Chapter 12

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Chapter 12

  1. 1. Chapter 12 The Statement of Cash Flows Short Exercises (10 min.) S 12- 1 The statement of cash flows helps investors and creditors: a. Predict future cash flows by reporting past cash receipts and payments, which are reasonably good predictors of future cash receipts and payments. b. Evaluate management decisions by reporting on how managers got cash and how they used cash to run the business. Chapter 12 The Statement of Cash Flows 235
  2. 2. (5- 10 min.) S 12- 2 4 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 liabilities Students need to identify only 3 items. (5- 10 min.) S 12- 3 Cash flows from operating activities: Net $80,000 income……………………………………………….. Adjustments to reconcile net income to net cash provided by operating activities: 9,000 Depreciation…………………………………………... 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: $70,000 …... 236 Financial Accounting 7/e Solutions Manual
  3. 3. (10 min.) S 12- 4 O+ a. Loss on sale of land O+ h. Increase in accounts O+ b. Depreciation payable expense O− c. Increase in O+ i. Net income 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 stock equipment O− m. Gain on sale of N g. Collection of cash building from customers N n. Retained earnings (10 min.) S 12- 5 Edwards Corporation Statement of Cash Flows (partial) Year ended June 30, 20X8 Cash flows from operating activities: Net $ income……………………………………….. 81,000* Adjustments to reconcile net income to net cash provided by operating activities: $ 8,000 Depreciation…………………………………... Increase in current assets other than (30,000 ) cash…………………………………………. Decrease in current (5,000 (27,000 Chapter 12 The Statement of Cash Flows 237
  4. 4. liabilities……………… ) ) Net cash provided by operating $ 54,000 activities….. _____ *$224,000 − $100,000 − $35,000 − $8,000 = $81,000 238 Financial Accounting 7/e Solutions Manual
  5. 5. (15 min.) S 12- 6 Edwards Corporation Statement of Cash Flows Year ended June 30, 20X8 Cash flows from operating activities: Net $ income……………………………………….. 81,000* Adjustments to reconcile net income to net cash provided by operating activities: $ 8,000 Depreciation…………………………………... Increase in current assets other than (30,000 ) cash…………………………………………. Decrease in current (5,00 (27,000 liabilities……………… 0) ) Net cash provided by operating 54,000 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 stock… Payment of note (30,000 ) payable………………………. Payment of (6,000 ) dividends………………………….. Purchase of treasury (5,000 stock……………………. ) Net cash used for financing (21,000 activities………. ) Net increase in $ 53,000 cash……………………………….. _____ Chapter 12 The Statement of Cash Flows 239
  6. 6. *$224,000 − $100,000 − $35,000 − $8,000 = $81,000 240 Financial Accounting 7/e Solutions Manual
  7. 7. (10 min) S 12- 7 a. Acquisitions of plant assets = $60,000, as follows: Plant Assets, net Beg. Book value End. bal. + Acquisition − Depreciatio − of = bal. s n assets sold $185,00 + X − $ 20,000 − $0 = $225,00 0 0 X = $225,000 − $185,000 + $20,000 X = $ 60,000 Plant Assets, net Beg. bal. 185,000 Acquisition 60,000 Depreciation 20,000 s End. bal. 225,000 b. Proceeds from the sale of long- term investments = $20,000, as follows: Long- term investments Book value of Beg. bal. + Purchases − = End. bal. investments sold $75,000 + 0 − X = $55,000 X = $75,000 − $55,000 X = $20,000 With no gain or loss, proceeds from the sale must be the same as the book value of the investments sold, $20,000. Long- Term Investments Beg. 75,000 Book value of bal. investments 20,00 sold 0 End. 55,000 Chapter 12 The Statement of Cash Flows 241
  8. 8. bal. 242 Financial Accounting 7/e Solutions Manual
  9. 9. (15 min.) S 12- 8 a. Now borrowing on long- term notes payable = $10,000 ($68,000 − $58,000) This is clear from the increase in long- term notes payable. b. Issuance of common stock = $8,000 ($40,000 − $32,000) This is clear from the increase in common stock. c. Payment of dividends (same as amount of = $146,000, as follows: dividends declared) Beginning Dividend Ending Net retained + − declaration = retained income earnings s earnings $246,000 + $150,0 − X = $250,00 00 0 X = $246,000 + $150,000 − $250,000 X = $146,00 0 Retained Earnings Dividend Beg. bal. 246,000 declarations (same amount 146,00 Net income 150,000 paid) 0 End. bal. 250,000 Chapter 12 The Statement of Cash Flows 243
  10. 10. (15 min.) S 12- 9 Tally- Ho Horse Farm, Inc. Statement of Cash Flows Year 20X6 Cash flows from operating activities: Collections from $ 510,000 customers………………… Payments to suppliers and (400,00 employees…… 0) Net cash provided by operating $ 110,000 activities.. Cash flows from investing activities: Purchase of $(100,00 equipment……………………… 0) Net cash used for investing (100,000 ) activities……. Cash flows from financing activities: Issued note payable to borrow $ money……. 20,000 Payment of (50,00 dividends………………………... 0) Net cash used for financing (30,00 activities…….. 0) Net (decrease) in $ cash…………………………... (20,000) Cash balance, 44,00 beginning……………………….. 0 Cash balance, $ ending…………………………… 24,000 244 Financial Accounting 7/e Solutions Manual
  11. 11. (5 min.) S 12- 10 Millbrook Golf Club, Inc. Statement of Cash Flows (partial) Year ended June 30, 20X9 Cash flows from operating activities: Collections from $180,000 customers………………… Payments to (87,000 ) suppliers……………………….. Payments to (70,000 ) employees……………………… Payment of income (10,00 tax………………………. 0) Net cash provided by operating $13,00 activities... 0 Chapter 12 The Statement of Cash Flows 245
