Chapter 12

The Cash Flow Statement

Questions
 1. The cash flow statement reports the reasons for the
    changes in cash...
5.      The check figure for the cash flow statement is the
           change in cash during the period. This amount is
  ...
11. Cash flows from operating activities:
     Net                                                               $
   inco...
pay long- term debt, and issuance of a note payable to
      repurchase shares.
      Note : Students may list other examp...
17. Payments to employees ($X) are $59,000, computed as
    follows:

   $10,000 +           –   = $2,000
   $51,000      ...
Check Points
                                                                (10 min.)   CP 12- 1
The cash flow statement ...
(5 min.)       CP 12- 2
Four strong points about             TransCanada                Pipelines
Limited’s cash flows are...
(5- 10 min.)    CP 12- 4
Cash flows from operating activities:
  Net                                                      ...
from customers     N     n. Retained earnings




                 Chapter 12   The Cash Flow Statement   119
(10 min.)   CP 12- 6
                         Labrador Resources Inc.
                      Cash Flow Statement (partial)
...
(15 min.)       CP 12- 7
                 Labrador Resources Inc.
                  Cash Flow Statement
            For th...
_____
*$210,000 – $100,000 – $35,000 – $15,000 = $60,000




122   Financial Accounting Canadian Edition Instructor’s Solu...
(10 min)         CP 12- 8
a. Acquisitions of capital assets = $100,000, as follows:
Capital Assets, net
 Beg.             ...
a. Payment of long- term note payable = $2,000 ($68,000 –
   $66,000)
   This is clear from the decrease in long- term deb...
(15 min.)         CP 12- 10
            Premier Dental Laboratories Ltd.
                  Cash Flow Statement
         Fo...
(5 min.)   CP 12- 11
                   Labrador Resources Inc.
                Cash Flow Statement (partial)
            ...
(15 min.)         CP 12- 12
                         Labrador Resources Inc.
                          Cash Flow Statement...
(15 min.)       CP 12- 13
a. Collections from customers = $704,000, as follows:
      Collections               Sales
    ...
0




    Chapter 12   The Cash Flow Statement   129
(10 min.)      CP 12- 14
a. Payments to employees = $48,000, as follows:

            Payments to                     Sala...
Exercises
                                           (10- 15 min.)       E 12- 1
DATE:     _______________

TO:       Mana...
(10- 15 min.)   E 12- 2
 O+ a. Amortization of                             NIF k. Acquisition of equipment
       intangib...
(5- 10 min.)       E 12- 3
a. Investing activities        g. Noncash investing
                                  and
     ...
(10- 15 min.)        E 12- 4
 Cash flows from operating activities:
   Net                                                ...
(15- 20 min.)       E 12- 5
Cash flows from operating activities:
   Net                                          $69,00
i...
(20- 30 min.)          E 12- 6
Req. 1

                        Lion’s Head Marina Ltd.
                          Cash Flow...
Net increase in                                                        $
cash……………………………………                               ...
Mid- range               - Case A
Least healthy financially - Case C




138   Financial Accounting Canadian Edition Instr...
(10- 15 min.)       E 12- 8
a. Cash dividend payments = $26,000

    $45,000 + $62,000 – $8,000 – Cash dividends (X) =
$73...
140   Financial Accounting Canadian Edition Instructor’s Solutions Manual
(10- 15 min.)       E 12- 9
O+ a. Collection of account    NIF k. Acquisition of equipment
      Receivable               ...
(5- 10 min.)   E 12- 10
a. Investing activities                                  h. Operating activities

b. Investing act...
(10- 15 min.)          E 12- 11
Cash flows from operating activities:
  Receipts:
    Collections from customers
       ($...
(5- 10 min.)   E 12- 12
Dividends Receivable — Report                                       cash    receipts   of
dividend...
(20- 30 min.)             E 12- 13
Req. 1
                                Lion’s Head Marina Ltd.
                        ...
146   Financial Accounting Canadian Edition Instructor’s Solutions Manual
(continued)           E 12- 13
Req. 2

Evaluation: Lion’s Head Marina’s cash flows look fairly
          strong. Operation...
(10- 15 min.)    E 12- 14
                                        $4,000 decrease
                                        ...
(20- 30 min.)          E 12- 15
(All amounts in millions)
                                                      Increase i...
(continued)            E 12- 15
g. Proceeds
   from                                     Beg. Common                       ...
(20 min.)        E 12- 16
Req. 1

                        (All in millions)

    Loss on sale
         of              Pro...
Problems
Group A

                                                             (15- 30 min.)   P 12- 1A
DATE:             ...
(continued)          P 12- 1A
  During 2005, the insurance recovery helped investing
activities produce a net cash inflow....
(40 min.)    P 12- 2A
Req. 1

                Red River Home Furnishings Ltd.
                       Income Statement
    ...
Total assets                 $375,000         shareholders' equity             $375,00
                                   ...
(continued)           P 12- 2A
Req. 3

                  Red River Home Furnishings Ltd.
                        Cash Flow...
2005………………….                                                       0
Cash balance, December 31,                           ...
(35- 45 min.)            P 12- 3A
                        Datex Corporation
                       Cash Flow Statement
   ...
Issuance of long- term note                    34,400
payable…………….
    Payment of cash                                  (...
(35- 45 min.)            P 12- 4A
Req. 1
                         Haehn for Golf Ltd.
                        Cash Flow St...
Net cash provided by financing                                31,0
activities…...                                         ...
(30- 40 min.)       P 12- 5A
Req. 1
                      Dan’s Triathlon Sports Ltd.
                         Cash Flow S...
Cash flows from financing activities:
    Payment of dividends ($2,700 + $68,000 –           $(29,20
$41,500)             ...
(35- 45 min.)            P 12- 6A
Req. 1
                          Campbell River Kayaks
                           Cash F...
debt…………………….
    Payment of                                    (48,400 )
dividends…………………………….
    Proceeds from issuance...
(40 min.)   P 12- 7A
Req. 1

             Red River Home Furnishings Ltd.
                    Income Statement
          F...
0)         0

                                       Total liabilities and
Total assets                $375,000      share...
Increase in                                                                 $ 90,000
cash…………………………………………
Cash balance, Ja...
(30- 40 min.)         P 12- 8A
Req. 1

                 Dan’s Triathlon Sports Ltd.
                    Cash Flow Statemen...
Net cash used for financing                                             (30,600 )
activities………………
Net increase in        ...
(continued)          P 12- 8A
Req. 2

This problem will help students learn how operating
activities, investing activities...
(45- 60 min.)          P 12- 9A
Req. 1
                    RealTime Internet Connection Inc.
                           Ca...
Net cash used for financing                                         (47,600
activities……………..                             ...
payable……………
         Increase in salary                                                  7,000
payable……………...
         I...
(45- 60 min.)          P 12- 10A
Req. 1
                       Hardy Driver Training inc.
                         Cash Fl...
Cash flows from financing activities:
    Payment of long- term note                                        $(61,000 )
pay...
(continued)           P 12- 10A
Req. 2
                    Hardy Driver Training Inc.
              Cash Flows from Operat...
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Ch 12

