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CHAPTER 12 • THE STATEMENT OF CASH FLOWS 12-21
LO 8 PROBLEM 12-2 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 8 10 (2)
Accounts Receivable 20 15 5 (5)
Inventory 15 25 (10) 10
Prepaid Rent 9 6 3 (3)
Land 75 75 —
12-22 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
PROBLEM 12-2 (Concluded)
2. Statement of cash flows:
CHRISMAN COMPANY
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2016
(IN THOUSANDS OF DOLLARS)
Cash Flows from Operating Activities
Net income ........................................................................................ $ 26
Adjustments to reconcile net income to net cash provided
by operating activities:
Cash Flows from Investing Activities
Acquisition of plant and equipment .............................................. $(100)
Cash Flows from Financing Activities
Retirement of bonds payable ....................................................... $ (25)
3. No, Chrisman did not generate enough cash from its operations to pay for its invest-
ing activities. Cash flow from operating activities amounted to only $63,000, while
the company spent $100,000 to acquire plant and equipment. The additional cash
needed to finance the acquisition was raised by issuing a note for $10,000 and is-
suing common stock for $50,000.
CHAPTER 12 • THE STATEMENT OF CASH FLOWS 12-23
LO 5 PROBLEM 12-3 STATEMENT OF CASH FLOWS—DIRECT METHOD
1. Changes in account balances and explanations (in thousands of dollars):
Net Change
Dr. (Cr.) Explanation
Cash (38)
Accounts receivable 50
Inventory 30
Prepayments (10)
(225) 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 $1,250 $1,250
– Increase in accounts receivable (50)
Cash collected $1,200
Cost of goods sold 700 $ 700
12-24 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
PROBLEM 12-3 (Continued)
Statement of cash flows:
PEORIA 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 ...................................................... $ 1,200
Cash Flows from Investing Activities
Acquisition of land ....................................................................... $ (150)
Acquisition of plant and equipment .............................................. (200)
Net cash used by investing activities ................................................ $ (350)
Cash Flows from Financing Activities
Additional long-term borrowings .................................................. $ 50
2. Memorandum to the president:
TO: President of Peoria Corp.
FROM: Student’s name
CHAPTER 12 • THE STATEMENT OF CASH FLOWS 12-25
PROBLEM 12-3 (Concluded)
Although net income on an accrual basis was $225,000, net cash flow from op-
erating activities was only $172,000. One of the reasons is that cash collections
were only $1,200,000 even though sales were $1,250,000. Also, inventory was in-
LO 6 PROBLEM 12-4 STATEMENT OF CASH FLOWS—INDIRECT METHOD
1. Changes in account balances and explanations (in thousands of dollars):
Net Change
Dr. (Cr.) Explanation
Cash (38)
Accounts receivable 50
Inventory 30
12-26 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
PROBLEM 12-4 (Continued)
Statement of cash flows:
PEORIA CORP.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2016
(IN THOUSANDS OF DOLLARS)
Cash Flows from Operating Activities
Net income ........................................................................................ $ 225
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense .................................................................. 50
Cash Flows from Investing Activities
Acquisition of land ....................................................................... $(150)
Acquisition of plant and equipment .............................................. (200)
Net cash used by investing activities ................................................ $(350)
Cash Flows from Financing Activities
Additional long-term borrowings .................................................. $ 50
2. Memorandum to the president:
TO: President of Peoria Corp.
FROM: Student’s name
DATE: January 20, 2017
SUBJECT: Cash flows
CHAPTER 12 • THE STATEMENT OF CASH FLOWS 12-27
PROBLEM 12-4 (Concluded)
Although net income on an accrual basis was $225,000, changes in various non-
cash working capital accounts resulted in net cash flow from operating activities of
only $172,000. For example, $50,000 less was collected in cash than the sales of
the period. Accounts payable was reduced by $18,000 and income taxes payable by
LO 8 PROBLEM 12-5 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 52 90 (38)
Accounts Receivable 180 130 50 (50)
Inventory 230 200 30 (30)
Prepayments 15 25 (10) 10
Land 750 600 1501 (150)
Long-Term Bank
Loan Payable (350) (300) (50)4 50
Common Stock (550) (400) (150)5 150
Retained Earnings (489) (324) 606 (60)
(225)7 225
Totals 0 0 0 172 (350) 140
Net increase
(decrease) in cash (38)
12-28 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
PROBLEM 12-5 (Continued)
2. Statement of cash flows:
PEORIA CORP.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2016
(IN THOUSANDS OF DOLLARS)
Cash Flows from Operating Activities
Net income ........................................................................................ $ 225
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense .................................................................. 50
Cash Flows from Investing Activities
Acquisition of land ....................................................................... $(150)
Acquisition of plant and equipment .............................................. (200)
Net cash used by investing activities ................................................ $(350)
Cash Flows from Financing Activities
Additional long-term borrowings .................................................. $ 50
3. Memorandum to the president:
TO: President of Peoria Corp.