  12. 12. (15 min.) S 12- 11 Millbrook Golf Club, Inc. Statement of Cash Flows Year ended June 30, 20X9 Cash flows from operating activities: Collections from $180,00 customers…………………….. 0 Payments to (87,000 ) suppliers…………………………… Payments to (70,000 ) employees…………………………. Payment of income (10,00 tax…………………………... 0) Net cash provided by operating $ activities……. 13,000 Cash flows from investing activities: Purchase of $ equipment………………………….. (40,000) 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 $ stock….. 20,000 Payment of note (30,000 ) payable………………………… Payment of (6,000 ) dividends……………………………. Purchase of treasury (5,00 stock……………………... 0) Net cash used for financing (21,00 activities………… 0) Net increase in $ cash…………………………………. 12,000 246 Financial Accounting 7/e Solutions Manual
  13. 13. (15 min.) S 12- 12 a. Collections from customers = $699,000, as follows: Collections Sales from = Revenue − Increase in Accounts Receivable customers = $710,00 − $11,000 ($59,000 − 0 $48,000) = $699,00 0 Accounts Receivable Beg. 48,000 Bal. Sales 710,000 Collections 699,000 End. 59,000 Bal. b. Payments for inventory = $326,000, as follows: Payments Cost of Decrease in Increase in for = Goods − inventory − Accounts inventory Sold Payable = $340,00 − $9,000 − $5,000 0 ($84,000 − ($47,000 − $75,000) $42,000) = $326,00 0 Inventory Accounts Payable Beg. bal. 84,00 Payments Beg. bal. 42,000 0 for Purchase 331,00 Cost of goods 340,00 inventory 326,00 Purchase 331,00 Chapter 12 The Statement of Cash Flows 247
  14. 14. s 0 sold 0 0 s 0 End. bal. 75,00 End. bal. 47,000 0 248 Financial Accounting 7/e Solutions Manual
  15. 15. (10 min.) S 12- 13 a. Payments to employees = $68,000, as follows: Payments to = Salary Increase in − employees expense Salary Payable = $70,000 − $2,000 ($23,000 − $21,000) = $68,000 Salary Payable Payments to Beg. bal. 21,000 employees 68,000 Salary 70,000 expense End. bal. 23,000 b. Payments for other expenses = $134,000, as follows: Payments Other Increase in Decrease in of other = expense + prepaid + accrued expenses s expenses liabilities = $130,00 + $1,000 + $3,000 0 ($3,000 − $2,000) ($11,000 − $8,000) = $134,00 0 Chapter 12 The Statement of Cash Flows 249
  16. 16. Exercises (10- 15 min.) E 12- 14 DATE: _______________ TO: Managers of U.S. Plating, Inc. FROM: Student Name SUBJECT: Purposes of the statement of cash flows The statement of cash flows is designed to help predict the future cash flows of a business. The statement of cash flows measures past cash flows, which are a reasonably 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 on how well he or she uses cash. This information is given in the statement of cash flows. In evaluating the ability to repay a loan, a creditor examines the statement of cash flows to learn how the borrower has gained and spent cash. As U.S. Plating’s situation indicates, income may increase while cash decreases. Therefore, the statement of cash flows should be used in conjunction with the income statement and the balance sheet in evaluating a company. Student responses may vary. 250 Financial Accounting 7/e Solutions Manual
  17. 17. (10- 15 min.) E 12- 15 O+ a. Net income NIF k. Acquisition of equipment by issuance of note payable F– b. Payment of cash Payment of long- term F– l. dividend debt I+ c. Sale of long- term I– m. Acquisition of building by investment cash payment O+ d. Loss on sale of N n. Accrual of salary equipment expense O+ e. Amortization of I– o. Purchase of long- term intangible assets investment F+ f. Issuance of long- term O+ p. Decrease in note merchandise payable to borrow cash inventory O+ g. Depreciation of O– q. Increase in prepaid equipment expenses F– h. Purchase of treasury I+ r. Cash sale of land stock F+ i. Issuance of common stock O– s. Decrease in accrued for cash liabilities O+ j. Increase in accounts payable Chapter 12 The Statement of Cash Flows 251
  18. 18. (5- 10 min.) E 12- 16 a. Investing g. Investing b. Investing h. Financing c. Financing i. Financing d. Noncash investing j. Operating and financing k. Operating e. Operating l. Investing f. Financing m Operating . 252 Financial Accounting 7/e Solutions Manual
  19. 19. (10- 15 min.) E 12- 17 Cash flows from operating activities: Net $ income…………………………………. 35,000 Adjustments to reconcile net income to net cash used for operating activities: $ 18,000 Depreciation…………………………….. Loss on sale of 5,000 land…………………… Increase in current assets other than (27,000 cash……………………………… ) Decrease in current (20,00 (24,00 liabilities………... 0) 0) Net cash provided by operating $(11,00 activities…………………………………… 0) .. Evaluation : Operating cash flow is strong, as shown by the net cash provided by operating activities. Chapter 12 The Statement of Cash Flows 253
  20. 20. (15- 20 min.) E 12- 18 Cash flows from operating activities: Net $41,00 income…………………………………….. 0 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation………………………… $ 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 $48,00 activities……………………………………… 0 … Saskatoon shows no sign of trouble collecting receivables or selling inventory. There is no large build- up in either Accounts Receivable or Inventory. Also, cash flow from operations is positive, and it exceeds net income. 254 Financial Accounting 7/e Solutions Manual
