21–136 Intermediate Accounting, 8/e
Case 21–5 (continued)
(f)
Retained Earnings
_______________________________________________________________
141 Beginning balance
DISTINCTIVE INDUSTRIES
Comparative Balance Sheets
At December 31
2016 2015
Assets:
Cash $ 360 $ 177
Liabilities and shareholders’ equity:
Accounts payable $ 120 $ 90
Case 21–5 (concluded)
Requirement 2
DISTINCTIVE INDUSTRIES
Statement of Cash Flows
For the Year Ended December 31, 2016
($ in millions)
Cash flows from operating activities:
Net income $ 84
Adjustments for noncash effects:
Depreciation expense 30
* $279 – 252 = $27
** $180 – 156 = $24
Real World Case 21–6
Requirement 1
Year to year during the three years, Staples’ largest investing activity was the
Requirement 2
Transactions that involve merely transfers from cash to “cash equivalents” such as the
purchase of a CD should not be reported in the statement of cash flows. A dollar
Requirement 3
The sale of debt and the sale of stock are reported as financing activities.
Requirement 4
The payment of cash dividends to shareholders is classified as a financing activity, but
Case 21–6 (concluded)
Requirement 5
A statement of cash flows reports transactions that cause an increase or a decrease in
cash. However, some transactions that don’t increase or decrease cash, but which
activities. Examples of noncash transactions that would be reported:
• Acquiring an asset by incurring a debt payable to the seller.
21–140 Intermediate Accounting, 8/e
Ethics Case 21–7
Discussion should include these elements.
The apparent situation:
There seems to be at least superficial evidence that income is being artificially
Ethical Dilemma:
Does Ben have an obligation to challenge the questionable practices? If his
Who is affected?:
Ben
Real World Case 21–8
Requirement 1
Cash flows from operating activities are both inflows and outflows of cash that
result from the same activities that are reported in the income statement. The income
Requirement 2
Depreciation and amortization are noncash expenses. They are merely an
Requirement 3
A sizable reduction in the amount PetSmart owes its suppliers is a contributor to
PetSmart’s cash flows from operating activities being different from net income in
21–142 Intermediate Accounting, 8/e
Case 21–8 (continued)
Requirement 4
Cash outflows from financing activities exceeded cash inflows from those activities
during each year reported. Even though financing activities are not providing positive
cash inflows, investing activities can also produce net cash outflows because operating
PETSMART INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
Fiscal Year Ended
February 2, 2014
February 3, 2013
January 29, 2012
(52 weeks)
(53 weeks)
(52 weeks)
Merchandise sales
$
6,111,702
$
5,979,604
$
5,401,731
Services sales
740,471
Other revenue
38,919
38,162
36,714
6,916,627
6,758,237
6,113,304
Cost of merchandise sales
4,222,542
4,124,432
3,783,951
Cost of services sales
533,504
Cost of other revenue
38,919
38,162
36,714
Total cost of sales
4,800,690
4,696,098
4,308,881
Gross profit
2,115,937
2,062,139
1,804,423
Operating, general, and administrative expenses
1,422,619
1,410,922
1,301,304
596,888
Income tax expense
)
)
)
Equity income from Banfield
Other comprehensive (loss) income
Foreign currency translation adjustments
)
77
Other
(20
)
(20
)
33
Comprehensive income
$
411,855
$
389,545
$
290,353
Earnings per common share:
Basic
$
4.06
$
3.61
$
2.59
Diluted
$
4.02
$
3.55
$
2.55
Weighted average shares outstanding:
Basic
107,819
Case 21–8 (continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended
February 2, February 3, January 29,
2014 2013 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
$
$419,520
$
389,529
$
290,243
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
Loss on disposal of property and equipment
6,882
Stock-based compensation expense
28,300
29,957
27,989
Deferred income taxes
(21,009
(3,702
Equity income from Banfield
(15,970
Dividend received from Banfield
23,782
13,860
15,960
Excess tax benefits from stock-based compensation
(43,196
Non-cash interest expense
608
962
782
Changes in assets and liabilities:
Merchandise inventories
(64,473
)
(34,015
)
(29,220
)
Other assets
2,234
(46,932
)
(26,703
)
Accounts payable
37,118
40,653
9,135
Accrued payroll, bonus, and employee benefits
18,042
18,707
Other liabilities
76,978
53,522
Net cash provided by operating activities
Case 21–8 (concluded)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments
(14,446
)
(4,027
)
(38,738
)
Proceeds from maturities of investments
12,801
23,230
10,215
Proceeds from sales of investments
Decrease (Increase) in restricted cash
(1,727
)
(8,750
)
Cash paid for property and equipment
)
(138,467
)
)
Proceeds from sales of property and equipment
Net cash used in investing activities
(138,191
)
)
(155,358
)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from common stock issued under stock incentive plans
49,506
55,197
53,439
Minimum statutory withholding requirements
(5,792
)
(23,172
)
(7,061
)
Cash paid for treasury stock
(485,404
)
(435,283
)
(336,830
)
Payments of capital lease obligations
(72,986
)
)
(54,437
)
Change in bank overdraft and other financing activities
(37,728
)
Excess tax benefits from stock-based compensation
Cash dividends paid to stockholders
(54,374
)
)
)
Net cash used in financing activities
(520,233
)
)
)
)
)
(49,533
)
(7,737
)
285,622
21–146 Intermediate Accounting, 8/e
Research Case 21–9
The results students report will vary depending on the companies chosen. It can
be interesting to have students compare in class their findings with those of their
classmates.
Most companies use the indirect method to report operating activities.
Adjustments to net income in reconciling net income and cash flows from operations
are reported on the face of the statement of cash flows when the indirect method is
Analysis Case 21–10
Structural free cash flow (what Warren Buffett calls “owner’s earnings”) is net income
from operations plus depreciation and amortization minus capital expenditures:
2014 2013 2012
Net income $420 $390 $290
Increase from previous year 8% 34%
Net income $420 $390 $290
Increase from previous year 4% 21%
In 2013, net income shows a sizeable increase of 34% from 2012. Structural free cash
21–148 Intermediate Accounting, 8/e
Research Case 21–11
Requirement 1
The specific citation that specifies the classification of notes payable to suppliers is
Requirement 2
Specifically, paragraph 45–17a states that cash outflows for operating activities
Requirement 3
Analysis Case 21–12
Requirement 1
BT’s statement of cash flows, prepared in accordance with IFRS, classifies cash flows
Requirement 2
BT reports interest received and dividends received as investing activities and
dividends paid and interest paid as financing activities. IAS No. 7 allows flexibility,
21–150 Intermediate Accounting, 8/e
Air France–KLM Case
Requirement 1
AF’s statement of cash flows, prepared in accordance with IFRS, classifies cash
Requirement 2
AF reports dividends received as investing activities. It reports dividends paid as
a financing activity. Interest received and interest paid are reported as operating