  1. 1. Chapter 12 The Cash Flow Statement Questions 1. The cash flow statement reports the reasons for the changes in cash during the period. In the process, it shows the cash impact of the entity’s operating, investing, and financing activities. 2. Four purposes of the cash flow statement are to (a) predict future cash flows, (b) evaluate management decisions, (c) determine the company’s ability to pay dividends to shareholders and interest to creditors, and (d) show the relationship between net income and changes in cash. 3. a. Operating activities create revenues and expenses in the entity’s major line of business. Operating activities are related to the transactions that make up net income. b. Investing activities increase and decrease the long- term assets of the business. c. Financing activities obtain from investors and creditors the cash needed to launch and sustain the business. 4. The cash flow statement is dated “For the Period Ended 20XX” because it reports the reasons for the changes in cash that occurred during the period—for example, “For the Year Ended December 31, 2003” or “For the Month Ended June 30, 2005.” Chapter 12 The Cash Flow Statement 111
  2. 2. 5. The check figure for the cash flow statement is the change in cash during the period. This amount is obtained by subtracting the beginning cash balance from the ending cash balance (taken from the comparative balance sheet). The change in cash is compared to the net change in cash shown at the bottom of the cash flow statement. The two amounts should be equal. 6. The largest source of cash for most successful companies is operations. 7. Cash may decrease during a year when income is high because the entity may be using cash to invest in long- term assets. Cash may increase in a bad year because the entity may be borrowing heavily. The cash flow statement reports these activities to show where cash came from and how it was spent. 8. a. Financing activities b. Operating activities c. Operating activities d. Operating activities e. Investing activities 9. An increase in another current asset is a decrease in cash. A decrease in another current asset is an increase in cash. An increase in a current liability is an increase in cash. A decrease in a current liability is a decrease in cash. 10. Net cash provided by operating activities = $64,000 ($38,000 + $22,000 + $13,000 – $9,000). 112 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  3. 3. 11. Cash flows from operating activities: Net $ income………………………………………... XXX Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of (15,000 investments………………... ) Cash flows from investing activities: Sale of $ investments……………………………... 80,000 12. Acquisitions of capital assets ($X) are $29,000, computed as follows: $193,000 + $X – $37,000 – = $176,000 $9,000 $X = $176,000 – $193,000 + $37,000 + $9,000 $X = $29,000 This amount is reported as a cash payment under investing activities. Capital Assets, Net Beginning 193,00 Amortization 37,000 balance 0 expense Book value of ACQUISITIONS 29,00 capital assets 9,000 0 disposed of Ending balance 176,00 0 13. Issuance of a note payable to purchase land should be reported as a noncash investing and financing activity. This category of transactions can be included in a schedule that accompanies the cash flow statement. Three other transactions in this category are issuance of shares to acquire a building, issuance of shares to Chapter 12 The Cash Flow Statement 113
  4. 4. pay long- term debt, and issuance of a note payable to repurchase shares. Note : Students may list other examples that are acceptable. 14. OPERATING ACTIVITIES: Cash Receipts Cash Payments Collections from customers Payments to suppliers Receipts of interest and Payments to employees dividends on investments Payments of interest and taxes Other operating receipts Other operating payments INVESTING ACTIVITIES: Cash Receipts Cash Payments Sale of capital assets Acquisition of capital assets Sale of investments that Acquisition of investments that are not cash equivalents are not cash equivalents Cash receipts on loans Making loans receivable FINANCING ACTIVITIES: Cash Receipts Cash Payments Issuing shares Payments of dividends Borrowing money Repurchase of shares Paying principal amounts of debts 15. Amortization expenses are not reported on a cash flow statement prepared by the direct method because they do not affect cash. They are reported on a statement prepared by the indirect method because the first item, net income, includes a deduction for them. Because they do not affect cash, they must be added back to net income to cancel the effect of their subtraction in computing income. 16. Net cash inflow from operations = $61,000 ($92,000 + $6,000 – $24,000 – $13,000). The dividend payments and the loan to another company are excluded because the dividends are a financing activity and the loan is an investing activity. 114 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  5. 5. 17. Payments to employees ($X) are $59,000, computed as follows: $10,000 + – = $2,000 $51,000 $X – = $2,000 – $10,000 – $X $51,000 – = –$59,000 $X $ = $59,000 X This amount is reported as a cash payment under operating activities. Salary Payable Payments to 59,000 Beginning 10,00 employees balance 0 Salary expense 51,00 0 Ending balance 2,000 18. Free cash flow is the amount of cash available from operations after paying for planned investments in capital assets and other long- term assets. Chapter 12 The Cash Flow Statement 115
  6. 6. Check Points (10 min.) CP 12- 1 The cash flow statement helps investors and creditors: a. Predict future cash flows by reporting past cash receipts and payments, which are a reasonably good predictor of future cash receipts and payments. b. Evaluate management decisions by reporting on managers’ investments. Wise investments help companies prosper. Unwise investments cause businesses to suffer financially. c. Predict the company ’ s ability to pay dividends and interest by reporting where its cash came from and how the cash was spent. This information helps investors and creditors predict whether the business can make dividend and debt payments. 116 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  7. 7. (5 min.) CP 12- 2 Four strong points about TransCanada Pipelines Limited’s cash flows are: 1. Operating activities are TransCanada’s main source of cash. 2. TransCanada is investing in long- term assets. 3. The company is able to obtain financing by issuing shares. 4. The company is not borrowing but rather repaying debt. Note : Students are required to identify only three strong points. (5- 10 min.) CP 12- 3 Four things that could cause operating cash flows to be negative (under the indirect method) are: 1. Net loss 2. A large gain on the sale of assets 3. Increases in current assets other than cash 4. Decreases in current liabilitites Notes : a. Students need to identify only three items. b. Amortization cannot cause operating cash flows to be negative because in the indirect method amortization is added back as a positive amount. Chapter 12 The Cash Flow Statement 117