  21. 21. (20- 30 min.) E 12- 19 Req. 1 Noel Travel Products, Inc. Statement of Cash Flows Year Ended December 31, 20X6 Cash flows from operating activities: Net $ income…………………………………………... 57,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation……………………………… $ ……... 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 42,000 liabilities……………….. ) Net cash provided by operating 99,000 activities…. Cash flows from investing activities: Acquisition of plant assets $(100,00 ……………………….. 0) Proceeds from sale of 24,00 land……………………….. 0 Net cash used for investing (76,000 ) activities………. Cash flows from financing activities: Proceeds from issuance of common $ stock…… 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 Chapter 12 The Statement of Cash Flows 255
  22. 22. Net increase in $ cash…………………………………… 27,000 Cash balance, December 31, 20,00 20X5………………….. 0 Cash balance, December 31, $ 20X6………………….. 47,000 Noncash investing and financing activities: $ Acquisition of plant assets by issuing note payable 50,000 (continued) E 12- 19 Req. 2 Evaluation: Noel’s cash flows look strong. Operations are the main source of cash. The company is investing in new plant assets without having to borrow. It was able to issue stock and pay off a long- term note payable — both financing transactions. All of these signs are favorable. (5- 10 min.) E 12- 20 Case A - A combination of operations and issuing stock generated most of the cash for acquisition of plant assets. Operations provided more cash than did cases B and C. Case B - The sale of plant assets generated the cash needed to acquire new plant assets. Operations provided the least amount of cash, compared to cases A and C. 256 Financial Accounting 7/e Solutions Manual
  23. 23. Case C - Issuing stock generated the cash to acquire plant assets. Most healthy financially - Case A Mid- range - Case C Least healthy financially - Case B (10- 15 min.) E 12- 21 a. Cash proceeds of sale = Book value of asset sold, $1,500* − Loss on sale, $1,000 = $500 _____ *$103,000 + $27,000 − $21,500 − Book value sold (X) = $107,000 Book value sold = $1,500 Plant Assets, Net Beginning balance 103,00 Depreciation 21,50 0 0 Purchases 27,00 Book value sold 1,500 0 Ending balance 107,00 0 b. Cash dividend payments = $11,000 $45,000 + $47,000 − $8,000 − Cash dividends (X) = $73,000 Cash dividends = $11,000 Retained Earnings Chapter 12 The Statement of Cash Flows 257
  24. 24. Stock dividends 8,00 Beginning balance 45,00 0 0 Cash dividends 11,00 Net income 47,00 0 0 Ending balance 73,00 0 258 Financial Accounting 7/e Solutions Manual
  25. 25. (10- 15 min.) E 12- 22 F– a. Purchase of treasury NIF k. Acquisition of equipment stock by issuance of note payable F+ b. Issuance of common Payment of long- term F– l. stock debt for cash O– c. Payment of accounts I– m. Acquisition of building by payable payment of cash F+ d. Issuance of preferred N n. Accrual of salary expense stock for cash F– e. Payment of cash I– o. Purchase of long- term dividend investment I+ f. Sale of long- term O– p. Payment of wages to investment employees N g. Amortization of patent O+ q. Collection of cash interest O+ h. Collection of accounts I+ r. Cash sale of land receivable F+ i. Issuance of long- term N s. Distribution of stock note payable to borrow cash dividend N j. Depreciation of equipment Chapter 12 The Statement of Cash Flows 259
  26. 26. (5- 10 min.) E 12- 23 a. Investing h. Not reported b. Investing i. Operating c. Financing j. Investing d. Investing k. Operating e. Operating l. Operating f. Financing m Financing . g. Noncash investing n. Financing and financing 260 Financial Accounting 7/e Solutions Manual
  27. 27. (10- 15 min.) E 12- 24 Cash flows from operating activities: Receipts: Collections from customers ($93,000 + $38,000) $ 131,000 ……………….. Collection of dividend 7,00 revenue……. 0 Total cash 138,000 receipts……………….. Payments: To $(54,000) suppliers…………………………… To (34,000) employees…………………………. For (16,000) interest……………………………. For income (13,000 ) tax………………………... Total cash (117,00 payments……………... 0) Net cash provided by operating activities. $ 21,000 Evaluation: Operating cash flow is strong, as shown by the net cash provided by operating activities. Chapter 12 The Statement of Cash Flows 261
  28. 28. (5- 10 min.) E 12- 25 Salary Payable — Report cash payments to employees as an operating cash flow. Buildings — Report acquisitions of buildings and the proceeds from sales of buildings as investing cash flows. Notes Payable — Report issuance and payments of notes payable as financing cash flows. 262 Financial Accounting 7/e Solutions Manual
  29. 29. (20- 30 min.) E 12- 26 Req. 1 Floral World, Inc. Statement of Cash Flows Year Ended June 30, 20X6 Cash flows from operating activities: Receipts: Collections from customers ($229,000 + $30,000) $ ………………………….. 259,000 Dividends 15,0 received………………………………. 00 Total cash 274,000 receipts…………………………… Payments: To suppliers ($103,000 + $11,000 + $(115,000 $1,000)…. ) To employees ($45,000 + $1,000) (46,000) ……………… For income (9,000) tax……………………………………. For (2,00 interest………………………………………… 0) Total cash payments (172,000 ………………………… ) Net cash provided by operating 102,000 activities…… Cash flows from investing activities: Acquisition of plant $(101,000 assets………………………… ) 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 $ stock……... 30,000 Payment of long- term note (15,000) payable………………. Payment of (11,00 Chapter 12 The Statement of Cash Flows 263
