P14A-43B, cont.
Requirement 2
OFFICIAL RESERVE RARE COINS
Balance Sheet
December 31, 2016
Assets
Current Assets:
Cash
$ 279,000
Accounts Receivable ($580,000 × 20%)
Total current assets
Plant Assets:
Store Fixtures
Accumulated Depreciation
Total plant assets
Total Assets
Current Liabilities:
Accounts Payable ($238,000 − $158,000)
Salaries Payable
Total current liabilities
Total Liabilities
Common Stock, no par
Retained Earnings ($115,200 – $38,000)
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
P14A-43B, cont.
Requirement 3
OFFICIAL RESERVE RARE COINS
Statement of Cash Flows
Year Ended December 31, 2016
Cash Flows from Operating Activities:
Receipts:
Collections from Customers (2,900 × $200 × .80)
$ 464,000
Payments:
Net Cash Used for Operating Activities
Cash Flows from Investing Activities:
Acquisition of Store Fixtures
Net Cash Used for Investing Activities
Cash Flows from Financing Activities:
Cash Receipt from Issuance of Common Stock
Net Cash Provided by Financing Activities
Net Increase (Decrease) in Cash
Cash Balance, December 31, 2015
Cash Balance, December 31, 2016
Cash Payments to Suppliers
For Inventory
$ 280,000
For Accounts Payable
For Rent
$ 448,000
P14A-44B Preparing the statement of cash flows—direct method
Learning Objective 4
Appendix 14A
1. Net Cash Prov. by Op. Act. $132,000
Collections from Cust. $442,200
Use the McDonald data from Problem P14-41B.
Requirements
1. Prepare the 2016 statement of cash flows by the direct method.
2. How will what you learned in this problem help you evaluate an investment?
SOLUTION
Requirement 1
MCDONALD, INC.
Statement of Cash Flows
Year Ended December 31, 2016
Cash Flows from Operating Activities:
Receipts:
Collections from Customers
Payments;
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Acquisition of Plant Asset for Cash
Net Cash Used for Investing Activities
Cash Flows from Financing Activities:
Cash Receipt from Issuance of Common Stock
Cash Payment of Notes Payable
Net Cash Used for Financing Activities
Net Increase (Decrease) in Cash
Cash Balance, December 31, 2015
Cash Balance, December 31, 2016
Non-cash Investing and Financing Activities:
Acquisition of Land by issuing Long-term Notes Payable
Total Non-cash Investing and Financing Activities
P14A-44B
Requirement 1, cont.
Sales Revenue
$ 443,000
+ Beginning Accounts Receivable
+ 25,700
− Ending Accounts Receivable
− 26,500
= Cash receipts from customers
$ 442,200
Cost of Goods Sold
+Ending Merchandise Inventory
+Beginning Accounts Payable
Operating Expenses
+ Beginning Accrued Liabilities
= Cash receipts from customers
For Inventory
For Operating Expenses
P14A-44B
Requirement 1, cont.
Plant Assets
12/31/2015
109,480
Acquisitions
21,000
13,240
Disposed of
12/31/2016
117,240
12/31/2015
Depreciation Expense
Disposed of
13,240
12/31/2016
12/31/2015
Net Income
Dividend
73,900
35,800
12/31/2016
12/31/2015
Issuance
Payment
12/31/2016
Requirement 2
I will be able to evaluate an investment with this information because I can see the cash receipts and
P14B-45B Using a spreadsheet to prepare the statement of cash flows—indirect method
Learning Objective 5
The 2016 comparative balance sheet and income statement of Abilene Group, Inc. follow. Abilene
disposed of a plant asset at book value in 2016.
Prepare the spreadsheet for the 2016 statement of cash flows. Format cash flows from operating
activities by the indirect method. A plant asset was disposed of for $0. The cost and accumulated
SOLUTION
ABILENE GROUP, INC.
Statement of Cash Flows
Year Ended December 31, 2016
Balance
Transaction Analysis
Balance
Panel A – Balance Sheet:
12/31/2015
DEBIT
CREDIT
12/31/2016
Cash
$ 15,700
5,100
(m)
$ 10,600
Accounts Receivable
43,500
1,600
(c)
41,900
Merchandise Inventory
93,100
(d)
96,300
Plant Assets
(h)
(g)
Accumulated Depreciation—Plant Assets
(g)
(b)
14,000
39,600
$ 260,800
Accounts Payable
26,300
(e)
25,100
Accrued Liabilities
22,400
24,100
Notes Payable
61,000
44,000
Common Stock, no par
Retained Earnings
19,500
55,600
$ 260,800
P14-45B, cont.