  8. 8. (5- 10 min.) CP 12- 4 Cash flows from operating activities: Net $81,000 income……………………………………………….. Adjustments to reconcile net income to net cash provided by operating activities: 9,000 Amortization…………………………………………... Gain on sale of (4,000 ) land…………………………………. Increase in accounts receivable, inventory, and prepaid expenses ($78,000 – (13,000 ) $65,000)…... Decrease in current liabilities ($42,000 – (2,000 ) $40,000). Net cash provided by operating activities: $71,000 …... (10 min.) CP 12- 5 O+ a. Loss on sale of land O+ h. Increase in accounts O+ b. Amortization payable expense O– c. Increase in N i. Sales revenue inventory O+ d. Decrease in prepaid F j. Payment of dividends expense O– k. Decrease in accrued O+ e. Decrease in liabilities accounts receivable F l. Issuance of common I f. Purchase of shares equipment O– m. Gain on sale of N g. Collection of cash building 118 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  9. 9. from customers N n. Retained earnings Chapter 12 The Cash Flow Statement 119
  10. 10. (10 min.) CP 12- 6 Labrador Resources Inc. Cash Flow Statement (partial) For the Year Ended June 30, 2005 Cash flows from operating activities: Net income ...................................................... $ 60,000* Adjustments to reconcile net income to net cash provided by operating activities: Amortization .................................................... $ 15,000 Increase in current assets other than cash.......................................................... (30,000 ) Decrease in current liabilities ................ (5,000 (20,000 ) ) Net cash provided by operating activities .............................................. $ 40,000 _____ *$210,000 – $100,000 – $35,000 – $15,000 = $60,000 120 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  11. 11. (15 min.) CP 12- 7 Labrador Resources Inc. Cash Flow Statement For the Year Ended June 30, 2005 Cash flows from operating activities: Net $60,000 * income……………………………………….. Adjustments to reconcile net income to net cash provided by operating activities: $ 15,000 Amortization…………………………………... Increase in current assets other than (30,000 ) cash…………………………………………. Decrease in current (5,00 (20,000 ) liabilities……………… 0) Net cash provided by operating 40,000 activities….. Cash flows from investing activities: Purchase of $(40,00 equipment………………………… 0) Proceeds from sale of 60,00 land……………………. 0 Net cash provided by investing 20,000 activities….. Cash flows from financing activities: Proceeds from issuance of common $ 20,000 shares Payment of note (30,000 ) payable………………………. Payment of (6,000 ) dividends………………………….. Repurchase of treasury (5,000 shares………………. ) Net cash used for financing (21,000 ) activities………. Net increase in $39,000 cash……………………………….. Chapter 12 The Cash Flow Statement 121
  12. 12. _____ *$210,000 – $100,000 – $35,000 – $15,000 = $60,000 122 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  13. 13. (10 min) CP 12- 8 a. Acquisitions of capital assets = $100,000, as follows: Capital Assets, net Beg. Book value End. bal. + Acquisition – Amortizatio – of = bal. s n assets sold $185,00 + X – $ 60,000 – $0 = $225,00 0 0 X = $225,000 – $185,000 + $60,000 X = $100,000 Capital Assets, net Beg. bal. 185,000 Acquisitions 100,000 Amortization 60,000 End. bal. 225,000 b. Proceeds from the sale of long- term investments = $15,000, as follows: Long- term investments Book value of Beg. bal. + Purchases – investments sold = End. bal. $90,000 + 0 – X = $75,000 X = $90,000 – $75,000 X = $15,000 Since there was no gain or loss, the proceeds from the sale must be the same as the investments’ book value, $15,000. Long- Term Investments Beg. bal. 90,000 Book value of investments sold 15,000 End. bal. 75,000 (15 min.) CP 12- 9 Chapter 12 The Cash Flow Statement 123
  14. 14. a. Payment of long- term note payable = $2,000 ($68,000 – $66,000) This is clear from the decrease in long- term debt. b. Issuance of common shares = $3,000 ($40,000 – $37,000) This is clear from the increase in common shares. c. Payment of dividends (same as amount of = $84,000, as follows: dividends declared) Beginning Dividend Ending Net retained + – declaration = retained income earnings s earnings $246,000 + $110,0 – X = $272,00 00 0 X = – $272,000 + $246,000 + $110,000 = $ 84,000 Retained Earnings Dividend Beg. bal. 246,000 declarations (same amount 84,00 Net income 110,000 paid) 0 End. bal. 272,000 124 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  15. 15. (15 min.) CP 12- 10 Premier Dental Laboratories Ltd. Cash Flow Statement For the Year Ended December 31, 2004 Cash flows from operating activities: Collections from $590,000 customers………………… Payments to suppliers and (410,00 employees…… 0) Net cash provided by operating $180,000 activities.. Cash flows from investing activities: Purchase of $(140,00 equipment……………………… 0) Net cash used for investing (140,000 ) activities……. Cash flows from financing activities: Payment of $ dividends………………………... (50,000 ) Net cash used for financing (50,000 activities…….. ) Net decrease in $(10,000 ) cash……………………………. Cash balance, 104,000 beginning……………………….. Cash balance, $ 94,000 ending…………………………… Chapter 12 The Cash Flow Statement 125
  16. 16. (5 min.) CP 12- 11 Labrador Resources Inc. Cash Flow Statement (partial) For the Year Ended June 30, 2005 Cash flows from operating activities: Collections from $200,000 customers………………… Payments to (80,000 ) suppliers……………………….. Payments to (70,000 ) employees……………………… Payment of income (10,00 tax………………………. 0) Net cash provided by operating $40,00 activities... 0 126 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  17. 17. (15 min.) CP 12- 12 Labrador Resources Inc. Cash Flow Statement For the Year Ended June 30, 2005 Cash flows from operating activities: Collections from customers........................... $200,00 0 Payments to suppliers.................................... (80,000 ) Payments to employees ................................. (70,000 ) Payment of income tax................................... (10,00 0) Net cash provided by operating activities . $ 40,000 Cash flows from investing activities: Purchase of equipment ................................... $(40,00 0) Proceeds from sale of land........................... 60,00 0 Net cash provided by investing activities . . 20,000 Cash flows from financing activities: Proceeds from issuance of common $20,000 shares ...................................................................... Payment of note payable ............................... (30,000 ) Payment of dividends...................................... (6,000 ) Repurchase of shares ..................................... (5,000 ) Net cash used for financing activities ........ (21,00 0) Net increase in cash............................................ $ 39,000 Chapter 12 The Cash Flow Statement 127