  30. 30. dividends……………………………….. 0) Net cash provided by financing 4,00 activities…… 0 Net increase in $ cash…………………………………….. 29,000 Cash balance, June 30, 20,0 20X5………………………….. 00 Cash balance, June 30, $ 20X6………………………….. 49,000 Noncash investing and financing activities: $ Acquisition of plant assets by issuing note payable 49,000 (continued) E 12- 26 Req. 2 Evaluation: Floral World’s cash flows look strong. Operations are the main source of cash. The company is investing in new plant assets without having to borrow. Floral World was able to issue stock and pay off a long- term note payable — both financing transactions. All of these signs are favorable. 264 Financial Accounting 7/e Solutions Manual
  31. 31. (10- 15 min.) E 12- 27 $10,000 increase in a. Cash = $ − Accounts collections 60,000 Receivable ($32,000 − $22,000) = $ 50,000 $4,000 decrease $6,000 decrease b. in in Cash payments = $111,00 − Inventory + Accounts Payable for inventory 0 ($25,000 − ($14,000 − $21,000) $8,000) = $113,00 0 Chapter 12 The Statement of Cash Flows 265
  32. 32. (20- 30 min.) E 12- 28 (All amounts in thousands) Decrease in Sales + Accounts Receivable a. Collections = $24,63 = $24,623 + ($615 − $601) 7 Cost Increase in Increase in b. Payments for of sales + Inventory − Accounts Payable inventory = $18,13 = $18,048 + $269* − $183** 4 *$3,100 − $2,831 = $ **$1,547 − $1,364 = $ 183 269 Other Operating Increase in c. Payments for Expenses − Accrued Liabilities other = $3,576 = $3,883 − ($938 − $631) operating expenses Income Increase in d. Payment of − Income Tax Tax Expense Payable income tax = $530 = $537 − ($201 − $194) e. Proceeds from Beg. Common End. Common Issuance of Stock + Issuance = Stock stock = $73: $446 + X = $519 X = $ 73 Beg. Ret. Net End. Ret. f. Payment of Earnings + Income − Dividends = Earnings dividends = $1,29 $3,788 + $1,886 − X = $4,380 4: X = $1,294 266 Financial Accounting 7/e Solutions Manual
  33. 33. (20 min.) E 12- 29 Req. 1 (All in thousands) Gain on sale of Proceeds from − Book value property and = dispositions sold equipment $120 = $770 − $650 Property & Equipment, Net Bal., 12/31/X7 9,590 Capital Depreciation 1,92 0 expenditures 4,130 Book value of property and equipment X = sold 650 Bal., 12/31/X8 11,15 0 Req. 2 Long- Term Notes Payable Bal., 12/31/X7 3,080 Repayment 110 Proceeds from issuance 1,190 LT debt issued for something other than X = cash 240 Bal. 12/31/X8 4,400 Chapter 12 The Statement of Cash Flows 267
  34. 34. Practice Quiz Q12- 30 c Q12 -31 a Q12 -32 b Q12 -33 b Q12 -34 d Q12 -35 c Q12 -36 c Q12 -37 Paying dividends financing Earning dividends operating Q12 -38 c [Book value = $12,000 ($20,000 − $8,000; Gain = $3,000; Proceeds = $15,000 ($12,000 + $3,000)] Q12 -39 d Q12 -40 b Q12 -41 a Q12 -42 c Gain Depr. A / Rec Invy. [$47,000 − $8,000 + $6,000 + ($11,000 − $7,000) − ($10,000 − $ 9,000) A / Pay Accr. Liab. − ($7,000 − $6,000) + ($7,000 − $3,000) = $51,000 ] Q12 -43 a Q12 -44 a Cash received = $28,000 ($20,000 + $8,000) Cash paid = $50,000 ($69,000 − $20,000 − $6,000 + $X = $93,000; X = $50,000) Net cash used = $22,000 ($50,000 − $28,000) Q12 -45 A Q12 -46 D Q12 -47 d Cash received from issuance of stock = $10,000 ($20,000 − $10,000) Cash paid for dividends (X) = $36,000 ($70,000 + net income $47,000 − $X = $81,000; Dividends = $36,000) Net cash used = $26,000 ($36,000 − $10,000) Q12 -48 a ($800,000 − $40,000 = $760,000) Q12 -49 a [$59,100 − ($5,000 − $2,800) = $56,900] 268 Financial Accounting 7/e Solutions Manual
  35. 35. Chapter 12 The Statement of Cash Flows 269
  36. 36. Problems Group A (15- 30 min.) P 12- 50A DATE: _______________ TO: Managers of Relax Inns FROM: Student Name SUBJECT: Assessment of 20X9 and Outlook for the Future 20X9 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. 270 Financial Accounting 7/e Solutions Manual
  37. 37. (continued) P 12- 50A During 20X9, 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 20X9 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 fixed 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 20X9 may be hard to pay back. Unless next year turns out to be much better than 20X9, the outlook for the company is not bright. Student responses may vary. The key conclusion is that 20X9 was not a good year, and the outlook is not bright. Chapter 12 The Statement of Cash Flows 271
  38. 38. (40 min.) P 12- 51A Req. 1 Vintage Automobiles of Philadelphia, Inc. Income Statement Year Ended December 31, 20X8 Sales $500,00 revenue…………………………......................... 0 .. Cost of goods sold [$120,000 + (4 × 293,33 $43,333.33)]… . 3 Salary 95,000 expense…………………………………………… Depreciation expense ($150,000 / 5) 30,000 …………………. Rent 20,000 expense……………………………………………... Income tax 10,00 expense……………………………………... 0 Net $ income………………………………………………... 51,667 Req. 2 Vintage Automobiles of Philadelphia, Inc. Balance Sheet December 31, 20X8 ASSETS LIABILITIES Current: Current: Cash $ 90,000 * Accounts payable Accounts receivable ($260,000 − $ $208,000) 52,000 (500,000 × .20) 100,000 Salary payable 4,00 0 Inventory (2 × $43,333.33) 86,667 Total current 56,000 liabilities Total current assets 276,667 STOCKHOLDERS’ EQUITY Property, plant, and equipment: Common stock 300,000 Equipment $150,000 Retained earnings Less ($51,667 − $11,000) 40,66 Accumulated 7 depreciation (30,000 ) 120,000 Total equity 340,66 7 272 Financial Accounting 7/e Solutions Manual