FROM: Student’s name
DATE: January 20, 2017
SUBJECT: Cash flows
PROBLEM 12-5 (Concluded)
Although net income on an accrual basis was $225,000, changes in various non-
cash working capital accounts resulted in net cash flow from operating activities of
only $172,000. For example, $50,000 less was collected in cash than the sales of
LO 5 PROBLEM 12-6 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 (25)
Inventory (50)
12-30 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
PROBLEM 12-6 (Continued)
Conversion of income statement items to a cash basis (in thousands of dollars):
Income Statement Amount Adjustment Cash Flows
Sales revenue $ 500 $500
+ Decrease in accounts receivable 25
Cash collected $525
– Increase in interest payable (5)
Cash payments $ 15
Net income (loss) $(100) Net cash flow from operations $ 55
Statement of cash flows:
ASTRO 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 ............................................................. $ 525
Cash payments for:
Inventory ...................................................................................... $(325)
Operating expenses .................................................................... (130)
CHAPTER 12 • THE STATEMENT OF CASH FLOWS 12-31
PROBLEM 12-6 (Concluded)
2. Memorandum to the president:
TO: President of Astro 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 view of the net increase in cash during the year. Following are my thoughts,
along with a copy of the 2016 statement of cash flows for your reference.
1. Changes in account balances and explanations (in thousands of dollars):
Net Change
Dr. (Cr.) Explanation
Cash 15
Accounts receivable (25)
Retained earnings 135 35 Dividends (a)
100 Net loss
Total 0
Statement of cash flows:
ASTRO INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2016
(AMOUNTS IN THOUSANDS OF DOLLARS)
Cash Flows from Operating Activities
Net loss ............................................................................................. $(100)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation expense .................................................................. 70
CHAPTER 12 • THE STATEMENT OF CASH FLOWS 12-33
PROBLEM 12-7 (Concluded)
Cash Flows from Financing Activities
Additional long-term borrowings .................................................. $ 90
2. Memorandum to the president:
TO: President of Astro 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,
along with a copy of the 2016 statement of cash flows for your reference.
12-34 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
LO 8 PROBLEM 12-8 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 95 80 15
Accounts Receivable 50 75 (25) 25
Long-Term Bank Loan
Payable (340) (250) (90)4 90
Common Stock (450) (400) (50)5 50
Retained Earnings (310) (445) 1006 (100)
CHAPTER 12 • THE STATEMENT OF CASH FLOWS 12-35
PROBLEM 12-8 (Continued)
2. Statement of cash flows:
ASTRO INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2016
(AMOUNTS IN THOUSANDS OF DOLLARS)
Cash Flows from Operating Activities
Net loss ............................................................................................. $(100)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation expense .................................................................. 70
Cash Flows from Investing Activities
Acquisition of land ....................................................................... $ (75)
Acquisition of plant and equipment .............................................. (70)
Net cash used by investing activities ................................................ $(145)
Cash Flows from Financing Activities
Additional long-term borrowings .................................................. $ 90
Issuance of common stock .......................................................... 50
3. Memorandum to the president:
TO: President of Astro Inc.
12-36 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
PROBLEM 12-8 (Concluded)
Astro was able to generate a significant amount of cash from operations even
though we incurred the large net loss of $100,000. One reason for the difference be-
tween cash generated from operations and the net loss was the large amount of de-
preciation expense on the income statement. This noncash expense reduced
LO 6 PROBLEM 12-9 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 10 h. sales exceeded cash
collections
Land 100 g. bonds were exchanged
for land—a noncash
PROBLEM 12-9 (Continued)
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
Cash Flows from Investing Activities
Acquisitions of plant and equipment ............................................ $(200)
Cash Flows from Financing Activities
Payment of cash dividends .......................................................... $ (25)
Issuance of additional bonds ....................................................... 150
12-38 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
PROBLEM 12-9 (Concluded)
2. Balance sheet:
TERRIER COMPANY
BALANCE SHEET
DECEMBER 31, 2016
(IN THOUSANDS OF DOLLARS)
Cash ................................................................................................. $ 951
Accounts receivable .......................................................................... 1652
Total current assets ..................................................................... $ 260
Land .................................................................................................. $ 4003
Plant and equipment ......................................................................... 7004
3. 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.
CHAPTER 12 • THE STATEMENT OF CASH FLOWS 12-39
LO 8 PROBLEM 12-10 STATEMENT OF CASH FLOWS USING A WORK SHEET—
INDIRECT METHOD (APPENDIX)
1. Balance sheet:
TERRIER COMPANY
BALANCE SHEET
DECEMBER 31, 2016
(IN THOUSANDS OF DOLLARS)
Cash ................................................................................................. $ 951
Accounts receivable .......................................................................... 1652
Total current assets ..................................................................... $ 260
1$140 – $45 5$150 + $20
2$155 + $10 6$300 + $250
3$300 + $100 7$400 – $50
4$500 + $200 8$140 + $45
12-40 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
PROBLEM 12-10 (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
(150)4 150
Common Stock (350) (400) 505 (50)
Retained Earnings (185) (140) (70)6 70
257
(25)
Totals 0 0 0 80 (200) 75
Net increase
(decrease) in cash (45)