  18. 18. (15 min.) CP 12- 13 a. Collections from customers = $704,000, as follows: Collections Sales from = Revenue – Increase in Accounts Receivable customers = $710,00 – $6,000 ($54,000 – $48,000) 0 = $704,00 0 Accounts Receivable Beg. 48,000 Bal. Sales 710,000 Collections 704,000 End. 54,000 Bal. b. Payments for inventory = $331,000, as follows: Payments Cost of Decrease in Increase in for = goods – inventory – Accounts inventory sold Payable = $340,00 – $4,000 – $5,000 0 ($84,000 – ($47,000 – $80,000) $42,000) = $331,00 0 Inventory Accounts Payable Beg. bal. 84,00 Payments Beg. bal. 42,000 0 for Purchase 336,00 Cost of goods 340,00 inventory 331,00 Purchase 336,00 s 0 sold 0 0 s 0 End. bal. 80,00 End. bal. 47,000 128 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  19. 19. 0 Chapter 12 The Cash Flow Statement 129
  20. 20. (10 min.) CP 12- 14 a. Payments to employees = $48,000, as follows: Payments to Salary Increase in = – employees expense Salary Payable = $50,000 – $2,000 (23,000 – $21,000) = $48,000 Salary Payable Payments to Beg. bal. 21,000 employees 48,000 Salary 50,000 expense End. bal. 23,000 b. Payments for other expenses = $154,000, as follows: Payments Other Increase in Decrease in of other = expense + prepaid + accrued expenses s expenses liabilities = $150,00 + $1,000 + $3,000 0 ($3,000 – $2,000) ($11,000 – $8,000) = $154,00 0 130 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  21. 21. Exercises (10- 15 min.) E 12- 1 DATE: _______________ TO: Managers of BizMart Stores Inc. FROM: Student Name SUBJECT: Purposes of the cash flow statement The cash flow statement is designed to help management predict the future cash flows of a business. The cash flow statement measures historical cash flows, which are a good predictor of future cash flows. Net income is an important measure of management performance, but it takes cash to pay the bills. Also, a manager’s performance should be evaluated in part on the basis of how well he or she uses cash, information given in the cash flow statement. In evaluating a borrower’s ability to repay a loan, a creditor examines the cash flow statement to learn how the borrower has gained and spent cash. As BizMart’s situation indicates, income may increase while cash decreases, so the cash flow statement should be used in conjunction with the income statement and the balance sheet in evaluating a company. Note : Student responses may vary. Chapter 12 The Cash Flow Statement 131
  22. 22. (10- 15 min.) E 12- 2 O+ a. Amortization of NIF k. Acquisition of equipment intangible assets by issuance of note payable F+ b. Issuance of long- term Payment of long- term F– l. note debt payable to borrow cash O+ c. Amortization of NIF m. Acquisition of building by equipment issuance of common shares F– d. Repurchase of shares N n. Accrual of salary expense F+ e. Issuance of common I– o. Purchase of long- term shares for cash investment O+ f. Increase in accounts O+ p. Decrease in merchandise payable inventory O+ g. Net income O– q. Increase in prepaid expenses F– h. Payment of cash I+ r. Cash sale of land dividend I+ i. Sale of long- term O– s. Decrease in accrued Investment liabilities O+ j. Loss on sale of land 132 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  23. 23. (5- 10 min.) E 12- 3 a. Investing activities g. Noncash investing and financing activities b. Investing activities h. Financing activities c. Financing activities i. Financing activities d. Noncash investing and financing activities j. Operating activities e. Operating activities k. Investing activities f. Financing activities l. Operating activities Chapter 12 The Cash Flow Statement 133
  24. 24. (10- 15 min.) E 12- 4 Cash flows from operating activities: Net $ income…………………………………. 22,000 Adjustments to reconcile net income to net cash used for operating activities: $ 12,000 Amortization…………………………….. Loss on sale of 5,000 land…………………… Increase in current assets other than (27,000 ) cash……………………………… Decrease in current (20,00 (30,00 liabilities………... 0) 0) Net cash used for operating $ activities…………………………………… (8,000) .. Evaluation : Operating cash flow is weak, as shown by the net cash used for operating activities. 134 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  25. 25. (15- 20 min.) E 12- 5 Cash flows from operating activities: Net $69,00 income…………………………………….. 0 Adjustments to reconcile net income to net cash provided by operating activities: Amortization………………………… $ 3,000 ……. Decrease in accounts 4,000 receivable……... Increase in (2,000) inventory……………………. Increase in accounts 5,000 payable…………. Decrease in accrued (3,000 ) 7,00 liabilities………… 0 Net cash provided by operating $76,00 activities……………………………………… 0 … Mud Lake Trading Co. shows no sign of trouble collecting receivables or selling inventory. There is no large build- up in either account. Chapter 12 The Cash Flow Statement 135
  26. 26. (20- 30 min.) E 12- 6 Req. 1 Lion’s Head Marina Ltd. Cash Flow Statement For the Year Ended June 30, 2005 Cash flows from operating activities: Net $38,00 income…………………………………………... 0 Adjustments to reconcile net income to net cash provided by operating activities: Amortization……………………………… $ ……... 29,000 Decrease in accounts 15,000 receivable……………. Increase in (6,000 ) inventory…………………………... Increase in prepaid (1,000 ) expenses………………… Increase in accounts 13,000 payable………………… Decrease in accrued (8,000 42,00 liabilities……………….. ) 0 Net cash provided by operating 80,000 activities…. Cash flows from investing activities: Acquisition of capital assets $(101,00 ………………….... 0) Proceeds from sale of 24,00 land……………………….. 0 Net cash used for investing (77,000 ) activities………. Cash flows from financing activities: Proceeds from issuance of common $ shares… 30,000 Payment of long- term note (15,000 ) payable…………….. Payment of dividends (11,00 …………………………….. 0) Net cash provided by financing 4,00 activities….. 0 136 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  27. 27. Net increase in $ cash…………………………………… 7,000 Cash balance, June 30, 20,00 2004………………………… 0 Cash balance, June 30, $27,00 2005………………………… 0 Noncash investing and financing activities: $15,00 Acquisition of capital assets by issuing note payable 0 (continued) E 12- 6 Req. 2 Evaluation: Lion’s Head Marina Ltd.’s cash flows look fairly strong. Operations are the main source of cash. The company is investing in new capital assets without having to borrow. It was able to issue shares and pay off a long- term note payable—both financing transactions. All of these signs are favourable. (5- 10 min. E 12- 7 Case A Issuing shares generated the cash to acquire capital assets. Case B A combination of operations and issuing shares generated most of the cash for acquisition of capital assets. Case C The sale of capital assets generated the cash needed to acquire new capital assets. Most healthy financially - Case B Chapter 12 The Cash Flow Statement 137
  28. 28. Mid- range - Case A Least healthy financially - Case C 138 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  29. 29. (10- 15 min.) E 12- 8 a. Cash dividend payments = $26,000 $45,000 + $62,000 – $8,000 – Cash dividends (X) = $73,000 – Cash dividends = $73,000 – $45,000 – $62,000 + $8,000 Cash dividends = $26,000 Retained Earnings Stock dividends 8,00 Beginning balance 45,00 0 0 Cash dividends 26,00 Net income 62,00 0 0 Ending balance 73,00 0 b. Cash proceeds of sale = Book value of asset sold, $7,000* – Loss on sale, $1,000 = $6,000 _____ *$103,000 + $27,000 – $16,000 – Book value sold (X) = $107,000 – Book value sold = $107,000 – $103,000 – $27,000 + $16,000 Book value sold = $7,000 Capital Assets, Net Beginning balance 103,000 Amortization 16,00 0 Purchases 27,00 Book value sold 7,000 0 Ending balance 107,000 Chapter 12 The Cash Flow Statement 139