  39. 39. Total liabilities and Total assets $396,667 stockholders' equity $396,66 7 _____ *$300,000 − $150,000 − $120,000 − $20,000 − $208,000 + $400,000 − $91,000 − $10,000 − $11,000 = $90,000. Chapter 12 The Statement of Cash Flows 273
  40. 40. (continued) P 12- 51A Req. 3 Vintage Automobiles of Philadelphia, Inc. Statement of Cash Flows Year Ended December 31, 20X8 Cash flows from operating activities: Net $ income………………………………………. 51,667 Adjustments to reconcile net income to net cash used for operating activities: $ 30,000 Depreciation………………………………….. Increase in accounts (100,000 receivable………….. ) Increase in (86,667 ) inventory……………………….. Increase in accounts 52,000 payable…………….. Increase in salary 4,000 (100,66 payable………………… 7) 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 stock…………………… Payment of (11,00 dividend…………………………… 0) Net cash provided by financing 289,00 activities 0 Net increase in $ cash………………………………. 90,000 Cash balance, January 1, 20X8…………………. 0 Cash balance, December 31, $ 274 Financial Accounting 7/e Solutions Manual
  41. 41. 20X8……………... 90,000 Chapter 12 The Statement of Cash Flows 275
  42. 42. (35- 45 min.) P 12- 52A Primrose Software Corp. Statement of Cash Flows Year Ended December 31, 20X7 Cash flows from operating activities: Net $ income…………………………………………... 45,100 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation $ …………………………………….. 21,800 5,300 Amortization…………………………………….. 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 63,200 activities…. Cash flows from investing activities: Purchase of $(125,300 ) building………………………………. Purchase of long- term (31,600 investment……………… ) Proceeds from sale of 58,000 equipment………………. Collection of 8,70 loan…………………………………... 0 Net cash used for investing (90,200) activities………. Cash flows from financing activities: 276 Financial Accounting 7/e Solutions Manual
  43. 43. Issuance of common $ 41,200 stock………………………. Issuance of long- term note 34,400 payable……………. Payment of cash (18,30 dividends………………………. 0) Purchase of treasury (14,30 stock………………………. 0) Net cash provided by financing 43,0 activities….. 00 Net increase in $ cash…………………………………… 16,000 Cash balance, December 31, 22,7 20X6………………….. 00 Cash balance, December 31, $ 20X7………………….. 38,700 Chapter 12 The Statement of Cash Flows 277
  44. 44. (continued) P 12- 52A Noncash investing and financing activities: Acquisition of land by issuing long- term note $ payable…… 95,000 Retirement of bonds payable by issuing common 65,00 stock…. 0 Total noncash investing and financing $160,00 activities………………. 0 278 Financial Accounting 7/e Solutions Manual
  45. 45. (35- 45 min.) P 12- 53A Req. 1 Northern Movie Theater Company Statement of Cash Flows Year Ended March 31, 20X9 Cash flows from operating activities: Net $ income…………………………………………… 50,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation……………………………… $ 15,300 ……… Amortization……………………………… 2,000 ……… 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 26,90 payable………………. 0 Net cash provided by operating 76,900 activities….. Cash flows from investing activities: Purchase of $(78,70 equipment…………………………….. 0) Purchase 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 stock………………………... Chapter 12 The Statement of Cash Flows 279
  46. 46. Payment of cash (30,00 dividend…………………………. 0) Net cash provided by financing 31,00 activities…... 0 Net (decrease) in $ cash…………………………………. (4,100) Cash balance, March 31, 20X8…………………. 14,00 ……. . 0 Cash balance, March 31, 20X9…………………. $ ……. 9,900 Noncash investing and financing activities: Acquisition of land by issuing note $101,000 payable…… 280 Financial Accounting 7/e Solutions Manual
  47. 47. (continued) P 12- 53A Req. 2 Evaluation: Northern’s cash flows look strong. Operations are the main source of cash. The company is investing in new plant assets, and borrowing — a financing cash flow — appears reasonable. All of these signs are favorable. Chapter 12 The Statement of Cash Flows 281
  48. 48. (30- 40 min.) P 12- 54A Req. 1 4 Seasons Supply Corp. Statement of Cash Flows Year Ended December 31, 20X8 Cash flows from operating activities: Net $75,10 income………………………………………………. 0 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation…………………………………… $ 4,000 ……. Decrease in accounts 400 receivable………………… Decrease in 3,600 inventories……………………………. Increase in prepaid (600 ) expenses…………………….. Increase in accounts 2,100 payable…………………….. Decrease in salary (3,500 ) payable……………………….. Decrease in other accrued (1,100 ) 4,90 liabilities……………. 0 Net cash provided by operating 80,000 activities….. Cash flows from investing activities: Purchase of $(29,000 ) land……………………………………...... Purchase of equipment ($49,400 − depreciation expense of $4,000 = $45,400; $53,5 00 − $45,400) (8,10 ………………………………………………... 0) Net cash used for investing (37,100 activities………. ) Cash flows from financing activities: Payment of dividends ($2,700 + $75,100 − $(29,20 $48,600) 0) Payment of note (25,00 282 Financial Accounting 7/e Solutions Manual
  49. 49. payable……………………………… 0) Issuance of common 23,60 stock…………………………… 0 Net cash used for financing (30,60 activities………. 0) Net increase in $12,30 cash……………………………………….. 0 Cash balance, December 31, 5,30 20X 7……………………… 0 Cash balance, December 31, $17,60 20X8……………………… 0 Chapter 12 The Statement of Cash Flows 283
  50. 50. (continued) P 12- 54A 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 statement of cash flows. 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. Student responses will vary. 284 Financial Accounting 7/e Solutions Manual