Panel B – Statement of Cash Flows:
Cash Flows from Operating Activities:
Net Income
(a)
65,000
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation Expense—Plant Assets
(b)
15,900
Decrease in Accounts Receivable
(c)
Increase in Merchandise Inventory
Decrease in Accounts Payable
Increase in Accrued Liabilities
Net Cash Provided by Operating Activities
Cash Payment for Acquisition of Plant Assets
22,200
Cash Payment for Acquisition of Land
25,600
Net Cash Used for Investing Activities
Cash Flows from Financing Activities:
Cash Payment of Notes Payable
17,000
Cash Receipt from Issuance of Common Stock
(k)
Cash Payment of Dividends
28,900
Net Cash Provided by Financing Activities
Net Increase (Decrease) in Cash
Non-cash Investing and Financing Activities:
Total Non-cash Investing and Financing Activities
(g)
12,400
Continuing Problem
P14-46 Preparing the statement of cash flows—indirect method
This problem continues the Daniels Consulting situation from Problem P13-47 of Chapter 13. Daniels
Consulting’s comparative balance sheet is shown below.
Additional data follow:
a. Depreciation expense for the year, $1,616.
d. Daniels Consulting issued a bonds payable with a face value of $900,000, receiving cash of
$787,932.
e. Net income for the year was $190,537.
f. Cash receipts from issuance of common stock totaled $115,000.
Prepare the statement of cash flows using the indirect method.
SOLUTION
DANIELS CONSULTING
Statement of Cash Flows
Year Ended December 31, 2017
Cash Flows from Operating Activities:
Net Income
$ 190,537
Provided by Operating Activities:
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Acquisition of Plant Assets
(80,000)
Net Cash Used for Investing Activities
Cash Flows from Financing Activities:
Cash Receipt from Issuance of Common Stock
Cash Receipt from Issuance of Notes Payable
Cash Receipt from Issuance of Bonds Payable
Net Cash Provided by Financing Activities
1,301,632
Net Increase (Decrease) in Cash
1,425,824
Cash Balance, December 31, 2016
Cash Balance, December 31, 2017
$ 1,457,524
Adjustments to Reconcile Net Income to Net Cash
Retained Earnings
30,763
12/31/2016
190,537
Net Income
Dividend
Critical Thinking
Decision Case 14-1
Theater by Design and Show Cinemas are asking you to recommend their stock to your clients. Because
Theater by Design and Show Cinemas earn about the same net income and have similar financial
positions, your decision depends on their statement of cash flows, summarized as follows:
Based on their cash flows, which company looks better? Give your reasons.
SOLUTION
Show Cinema looks like a better investment because:
Ethical Issue 14-1
Moss Exports is having a bad year. Net income is only $60,000. Also, two important overseas customers
are falling behind in their payments to Moss, and Moss’s accounts receivable are ballooning. The
company desperately needs a loan. The Moss Exports Board of Directors is considering ways to put the
may help Moss get the loan.
Requirements
1. Using only the amounts given, compute net cash provided by operations, both without and with the
reclassification of the receivables. Which reporting makes Moss look better?
2. Under what condition would the reclassification of the receivables be ethical? Unethical?
SOLUTION
Requirement 1
Without
Reclassification
With
Reclassification
Net Income
$ 60,000
$60,000
Increase in Accounts Receivable
Net Cash Provided by Operating Activities
$60,000
Requirement 2
The reclassification would be unethical because it would be misleading on both the Statement of Cash
Financial Statement Case 14-1
Details about a company’s cash flows appear in a number of places in the annual report. Use Starbucks
Requirements
1. Which method does Starbucks use to report net cash flows from operating activities? How can you
tell?
2. Starbucks earned net income during 2013. Did operations provide cash or use cash during 2013?
Give the amount. How did operating cash during 2013 compare with 2012?
3. For the year ended September 29, 2013, did Starbucks pay cash dividends? If so, how much?
4. For the year ended September 29, 2013, did Starbucks use cash to purchase property, plant, and
equipment? If so, how much?
SOLUTION
Requirement 1