  30. 30. 140 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  31. 31. (10- 15 min.) E 12- 9 O+ a. Collection of account NIF k. Acquisition of equipment Receivable by issuance of note payable F+ b. Issuance of long- term Payment of long- term F– l. note debt payable to borrow cash N c. Amortization of NIF m. Acquisition of building by equipment issuance of common shares F– d. Repurchase of common N n. Accrual of salary shares expense F+ e. Issuance of common I– o. Purchase of long- term Shares for cash investment O– f. Payment of account O– p. Payment of wages to payable employees F+ g. Issuance of preferred O+ q. Collection of cash interest shares for cash F– h. Payment of cash I+ r. Cash sale of land dividend I+ i. Sale of long- term N s. Distribution of share investment dividend N j. Amortization of bond discount Chapter 12 The Cash Flow Statement 141
  32. 32. (5- 10 min.) E 12- 10 a. Investing activities h. Operating activities b. Investing activities i. Financing activities c. Financing activities j. Financing activities d. Noncash investing k. Not reported and financing activities e. Operating activities l. Operating activities f. Financing activities m Investing activities . g. Noncash investing n. Operating activities and financing activities 142 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  33. 33. (10- 15 min.) E 12- 11 Cash flows from operating activities: Receipts: Collections from customers ($93,000 + $9,000) $ …………………. 102,000 Collection of dividend 7,000 revenue……. Total cash 109,000 receipts……………….. Payments: To $(54,000 suppliers…………………………… ) To (34,000) employees…………………………. For (16,000) interest……………………………. For income (13,000 tax………………………... ) Total cash (117,000 payments……………... ) Net cash used for operating $ activities. (8,000 ) Evaluation: Operating cash flow is weak, as shown by the net cash used for operating activities. Chapter 12 The Cash Flow Statement 143
  34. 34. (5- 10 min.) E 12- 12 Dividends Receivable — Report cash receipts of dividends as an operating cash flow. Investment in Land — Report acquisitions of investments and the proceeds from sales of investments* as investing cash flows. Long- Term Debt — Report issuance and payments of long- term debt as financing cash flows. _____ *Amount of sale proceeds is not determinable. We would need the gain or loss to combine with the book value of investments sold. 144 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  35. 35. (20- 30 min.) E 12- 13 Req. 1 Lion’s Head Marina Ltd. Cash Flow Statement For the Year Ended June 30, 2005 Cash flows from operating activities: Receipts: Collections from customers ($229,000 + $15,000) .................................. $ 244,000 Dividends received on investments in 8,00 shares 0 Total cash receipts....................................... 252,000 Payments: To suppliers ($103,000 + $11,000 + $(115,000) $1,000) ................................................................................ To employees ($45,000 + $1,000) .................. (46,000) For income tax..................................................... (9,000) For interest ............................................................ (2,000 ) Total cash payments.................................... (172,000 ) Net cash provided by operating activities .... 80,000 Cash flows from investing activities: Acquisition of capital assets................................... $(101,000) Proceeds from sale of land..................................... 24,00 0 Net cash used for investing activities ............ (77,000 )) Cash flows from financing activities: Proceeds from issuance of common shares ....... $ 30,000 Payment of long- term note payable ...................... (15,000) Payments of dividends............................................. (11,000 ) Net cash provided by financing activities..... 4,00 0 Net increase in cash........................................................ $ 7,000 Cash balance, June 30, 2004 ....................................... 20,00 0 Cash balance, June 30, 2005 ....................................... $ 27,000 Noncash investing and financing activities: $ Acquisition of capital assets by issuing note payable. 15,000 Chapter 12 The Cash Flow Statement 145
  36. 36. 146 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  37. 37. (continued) E 12- 13 Req. 2 Evaluation: Lion’s Head Marina’s cash flows look fairly strong. Operations are the main source of cash. The company is investing in new capital assets without having to borrow. It was able to issue shares and pay off a long- term note payable—both financing transactions. All of these signs are favourable. Chapter 12 The Cash Flow Statement 147
  38. 38. (10- 15 min.) E 12- 14 $4,000 decrease in a. Cash = $81,00 + Accounts collections 0 Receivable ($22,000 – $18,000) = $85,00 0 b. $4,000 decrease $3,000 decrease in in Cash payments = $90,00 – Inventory + Accounts Payable for inventory 0 ($25,000 – ($11,000 – $21,000) $8,000) = $89,00 0 148 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  39. 39. (20- 30 min.) E 12- 15 (All amounts in millions) Increase in Revenues – Accounts Receivable a. Collections = $3,521 = $3,586 – ($231 – $166) Cost Of Goods Sold, b. Payments Operating for and Increase Other Increase in inventory, General in + Accounts operating, Expenses + Inventory Expenses – Payable and general = = $3,317 + $167* + $16 expenses $3,407 – $93** _____ *$515 – $348 = $167 **$296 – $203 = $93 Income Decrease in c. Payment of Tax Expense + Income Tax Payable income tax = $77 = $70 + ($17 – $10) Beg. Real Real Estate Estate and and Capital Capital d. Acquisitions Assets, Acquisitions – Amort. = Assets, of Net + Net real estate = $270 = $407 + X – $43 = $634 and capital assets X = $270 Beg. End. Short- e. Short- term Short- Term Term borrowing Borrowing + Borrowing = Borrowing (Bank = $20 = $26 + X = $46 overdraft and bank X = $20 loans) Beg. End. LT Liab. + Borrowing – Repaid = LT Liab f. Long- term = $357 = $145 + X = $357 – $145 = $357 debt Chapter 12 The Cash Flow Statement 149
  40. 40. (continued) E 12- 15 g. Proceeds from Beg. Common End. Common Issuance of Shares + Issuance = Shares shares = $6 = $198 + X = $204 X = $6 Beg. Ret. Net End. Ret. h. Payment of Earnings + Income – Dividends = Earnings cash = $21 = $603 + $140 – X = $722 dividends X = $21 150 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  41. 41. (20 min.) E 12- 16 Req. 1 (All in millions) Loss on sale of Proceeds from – Book value property and = dispositions sold equipment $46 = $53 – $99 Property & Equipment, Net Bal., April 30, 1,610 2001 Capital Amortization 119 expenditures 520 Book value of prop. & equip. sold X = 99 Bal., April 30, 1,912 2002 Req. 2 Long- Term Debt Bal., April 30, 1,19 2001 6 Repayment 170 Proceeds from issuance 60 LT debt repaid by something other than X = cash 25 Bal., April 30, 1,06 2002 1 Chapter 12 The Cash Flow Statement 151