  51. 51. (35- 45 min.) P 12- 55A Req. 1 Ethan Allen Furniture Gallery, Inc. Statement of Cash Flows Year Ended April 30, 20X7 Cash flows from operating activities: Receipts: Collections from customers ($428,600 + $171,900) $ 600,500 …………………….. Interest 4,400 received………………………………. Dividends 4,100 received…………………………… Total cash $ 609,000 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 95,700 activities... Cash flows from investing activities: Purchase of plant $ (59,400 ) assets……………………....... Sale of plant 22,400 assets………………………………. Collection of 12,800 loans……………………………….. Loan to another (12,500 ) company………………………. Sale of 9,100 investments………………………………. Net cash used for investing (27,600 ) activities…….. Cash flows from financing activities: Chapter 12 The Statement of Cash Flows 285
  52. 52. Payments of long- term notes $ (50,000 ) payable………... Payment of (48,400 ) dividends……………………………. Issuance of note 19,600 payable………………………... Issuance of common 8,000 stock……………………... Net cash used for financing (70,800 activities…….. ) Net (de crease) in $ (2,700 ) cash………………………………. Cash balance, April 30, 39,300 20X6……………………….. Cash balance, April 30, $ 36,600 20X7……………………….. 286 Financial Accounting 7/e Solutions Manual
  53. 53. (continued) P 12- 55A 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 20X7: 20X7 was a strong year from a cash- flow standpoint. Operations provided the bulk of the company’s cash. The business acquired additional plant assets to lay a foundation for future operations. The corporation also reduced its debt position. Chapter 12 The Statement of Cash Flows 287
  54. 54. (40 min.) P 12- 56A Req. 1 Vintage Automobiles of Philadelphia, Inc. Income Statement Year Ended December 31, 20X8 Sales $500,00 revenue……………………………………………... 0 Cost of goods sold [$120,000 + (4 × 293,333 $43,333.33)]…... Salary 95,000 expense……………………………………………. Depreciation expense ($150,000 / 5) 30,000 ………………….. Rent 20,000 expense……………………………………………… Income tax 10,00 expense……………………………………… 0 Net $ income………………………………………………… 51,667 Req. 2 Vintage Automobiles of Philadelphia, Inc. Balance Sheet December 31, 20X8 ASSETS LIABILITIES Current: Current: Cash $ Accounts payable 90,000* Accounts receivable ($260,000 − $ 52,000 $208,000) ($500,000 × .20) 100,00 Salary payable 4,000 0 Inventory (2 × 86,66 Total current 56,000 $43,333.33) 7 liabilities Total current assets 276,667 STOCKHOLDERS’ EQUITY Property, plant, and equipment: Common stock 300,000 Equipment $150,00 Retained earnings 0 Less ($51,667 − $11,000) 40,667 Accumulated depreciation (30,00 120,00 Total equity 340,667 288 Financial Accounting 7/e Solutions Manual
  55. 55. 0) 0 Total liabilities and Total assets $396,667 stockholders' equity $396,667 _____ *$300,000 − $150,000 − $120,000 − $20,000 − $208,000 + $400,000 − $91,000 − $10,000 − $11,000 = $90,000. Chapter 12 The Statement of Cash Flows 289
  56. 56. (continued) P 12- 56A Req. 3 Vintage Automobiles of Philadelphia, Inc. Statement of Cash Flows Year Ended December 31, 20X8 Cash flows from operating activities: Collections from customers (500,000 × .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 stock………………………… Payment of (11,000 dividend………………………………… ) Net cash provided by financing 289,000 activities……. Net Increase in $ 90,000 cash……………………………………. Cash balance, January 1, 0 20X8………………………. Cash balance, December 31, $ 90,000 20X8…………………... 290 Financial Accounting 7/e Solutions Manual
  57. 57. (30- 40 min.) P 12- 57A Req. 1 4 Seasons Supply Corp. Statement of Cash Flows Year Ended December 31, 20X8 Cash flows from operating activities: Cash receipts: Collections from customers ($228,700 + $229,10 $400)…… 0 Cash payments: To suppliers: Inventory ($70,600 − $3,600 − $2,100) $ …………... (64,900) Operating expenses ($10,500 + $600 + (12,200) $1,100).. To employees ($27,800 + $3,500) (31,300) ……………………. For (11,600) interest……………………………………………… For income (29,100 tax………………………………………….. ) Total cash (149,100 ) payments………………………………. Net cash provided by operating 80,000 activities………… Cash flows from investing activities: Purchase of $ land…………………………………………… (29,000) Purchase of equipment ($49,400 − depreciation expense of $4,000 = $45,400; $53,500 − $45,400) (8,10 …………………………... 0) Net cash used for investing (37,100) activities……………… Cash flows from financing activities: Payments of dividends ($2,700 + $75,100 − $ $48,600).. (29,200) Payment of note (25,000) payable…………………………………. Issuance of common 23,6 stock………………………………. 00 Net cash used for financing (30,600 activities……………… ) Net increase in $ cash…………………………………………... 12,300 Chapter 12 The Statement of Cash Flows 291
  58. 58. Cash balance, December 31, 5,30 20X7…………………………. 0 Cash balance, December 31, $ 17,600 20X8…………………………. 292 Financial Accounting 7/e Solutions Manual
  59. 59. (continued) P 12- 57A 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 statement of cash flows. 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. Student responses will vary. Chapter 12 The Statement of Cash Flows 293
