, 2016
(IN THOUSANDS OF DOLLARS)
Cash ....................................................................................................... $ 451
Accounts receivable ................................................................................ 1552
Total current assets ........................................................................... $ 200
Land ........................................................................................................ $ 3003
Plant and equipment ............................................................................... 7604
Accumulated depreciation ....................................................................... (200)5
1$155 – $110 5$175 + $25
2$140 + $15 6$325 – $20
3$100 + $200 7$500 + $50
4$700 + $60 8$120 + $10
3. Poodle’s cash from operations of $40,000 was insufficient to cover its acquisitions of
new plant and equipment of $60,000 and the payment of cash dividends of $40,000.
CHAPTER 12 • THE STATEMENT OF CASH FLOWS 12-71
LO 8 PROBLEM 12-10A STATEMENT OF CASH FLOWS USING A WORK SHEET—
INDIRECT METHOD (APPENDIX)
1. Balance sheet:
POODLE COMPANY
BALANCE SHEET
DECEMBER 31, 2016
(IN THOUSANDS OF DOLLARS)
Cash ....................................................................................................... $ 451
Accounts receivable ................................................................................ 1552
Total current assets ........................................................................... $ 200
Land ........................................................................................................ $ 3003
Plant and equipment ............................................................................... 7604
Accumulated depreciation ....................................................................... (200)5
Investments ............................................................................................ 125
12-72 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
PROBLEM 12-10A (Continued)
2. 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 45 155 (110)
Accounts Receivable 155 140 15 (15)
Land 300 100 2001
Plant and Equipment 760 700 602 (60)
Accumulated
Depreciation (200) (175) (25)3 25
Investments 125 125 0
CHAPTER 12 • THE STATEMENT OF CASH FLOWS 12-73
PROBLEM 12-10A (Concluded)
3. Statement of cash flows:
POODLE COMPANY
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2016
(IN THOUSANDS OF DOLLARS)
Cash Flows from Operating Activities
Net income .............................................................................................. $ 50
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation expense ........................................................................ 25
4. Poodle’s cash from operations of $40,000 was insufficient to cover its acquisitions of
new plant and equipment of $60,000 and the payment of cash dividends of $40,000.
Common stock of $50,000 was issued, but this was more than offset by the
12-74 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
ALTERNATE MULTI-CONCEPT PROBLEMS
LO 4,5 PROBLEM 12-11A STATEMENT OF CASH FLOWS—DIRECT METHOD
1. Changes in account balances and explanations (in thousands of dollars):
Net Change
Dr. (Cr.) Explanation
(80) depreciation
Accounts payable (5)
Other accrued liabilities (5)
Income taxes payable 10
CHAPTER 12 • THE STATEMENT OF CASH FLOWS 12-75
PROBLEM 12-11A (Continued)
Conversion of income statement items to a cash basis (in thousands of dollars):
Income Statement Amount Adjustment Cash Flows
Sales revenue $400 $400
– Increase in accounts receivable (11)
Cash collected $389
Cost of goods sold 240 $240
+ Increase in inventory 25
– Increase in accounts payable (5)
Cash payments $260