  42. 42. Problems Group A (15- 30 min.) P 12- 1A DATE: _______________ TO: Managers of Durham Wood Furniture Ltd. FROM: Student Name SUBJECT: Assessment of 2005 operations and outlook for the future 2005 was not a good year. Most of the increase in net income resulted from the extraordinary gain, which means that normal operations were not very profitable. This is confirmed by the increase in receivables, which hints that collections are lagging. The cash flow data paint a similar picture. Operating activities used cash, which is bad news. Over the long run, operations should provide the bulk of the cash if the business expects to succeed. 152 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  43. 43. (continued) P 12- 1A During 2005, the insurance recovery helped investing activities produce a net cash inflow. Ordinarily, investing activities should produce net cash outflows as the business invests in new assets. Growth is usually indicated by investments in new assets, but during 2005 net cash flows from investing activities were positive, which means that net investments were negative. Although the net cash flow provided by investing activities may be temporary, it does not reflect especially well on the company. It means that, in part at least, the company is maintaining its cash position by liquidating capital assets. This is a bad sign. Financing activities provided a net cash inflow, which is normal. However, coupled with the net cash used for operations and the net cash provided by investing activities, the additional debt created in 2005 may be hard to pay back. Overall, the outlook for the future is not bright. Note : Student responses may vary. The key conclusion is that 2005 was not a good year, and the outlook is not bright. Chapter 12 The Cash Flow Statement 153
  44. 44. (40 min.) P 12- 2A Req. 1 Red River Home Furnishings Ltd. Income Statement For the Year Ended December 31, 2005 Sales revenue (2,500 × $200) $500,000 …………………………... $260,000 Cost of goods sold $120,000 + ) 315,000 (1,500 × 2,000 Salary 95,000 expense…………………………………………… Amortization expense ($150,000 / 5) 30,000 …………………. Rent 20,000 expense……………………………………………... Income tax 10,000 expense……………………………………... Net $ 30,000 income………………………………………………... Req. 2 Red River Home Furnishings Ltd. Balance Sheet As at December 31, 2005 ASSETS LIABILITIES Current: Current: Cash $ 90,000 * Accounts payable Accounts receivable ($260,000 – $ $208,000) 52,000 (2,500 × $200 × 0.20) 100,000 Salary payable 4,00 0 Inventory Total current 56,000 liabilities $260,000 × (3,000 – 65,000 2,000 2,500) Total current assets 255,000 SHAREHOLDERS’ EQUITY Property, plant, and equipment: Common shares 300,000 Store fixtures $150,000 Retained earnings Less ($30,000 – $11,000) 19,00 Accumulated 0 amortization (30,000 ) 120,000 319,00 0 Total liabilities and 154 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  45. 45. Total assets $375,000 shareholders' equity $375,00 0 _____ *$300,000 – $150,000 – $120,000 – $20,000 –$208,000 + $400,000 – $91,000 – $10,000 – $11,000 = $90,000. Chapter 12 The Cash Flow Statement 155
  46. 46. (continued) P 12- 2A Req. 3 Red River Home Furnishings Ltd. Cash Flow Statement For the Year Ended December 31, 2005 Cash flows from operating activities: Net $ income………………………………………. 30,000 Adjustments to reconcile net income to net cash used for operating activities: $ 30,000 Amortization………………………………….. Increase in accounts (100,000 receivable………….. ) Increase in (65,000 ) inventory……………………….. Increase in accounts 52,000 payable…………….. Increase in salary 4,000 (79,00 payable………………… 0) Net cash used for operating (49,000 ) activities.. Cash flows from investing activities: Purchase of (150,00 equipment……………………….. 0) Net cash used for investing (150,000 activities…… ) Cash flows from financing activities: Issuance of common 300,000 shares………………… Payment of (11,00 dividend…………………………… 0) Net cash provided by financing 289,00 activities 0 _______ _ Increase in $ cash……………………………………. 90,000 Cash balance, January 1, 156 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  47. 47. 2005…………………. 0 Cash balance, December 31, $ 2005……………... 90,000 Chapter 12 The Cash Flow Statement 157
  48. 48. (35- 45 min.) P 12- 3A Datex Corporation Cash Flow Statement For the Year Ended December 31, 2005 Cash flows from operating activities: Net $ income…………………………………………... 57,100 Adjustments to reconcile net income to net cash provided by operating activities: $ Amortization…………………………………….. 27,100 Loss on sale of 11,700 equipment…………………… Increase in accounts (5,500 ) receivable…………….. Increase in (5,600 ) inventories………………………… Increase in prepaid (1,200 ) expenses………………… Increase in accounts 1,400 payable………………… Increase in income tax 1,900 payable……………… Decrease in accrued (11,700 ) 18,1 liabilities……………….. 00 Net cash provided by operating 75,200 activities…. Cash flows from investing activities: Acquisition of $(125,300) building……………………………. Acquisition of long- term (31,600) investment…………… Sale of 58,000 equipment………………………………….. Collection of 8,700 loan…………………………………... Net cash used for investing (90,200) activities………. Cash flows from financing activities: Issuance of common $ 41,200 shares……………………. 158 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  49. 49. Issuance of long- term note 34,400 payable……………. Payment of cash (18,30 dividends………………………. 0) Repurchase of shares……………………. (14,30 ……….. 0) Net cash provided by financing 43,0 activities….. 00 Net increase in $ cash…………………………………… 28,000 Cash balance, December 31, 22,7 2004………………….. 00 Cash balance, December 31, $ 2005………………….. 50,700 (continued) P 12- 3A Noncash investing and financing activities: Acquisition of land by issuing long- term note $107,00 payable……. 0 Retirement of bonds payable by issuing common 65,00 shares. 0 Total noncash investing and financing $172,00 activities………………. 0 Chapter 12 The Cash Flow Statement 159
  50. 50. (35- 45 min.) P 12- 4A Req. 1 Haehn for Golf Ltd. Cash Flow Statement For the Year Ended March 31, 2006 Cash flows from operating activities: Net $ income…………………………………………… 70,000 Adjustments to reconcile net income to net cash provided by operating activities: Amortization……………………………… $ 17,300 ……… Decrease in accounts 6,800 receivable…………….. Increase in (2,600 ) inventories…………………………. Increase in prepaid (200 ) expenses…………………. Increase in accounts 2,700 payable…………………. Decrease in accrued (400 ) liabilities………………... Increase in income tax 3,300 26,9 payable………………. 00 Net cash provided by operating 96,900 activities….. Cash flows from investing activities: Acquisition of $(78,70 equipment………………………….. 0) Acquisition of (47,000) building…………………………….. Sale of long- term 13,70 investment……………………... 0 Net cash used for investing (112,00 activities……….. 0) Cash flows from financing activities: Issuance of long- term note $ payable……………... 50,000 Issuance of common 11,000 shares…………………….. Payment of cash (30,00 dividends……………………….. 0) 160 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  51. 51. Net cash provided by financing 31,0 activities…... 00 Net increase in $ cash……………………………………. 15,900 Cash balance, March 31, 2005…………………. 4,0 ……. 00 Cash balance, March 31, 2006…………………. $ ……. 19,900 Noncash investing and financing activities: Acquisition of land by issuing note $ payable…… 76,000 (continued) P 12- 4A Req. 2 Evaluation: Haehn’s cash flows look strong. Operations are the main source of cash. The company is investing in new capital assets, and borrowing —a financing cash flow—appears reasonable. All of these signs are favourable. Chapter 12 The Cash Flow Statement 161