  60. 60. (45- 60 min.) P 12- 58A Req. 1 Franklin Electric Company Statement of Cash Flows Year Ended December 31, 20X8 Cash flows from operating activities: Receipts: Collections from $ 661,700 customers………………………… Dividends received 17,10 ………………………………….. 0 Total cash $ 678,800 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 55,800 activities………... Cash flows from investing activities: Purchase of $ equipment…………………………………... (31,400) Sale of long- term 21,20 investments………………………….. 0 Net cash used for investing (10,200 ) activities……………... Cash flows from financing activities: Issuance of common $ stock……………………………… 47,300 Payment of long- term note (41,300) payable…………………… Payment of (27,200) dividends……………………………………. Purchase of treasury (26,400 stock……………………………… ) Net cash used for financing (47,600 activities…………….. ) 294 Financial Accounting 7/e Solutions Manual
  61. 61. Net (de crease) in $ cash……………………………………….. (2,000) Cash balance, December 31, 53,60 20X7………………………… 0 Cash balance, December 31, $ 51,600 20X8………………………… Noncash investing and financing activities: Acquisition of land by issuing common $ stock………. 80,100 19,0 Retirement of note payable by issuing common stock 00 Total noncash investing and financing $ 99,100 activities………. Chapter 12 The Statement of Cash Flows 295
  62. 62. (continued) P 12- 58A Req. 2 Franklin Electric Company Cash Flows from Operating Activities Year Ended December 31, 20X8 Cash flows from operating activities: Net $43,50 income…………………………………… 0 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation………………………… $ …… 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 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 $55,80 activities. 0 296 Financial Accounting 7/e Solutions Manual
  63. 63. (45- 60 min.) P 12- 59A Req. 1 Graphic Design Studio, Inc. Statement of Cash Flows Year Ended June 30, 20X9 Cash flows from operating activities: Net $ 60,300 income…………………………………………... Adjustments to reconcile net income to net cash provided by operating activities: Depreciation……………………………… $ 13,400 ……... Loss on sale of 6,700 land……………………………. Decrease in accounts 3,100 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 73,200 activities…. Cash flows from investing activities: Sale of $ 46,900 land………………………………………….. Purchase of long- term (4,900 ) investment……………… Net cash provided by investing 42,000 activities….. Cash flows from financing activities: Chapter 12 The Statement of Cash Flows 297
  64. 64. Payment of long- term note $(61,000 ) payable…………….. Payment of cash (38,100 ) dividends………………………. Issuance of common 3,900 stock………………………. Net cash used for financing (95,200 activities………. ) Net increase in $ cash…………………………………… 20,000 Cash balance, June 30, 8,600 20X8………………………… Cash balance, June 30, $ 28,600 20X9………………………… 298 Financial Accounting 7/e Solutions Manual
  65. 65. (continued) P 12- 59A 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 stock………………………….. Total noncash investing and financing $19,000 activities…... Chapter 12 The Statement of Cash Flows 299
  66. 66. (continued) P 12- 59A Req. 2 Graphic Design Studio, Inc. Cash Flows from Operating Activities Year Ended June 30, 20X9 Cash flows from operating activities: Receipts: Collections from $ 261,800 customers…………….. Interest 1,30 received…………………………… 0 Total cash $ receipts………… ………….. 263,100 Payments: To $(133,500 suppliers………………………………… ) To (40,500 ) employees………………………………. For income (10,600 ) tax……………………………... For (5,300 interest………………………………….. ) Total cash (189,90 payments………………….. 0) Net cash provided by operating $ activities… 73,200 300 Financial Accounting 7/e Solutions Manual
  67. 67. Problems Group B (15- 30 min.) P 12- 60B DATE: _______________ TO: Top Managers of Culinary Imports FROM: Student Name SUBJECT: Assessment of 20X7 and Outlook for the Future 20X7 was a good year. Net income increased by 15% and would have been even higher without the nonrecurring loss, which cannot be expected to happen every year. Operations are generating increasing amounts of profit. The increases in plant assets are consistent with a growing, prospering company. No unhealthy relationships are apparent among the assets or liabilities. The cash- flow data paint a similar picture. Operating activities produced the bulk of the year’s increase in cash, which is healthy. Over the long run, successful companies generate the bulk of their cash through operations. Chapter 12 The Statement of Cash Flows 301
  68. 68. (continued) P 12- 60B The five- year expansion program is generating net cash outflows from investing activities. The company appears to be investing in long- term assets to lay the foundation for future operations. Financing activities provided a net cash inflow of $50,000. This amount is insignificant in relation to cash flows from operating activities and cash flows from investing activities. Overall, the cash- flow data reveal a healthy set of relationships. On balance, there are no obvious danger signals, so the outlook is fair to good. Student responses may vary. The key conclusion is that 20X7 was a good year, and the outlook is not clouded by any obvious difficulties. 302 Financial Accounting 7/e Solutions Manual
