Problem 21–21 (continued)
Investment Revenue Receivable Long-term Investments
______________________ _______________________________
Land Buildings and Equipment
______________________ _______________________________
46 12
_________________
X (14) 46 X (15) 82 70 (11)
Accumulated Depreciation Patent
______________________ _______________________________
Accounts Payable Salaries Payable
______________________ _______________________________
15 5
_________________
(4) 15 (5) 5
Bond Interest Payable Income Tax Payable
Problem 21–21 (continued)
Deferred Tax Payable Notes Payable
______________________ ______________________________
Lease Liability Bonds Payable
______________________ ______________________________
82 60
________________
82 (15) X (16) 60
Discount on Bonds Common Stock
______________________ ______________________________
3 (9) 20 (17)
Paid-in Capital Preferred Stock
______________________ ______________________________
10 75
________________
10 (17) 75 (18)
Retained Earnings Treasury Stock
Problem 21–21 (continued)
INCOME STATEMENT ACCOUNTS
Sales Investment Revenue
Gain on Sale of Treasury Bills Cost of Goods Sold
______________________ _______________________________
2 180
_________________
2 (3) (4) 180
Salaries Expense Depreciation Expense
21–124 Intermediate Accounting, 8/e
Problem 21–21 (continued)
Patent Amortization Expense
Insurance Expense Bond Interest Expense
______________________ ______________________________
7 28
________________
(8) 7 (9) 28
Income Tax Expense Loss on Machine Damage
Net Income (Income Summary)
Problem 21–21 (concluded)
ARDUOUS COMPANY
Statement of Cash Flows
For year ended December 31, 2016 ($ in millions)
Cash flows from operating activities:
Cash inflows:
From customers $414
Cash flows from investing activities:
Sale of machine components 17
Purchase of long-term investment (25)
Purchase of land (23)
Net cash flows from investing activities (31)
Cash flows from financing activities:
Retirement of bonds payable (60)
Net increase in cash 35
Cash balance, January 1 81
Cash balance, December 31 $116
Noncash investing and financing activities:
Acquired $82 million building by 15-year lease.
CASES
Communication Case 21–1
Memorandum
To: Mr. Robert James
From: Your Name
Date: Current Date
RE: Discrepancy between profitability and cash flows
Generally accepted accounting principles permit us to report cash flows by either of
two methods—the direct or the indirect approach as follows:
($ in millions)
[Direct Method]
Cash flows from operating activities:
Cash inflows:
Case 21–1 (concluded)
[Indirect Method]
Cash flows from operating activities:
Net income $ 5
Adjustments for noncash effects:
Depreciation expense 5
Changes in operating assets and liabilities:
The reason for the apparent discrepancy between cash flows and net income is due
to the way the two items are measured. Net income (or loss) is the result of
combining the revenues earned during the reporting period, regardless of when cash
Let me know if I can provide you additional details.
21–128 Intermediate Accounting, 8/e
Judgment Case 21–2
DARING COMPANY
Statement of Cash Flows
For year ended December 31, 2016 ($ in 000s)
Cash flows from operating activities:
Cash inflows:
Cash flows from investing activities:
Purchase of depreciable assets (given) (55)
Cash flows from financing activities:
Issuance of note payable $ 45
Your concerns are justified in the sense that cash flows are insufficient to cover
existing interest charges, not to mention additional charges from new debt. In fact, the
principal on the debt of $45,000 will come due shortly in addition to additional
interest. Although net income is positive, cash flows from operating activities are
Case 21–2 (concluded)
On the other hand, the negative cash flow from operations is not reason, in and of
itself, for rejecting the application. Profit is positive. The reason net income is
measured on an accrual basis rather than a cash basis is that very often, net income is a
better indication of performance, particularly long-term performance, than cash flow.
The bottom line is that additional information is needed. One cause of the
negative operating cash flows is the acquisition of a large amount of inventory that is
unsold. If product demand is strong, this is favorable. Why are those inventories
unsold? What is the projected growth rate in revenues? Another concern may be the
Research Case 21–3
The results students report will vary depending on the dates of the statements
Requirement 1
FedEx is expanding its business as evidenced by the investing activities. External
financing need not be sufficient to fund those investments because of the
Requirement 2
The six activities listed under financing activities are:
($ in millions):
Financing Activities 2013 2012 2011
Principal payments on debt (417) (29) (262)
Proceeds from debt issuances 1,739 — —
The statement tells us that FedEx borrowed much more cash in 2013 than it paid to
retire debt after not borrowing any the previous year. A relatively small amount of
Case 21–3 (concluded)
Requirement 3
Companies are required to separately disclose cash payments for both interest and
serves this purpose:
Note 15: Supplemental Cash Flow Information
Cash paid for interest expense and income taxes for the years ended May 31 was as
follows:
Requirement 4
The specific citation that specifies the way FedEx reports interest and income
21–132 Intermediate Accounting, 8/e
Trueblood Accounting Case 19–4
A solution and extensive discussion materials accompany each case in the Deloitte &
Analysis Case 21–5
Requirement 1
(a)
Cash
________________________________________________________________
Beginning balance ?
Net increase (from SCF) 183
(b)
Accounts Receivable
________________________________________________________________
Beginning balance 252
Sales (from IS) 240
21–134 Intermediate Accounting, 8/e
Case 21–5 (continued)
(c)
Accounts Payable
_______________________________________________________________
90 Beginning balance
Inventory
_______________________________________________________________
Beginning balance ?
Purchases (from above) 120
96 Cost of goods sold (from IS)
Case 21–5 (continued)
(d)
Gain on sale of equipment was 45; cash received was 120; therefore, book value of
Summary Entry
Cash (from SCF) 120
Accumulated depreciation (to balance) 75
P, P, & E (450 – 600) 150
Gain on sale of equipment (from IS) 45
Accumulated Depreciation
________________________________________________________________
(e)
Income Taxes Payable
________________________________________________________________
? Beginning balance
21 Income tax expense