  52. 52. (30- 40 min.) P 12- 5A Req. 1 Dan’s Triathlon Sports Ltd. Cash Flow Statement For the Year Ended December 31, 2005 Cash flows from operating activities: Net $68,00 income………………………………………………. 0 Adjustments to reconcile net income to net cash provided by operating activities: Amortization…………………………………… $ 4,000 ……. Decrease in accounts 1,600 receivable………………… Increase in interest (1,20 receivable…………………… 0) Decrease in 3,600 inventories……………………………. Increase in prepaid (600 ) expenses…………………….. Increase in accounts 2,600 payable…………………….. Decrease in interest (500 ) payable……………………… Decrease in salary (3,500 ) payable……………………….. Decrease in other accrued (2,300 ) liabilities……………. Increase in income tax 1,200 4,90 payable………………….. 0 Net cash provided by operating 72,900 activities….. Cash flows from investing activities: Acquisition of $(29,00 land……………………………………... 0) Acquisition of equipment ($49,400 – amortization expense of $4,000 = $45,400; $53,500 – (8,100 ) $45,400)….. Net cash used for investing (37,100 activities………. ) 162 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  53. 53. Cash flows from financing activities: Payment of dividends ($2,700 + $68,000 – $(29,20 $41,500) 0) Payment of note (25,00 payable……………………………… 0) Issuance of common 23,60 shares………………………… 0 Net cash used for financing (30,60 activities………. 0) Net increase in $ cash……………………………………….. 5,200 Cash balance, December 31, 5,30 2004……………………… 0 Cash balance, December 31, $10,50 2005……………………… 0 (continued) P 12- 5A Req. 2 This problem will help students learn how operating activities, investing activities, and financing activities generate cash receipts and cash payments. By solving this problem, students will learn how companies prepare the cash flow statement. Students will thus be able to understand the meaning of cash flows from the three basic categories of business activities. This knowledge will aid their analysis of investments. For example, students should know that net cash provided by operating activities conveys a more positive signal about a company than net cash used for operations. Chapter 12 The Cash Flow Statement 163
  54. 54. (35- 45 min.) P 12- 6A Req. 1 Campbell River Kayaks Cash Flow Statement For the Year Ended April 30, 2005 Cash flows from operating activities: Receipts: Collections from customers ($448,600 + $171,900) $ 620,500 …………………….. Interest 4,400 received……………………………… Dividends 4,100 received…………………………… Total cash $ 629,000 receipts………………………... Payments: To $(368,500 ) suppliers……………………………………. To (93,600 ) employees………………………………….. For (13,300 ) interest…………………………………….. For income (37,900 tax………………………………… ) Total cash (513,300 ) payments……………………... Net cash provided by operating 115,700 activities.. Cash flows from investing activities: Acquisition of capital $ (59,400 ) assets…………………... Proceeds from sale of capital 22,400 assets………… Collection of 12,800 loans……………………………….. Loan to another (12,500 ) company………………………. Proceeds from sale of 9,100 investments…………… Net cash used for investing (27,600 ) activities…….. Cash flows from financing activities: Payments of long- term $ (50,000 ) 164 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  55. 55. debt……………………. Payment of (48,400 ) dividends……………………………. Proceeds from issuance of short- term 19,600 debt… Proceeds from issuance of common 8,000 shares.. Net cash used for financing (70,800 activities…….. ) Net increase in $ 17,300 cash…………………………………. Cash balance, April 30, 39,300 2004………………………. Cash balance, April 30, $ 56,600 2005………………………. (continued) P 12- 6A Noncash investing and financing transactions: Payment of short- term note payable by issuing long- term note $ 63,000 payable……………………. Acquisition of equipment by issuing short- term note 16,400 payable…………………………….. Total noncash investing and financing $ 79,400 transactions…. Req. 2 Evaluation of 2005: 2005 was a strong year from a cash flow standpoint. Operations provided the bulk of the company’s cash. The business acquired additional capital assets to lay a foundation for future operations. The corporation also reduced its debt position. Chapter 12 The Cash Flow Statement 165
  56. 56. (40 min.) P 12- 7A Req. 1 Red River Home Furnishings Ltd. Income Statement For the Year Ended December 31, 2005 Sales revenue (2,500 × $200) $500,00 …………………………… 0 Cost of goods sold $120,000 + $260,000 315,00 ) 1,500 × 2,000 0 Salary 95,000 expense……………………………………………. Amortization expense ($150,000 / 5) 30,000 ………………….. Rent 20,000 expense……………………………………………… Income tax 10,00 expense……………………………………… 0 Net $ income………………………………………………… 30,000 Req. 2 Red River Home Furnishings Ltd. Balance Sheet December 31, 2005 ASSETS LIABILITIES Current: Current: Cash $ Accounts payable 90,000* Accounts receivable ($260,000 – $ 52,000 $208,000) (2,500 × $200 × 0.20) 100,00 Salary payable 4,000 0 Inventory Total current 56,000 liabilities $260,000 × (3,000 – Total liabilities 2,000 2,500) 65,000 Total current assets 255,000 SHAREHOLDERS’ EQUITY Property, plant, and equipment: Common shares 300,000 Store fixtures $150,00 Retained earnings 0 Less ($30,000 – $11,000) 19,000 Accumulated amortization (30,00 120,00 319,000 166 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  57. 57. 0) 0 Total liabilities and Total assets $375,000 shareholders' equity $375,000 _____ *$300,000 – $150,000 – $120,000 – $20,000 – $208,000 + $400,000 – $91,000 – $10,000 – $11,000 = $90,000. (continued) P 12- 7A Req. 3 Red River Home Furnishings Ltd. Cash Flow Statement For the Year Ended December 31, 2005 Cash flows from operating activities: Collections from customers (2,500 × $200 × 0.80) $400,000 …………………………….. Payments: To suppliers ($120,000 + $20,000 + (348,000 ) $208,000).. To employees ($95,000 – $4,000) (91,000 ) ………………. For income (10,000 tax…………………………………….. ) Net cash used for operating (49,000 ) activities………... Cash flows from investing activities: Purchase of (150,00 equipment……………………………... 0) Net cash used for investing (150,000 ) activities………… Cash flows from financing activities: Issuance of common 300,000 shares……………………… Payment of (11,000 dividend………………………………… ) Net cash provided by financing 289,000 activities……. _______ Chapter 12 The Cash Flow Statement 167