  69. 69. (40 min.) P 12- 61B Req. 1 Cruise America Motorhomes, Inc. Income Statement Year Ended December 31, 20X8 Sales $560,00 revenue…………………………………………….. 0 Cost of goods sold [$120,000 + (2 × 226,667 $53,333.33)]… .. Salary 90,000 expense…………………………………………… Rent 12,000 expense…………………………………………….. . Depreciation expense ($50,000 / 5) 10,000 …………………… Income tax 64,00 expense……………………………………... 0 Net $157,33 income………………………………………………... 3 Req. 2 Cruise America Motorhomes, Inc. Balance Sheet December 31, 20X8 ASSETS LIABILITIES Current: Current: Cash $191,00 Accounts payable 0* Accounts receivable ($160,000 − $ 20,000 $140,000) ($560,000 × .10) 56,000 Salary payable 3,000 Inventory 53,33 Total current 23,000 3 liabilities Total current assets 300,333 STOCKHOLDERS’ EQUITY Property, plant, and equipment: Common stock 200,000 Store fixtures $50,000 Retained earnings Less ($157,333 − $40,000) 117,333 Accumulated depreciation (10,000 ) 40,00 Total equity 317,333 0 Total liabilities and Total assets $340,33 stockholders' equity $340,333 3 Chapter 12 The Statement of Cash Flows 303
  70. 70. _____ *$200,000 − $50,000 − $120,000 − $12,000 − $140,000 + $504,000 − $87,000 − $64,000 − $40,000 = $191,000. 304 Financial Accounting 7/e Solutions Manual
  71. 71. (continued) P 12- 61B Req. 3 Cruise America Motorhomes, Inc. Statement of Cash Flows Year Ended December 31, 20X8 Cash flows from operating activities: Net $157,333 income………………………………………… Adjustments to reconcile net income to net cash provided by operating activities: $ 10,000 Depreciation……………………………………. Increase in accounts (56,000 ) receivable……………. Increase in (53,333 ) inventory…………………………. Increase in accounts 20,000 payable………………. Increase in salary 3,000 (76,33 payable…………………... 3) Net cash provided by operating activities. 81,000 Cash flows from investing activities: Purchase of store (50,00 fixtures……………………….. 0) Net cash used for investing (50,000 ) activities……… Cash flows from financing activities: Issuance of common 200,000 stock……………………… Payment of (40,00 dividend……………………………… 0) Net cash provided by financing 160,000 activities…. Net increase in $191,000 cash…………………………………. Cash balance, January 1, 20X8…………………….. 0 Cash balance, December 31, $191,000 20X8………………… Chapter 12 The Statement of Cash Flows 305
  72. 72. 306 Financial Accounting 7/e Solutions Manual
  73. 73. (35- 45 min.) P 12- 62B Crowne Plaza Products, Inc. Statement of Cash Flows Year Ended December 31, 20X4 Cash flows from operating activities: Net $ 31,000 income……………………………………………. Adjustments to reconcile net income to net cash provided by operating activities: Depreciation $ 29,200 ………………………………………. Amortization………………………………… 1,100 ……. Gain on sale of (3,500 ) investment……………………... Decrease in accounts 3,600 receivable……………… Decrease in 5,900 inventories…………………………. Increase in prepaid (1,100 ) expenses………………….. Increase in accounts 4,100 payable………………….. Decrease in income tax (900 ) payable………………. Increase in accrued 5,100 43,500 liabilities………………….. Net cash provided by operating 74,500 activities…… Cash flows from investing activities: Purchase of $(69,000 equipment…………………………....... ) Purchase of long- term (44,800 investment………………... ) Sale of long- term 12,200 investment……………………… Collection of 10,300 loan……………………………………. Net cash used for investing (91,300 ) activities………... Cash flows from financing activities: Chapter 12 The Statement of Cash Flows 307
  74. 74. Issuance of long- term note $ 71,000 payable……………… Payment of cash (48,300 dividends………………………… ) Payment of long- term note (47,800 payable………………. ) Issuance of preferred 36,200 stock………………………... Net cash provided by financing 11,100 activities…… Net (de crease) in $ cash………………………………….. (5,700) Cash balance, December 31, 34,800 20X3…………………… Cash balance, December 31, $29,100 20X4…………………… (continued) P 12- 62B Noncash investing and financing activities: Acquisition of building by issuing long- term note $201,00 payable… 0 Payment of note payable by issuing common 89,40 stock………… 0 Total noncash investing and financing $290,40 activities………………… 0 308 Financial Accounting 7/e Solutions Manual
  75. 75. (35- 45 min.) P 12- 63B Req. 1 Crossbow Novelties Corp. Statement of Cash Flows Year Ended December 31, 20X5 Cash flows from operating activities: Net $ income……………………………………………. 52,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation……………………………… $ ………. 12,800 Amortization……………………………… 5,000 ……… Decrease in accounts 700 receivable……………... Decrease in 1,400 inventories………………………… Increase in prepaid (500 ) expenses…………………. Increase in accounts 3,100 payable…………………. Decrease in accrued (2,500 ) liabilities………………… Decrease in income tax (3,300 ) 16,7 payable……………… 00 Net cash provided by operating 68,7 activities…... 00 Cash flows from investing activities: Purchase of $(124,00 building……………………………...... 0) Purchase of (55,000) equipment…………………………….. Sale of long- term 6,00 investment……………………… 0 Net cash used for investing (173,00 activities……….. 0) Cash flows from financing activities: Issuance of common $ stock………………………... 105,600 Issuance of long- term note 32,000 payable……………... Payment of cash (17,000 dividends………………………... ) Chapter 12 The Statement of Cash Flows 309
  76. 76. Net cash provided by financing 120,6 activities…... 00 Net increase in $ cash……………………………………. 16,300 Cash balance, December 31, 12,5 20X4…………………… 00 Cash balance, December 31, $ 20X5…………………… 28,800 Noncash investing and financing activities: Retirement of note payable by issuing common stock. $ 30,000 310 Financial Accounting 7/e Solutions Manual
  77. 77. (continued) P 12- 63B Req. 2 Evaluation: Crossbow’s cash flows look strong. Operations are a significant source of cash. The company is investing heavily in new plant assets. Also the company is financing the new investments more by issuing stock than by borrowing. All of these signs are favorable. Chapter 12 The Statement of Cash Flows 311

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