  58. 58. Increase in $ 90,000 cash………………………………………… Cash balance, January 1, 0 2005………………………. Cash balance, December 31, $ 90,000 2005…………………... 168 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  59. 59. (30- 40 min.) P 12- 8A Req. 1 Dan’s Triathlon Sports Ltd. Cash Flow Statement For the Year Ended December 31, 2005 Cash flows from operating activities: Cash receipts: Collections from customers ($213,000 + $214,6 $1,600)…. 00 Receipts of interest ($8,600 – $1,200) 7,4 ………………. 00 Total cash $222,000 receipts…………………………………. Cash payments: To suppliers: Inventory ($70,600 – $3,600 – $2,600) $ …………... (64,400) Operating expenses ($10,500 + $600 + (13,400) $2,300).. To employees ($27,800 + $3,500) (31,300) ……………………. For interest ($11,600 + $500) (12,100) …………………………. For income tax ($29,100 – $1,200) (27,900 …………………... ) Total cash (149,100 ) payments………………………………. Net cash provided by operating 72,900 activities…………. Cash flows from investing activities: Acquisition of $ land………………………………………… (29,000) Acquisition of equipment ($49,400 – amortization expense of $4,000 = $45,400; $53,500 – $45,400) (8,100 …………………………... ) Net cash used for investing (37,100) activities……………… Cash flows from financing activities: Payments of dividends ($2,700 + $68,000 ! $ $41,500).. (29,200) Payment of note (25,000) payable…………………………………. Issuance of common 23,60 shares……………………………. 0 Chapter 12 The Cash Flow Statement 169
  60. 60. Net cash used for financing (30,600 ) activities……………… Net increase in $ 5,200 cash…………………………………………... Cash balance, December 31, 5,300 2004…………………………. Cash balance, December 31, $ 10,500 2005…………………………. 170 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  61. 61. (continued) P 12- 8A Req. 2 This problem will help students learn how operating activities, investing activities, and financing activities generate cash receipts and cash payments. By solving this problem, students will learn how companies prepare the cash flow statement. Students will thus be able to understand the meaning of cash flows from the three basic categories of business activities. This knowledge will aid their analysis of investments. For example, students should know that net cash provided by operating activities conveys a more positive signal about a company than net cash used for operations. Chapter 12 The Cash Flow Statement 171
  62. 62. (45- 60 min.) P 12- 9A Req. 1 RealTime Internet Connection Inc. Cash Flow Statement For the Year Ended December 31, 2006 Cash flows from operating activities: Receipts: Collections from $ 673,700 customers………………………… Interest 12,600 received………………………………………. Dividends received 4,50 ………………………………….. 0 Total cash $ 690,800 receipts………………………………… Payments: To suppliers ($399,100 + $34,300) $(433,400 ………………….. ) To (143,800) employees………………………………………….. For (26,900) interest……………………………………………... For income (18,900 tax…………………………………………. ) Total cash (623,000 payments……………………………… ) Net cash provided by operating 67,800 activities………... Cash flows from investing activities: Acquisition of $ equipment……………………………….. (31,400) Collection of 13,000 loan………………………………………... Sale of long- term 8,20 investments………………………….. 0 Net cash used for investing (10,200) activities……………... Cash flows from financing activities: Issuance of common $ shares…………………………… 47,300 Payment of long- term (41,300) debt……………………………… Payment of (27,200) dividends……………………………………. Repurchase of (26,400 shares…………………………………… ) 172 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  63. 63. Net cash used for financing (47,600 activities…………….. ) Net increase in $ 10,000 cash………………………………………….. Cash balance, December 31, 53,60 2005………………………… 0 Cash balance, December 31, $ 63,600 2006………………………… Noncash investing and financing activities: Acquisition of land by issuing common $ 80,100 shares……. 19,00 Retirement of long- term debt by issuing common shares 0 Total noncash investing and financing $ 99,100 activities………. (continued) P 12- 9A Req. 2 RealTime Internet Connection Inc. Cash Flows from Operating Activities For the Year Ended December 31, 2006 Cash flows from operating activities: Net $55,50 income…………………………………… 0 Adjustments to reconcile net income to net cash provided by operating activities: Amortization………………………… $ …… 19,300 Loss on sale of 1,100 investments………….. Increase in accounts (27,600 ) receivable……… Decrease in 11,800 inventories………………… Increase in prepaid (600 ) expenses………… Decrease in accounts (8,300 ) payable………... Increase in interest 1,900 Chapter 12 The Cash Flow Statement 173
  64. 64. payable…………… Increase in salary 7,000 payable……………... Increase in other accrued 10,400 liabilities….. Decrease in income tax (2,700 ) 12,30 payable……… 0 Net cash provided by operating $67,80 activities. 0 174 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  65. 65. (45- 60 min.) P 12- 10A Req. 1 Hardy Driver Training inc. Cash Flow Statement For the Year Ended June 30, 2006 Cash flows from operating activities: Net $ 56,200 income…………………………………………... Adjustments to reconcile net income to net cash provided by operating activities: Amortization……………………………… $ 13,400 ……... Loss on sale of 6,700 land……………………………. Decrease in accounts 2,400 receivable……………. Decrease in interest 700 receivable………………. Increase in (8,400 ) inventories………………………… Increase in prepaid (900 ) expenses………………… Increase in accounts 2,100 payable………………… Decrease in income tax (700 ) payable……………... Decrease in accrued (1,500 ) liabilities……………….. Increase in interest 800 payable…………………... Decrease in salary (1,700 ) 12,90 payable…………………… 0 Net cash provided by operating 69,100 activities…. Cash flows from investing activities: Sale of $ 46,900 land………………………………………….. Acquisition of long- term (4,900 ) investment…………… Net cash provided by investing 42,000 activities….. Chapter 12 The Cash Flow Statement 175
  66. 66. Cash flows from financing activities: Payment of long- term note $(61,000 ) payable…………….. Payment of cash (38,100 ) dividends………………………. Issuance of common 3,900 shares……………………. Net cash used for financing (95,200 activities………. ) Net increase in $ cash…………………………………… 15,900 Cash balance, June 30, 8,600 2005………………………… Cash balance, June 30, $ 24,500 2006………………………… (continued) P 12- 10A Req. 1 Noncash investing and financing activities: Acquisition of equipment by issuing long- term note $14,300 payable…………………………... Payment of short- term note payable by issuing common 4,700 shares……………………….... Total noncash investing and financing $19,000 activities…... 176 Financial Accounting Canadian Edition Instructor’s Solutions Manual
  67. 67. (continued) P 12- 10A Req. 2 Hardy Driver Training Inc. Cash Flows from Operating Activities For the Year Ended June 30, 2006 Cash flows from operating activities: Receipts: Collections from customers ($245,300 + $2,400) $247,70 ……………………… 0 Interest received ($10,600 + $700) 11,30 ……….. 0 Total cash $ receipts……………………… 259,000 Payments: To suppliers: Inventory ($82,800 + $8,400 – $ $2,100).. (89,100) Operating expenses ($42,000 + $900 + $1,500) (44,400 ) …………… To employees ($38,800 + $1,700) (40,500 ) ………… For income tax ($9,900 + $700) (10,600 ) …………... For interest ($6,100 – $800) (5,30 ……………….. 0) Total cash (189,90 payments……………………. 0) Net cash provided by operating $ activities….. 69,100 Chapter 12 The Cash Flow Statement 177

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