CHAPTER 17

Statement of Cash Flows

ASSIGNMENT CLASSIFICATION TABLE

A
Learning Objectives Do It! Exercises Problems

*1. Discuss the usefulness and 1 1, 2, 3 1A

format of the statement of
cash flows.

*2. Prepare a statement of cash 2 4, 5, 6, 2A, 3A, 5A,

flows using the indirect 7, 8, 9 7A, 9A, 11A
method.

*3. Analyze the statement of 3 7, 9 7A, 8A

cash flows.

*4. Prepare a statement of cash 10, 11, 4A, 6A, 8A,

flows using the direct method. 12, 13, 10A

*5. Use a worksheet to prepare 14 12A

the statement of cash flows
using the indirect method.

*Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendices *to the
chapter.

Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only) 17-1

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ASSIGNMENT CHARACTERISTICS TABLE

Problem Difficulty Time

Number Description Level Allotted (min.)

1A Distinguish among operating, investing, and financing Simple 10–15

activities.

2A Determine cash flow effects of changes in equity accounts. Simple 10–15

3A Prepare the operating activities section—indirect method. Simple 20–30

*4A Prepare the operating activities section—direct method. Simple 20–30

5A Prepare the operating activities section—indirect method. Simple 20–30

*6A Prepare the operating activities section—direct method. Simple 20–30

7A Prepare a statement of cash flows—indirect method, and Moderate 40–50

compute free cash flow.

*8A Prepare a statement of cash flows—direct method, and Moderate 40–50

compute free cash flow.

9A Prepare a statement of cash flows—indirect method. Moderate 40–50

*10A Prepare a statement of cash flows—direct method. Moderate 40–50

11A Prepare a statement of cash flows—indirect method. Moderate 40–50

*12A Prepare a worksheet—indirect method. Moderate 40–50

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 WEYGANDT ACCOUNTING PRINCIPLES 12E
CHAPTER 17
STATEMENT OF CASH FLOWS

Number LO BT Difficulty Time (min.)

DI1 1 C Simple 2–4
DI2 2 AP, C Simple 4–6
DI3 3 AN, C Simple 4–6
EX1 1 C Simple 5–7
EX2 1 C Simple 6–8
EX3 1 AP Simple 8–10
EX4 2 AP Simple 5–7
EX5 2 AP Simple 6–8
EX6 2 AN Moderate 10–12
EX7 2, 3 AP Simple 12–14
EX8 2 AP Simple 10–12
EX9 2, 3 AP Simple 12–14
EX10 4 AP Moderate 6–8
EX11 4 AP Moderate 6–8
*EX12 4 AP Simple 5–7
*EX13 4 AP Moderate 6–8

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STATEMENT OF CASH FLOWS (Continued)

Number LO BT Difficulty Time (min.)

*EX14 5 AP Moderate 16–20
P1A 1 C Simple 10–15
P2A 2 AN Simple 10–15
P3A 2 AP Simple 20–30
*P4A 4 AP Simple 20–30
P5A 2 AP Simple 20–30
*P6A 4 AP Simple 20–30
P7A 2, 3 AP, AN Moderate 40–50
*P8A 3, 4 AP, AN Moderate 40–50
P9A 2 AP Moderate 40–50
*P10A 4 AP Moderate 40–50
P11A 2 AP Moderate 40–50
*P12A 5 AP Moderate 40–50
BYP1 1 AN Simple 15–20
BYP2 3 AP, E Simple 8–12
BYP3 3 AP, E Simple 8–12
BYP4 2 C Simple 15–20
BYP5 — C Simple 10–15
BYP6 — AP Moderate 25–30
BYP7 1 AP Simple 10–15
BYP8 1 E Simple 10–15
BYP9 — E Simple 15–20
BYP10 1 AP Moderate 10–15

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 BLOOM’S TAXONOMY TABLE
Copyright © 2015 John Wiley & Sons, Inc.

Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End-of-Chapter Exercises and Problems

Learning Objective Knowledge Comprehension Application Analysis Synthesis Evaluation

1. Discuss the usefulness and DI17-1 E17-2
format of the statement of cash E17-1 E17-3
flows. E17-2
P17-1A

2. Prepare a statement of cash Dl17-2 DI17-2 E17-8 E17-6

flows using the indirect E17-4 E17-9 P17-2A
method. E17-5 P17-3A P17-7A
E17-7 P17-5A
P17-7A
P17-9A
Weygandt, Accounting Principles, 12/e, Solutions Manual

P17-11A
3. Analyze the statement of Dl17-3 E17-7 DI17-3 P17-7A
cash flows. E17-9 P17-8A
P17-7A
P17-8A

*4. Prepare a statement of cash E17-10 E17-12 P17-8A

flows using the direct E17-11 E17-13
method. P17-4A
P17-6A
P17-8A
P17-10A
*5 Use a worksheet to prepare the E17-14
statement of cash flows P17-12A
using the indirect method.
Broadening Your Perspective Real-World Focus Comparative Analysis Financial Reporting Comp. Analysis
Decision Making Across Decision Making
the Organization Across the
(For Instructor Use Only)

Communication Organization
FASB Codification Ethics Case
All About You
17-5

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 SOLUTIONS TO DO IT! REVIEW EXERCISES

DO IT! 17-1

1. Financing activity
2. Operating activity
3. Financing activity
4. Investing activity
5. Investing activity

DO IT! 17-2

Cash flows from operating activities

Net income.............................................................. $130,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense..................................... $6,000
Amortization expense..................................... 2,000
Gain on disposal of equipment...................... (3,600)
Decrease in accounts receivable................... 6,000
Increase in accounts payable........................ 3,200 13,600
Net cash provided by operating
activities.................................................. $143,600

DO IT! 17-3

(a) Free cash flow = $73,700 – $27,000 – $15,000 = $31,700

(b) Cash provided by operating activities fails to take into account that a
company must invest in new plant assets just to maintain the current
level of operations. Companies must also maintain dividends at current
levels to satisfy investors. The measurement of free cash flow provides
additional insight regarding a company’s cash-generating ability.

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 SOLUTIONS TO EXERCISES

EXERCISE 17-1
(a) Financing activities.
(b) Noncash investing and financing activities.
(c) Noncash investing and financing activities.
(d) Financing activities.
(e) Investing activities.
(f) Operating activities.
(g) Operating activities.

EXERCISE 17-2
(a) Operating activity. (i) Operating activity.
(b) Noncash investing and (j) Noncash investing and financing
financing activity. activity.
(c) Investing activity. (k) Investing activity.
(d) Financing activity. (l) Noncash investing and financing
(e) Operating activity. activity.
(f) Operating activity. (m) Operating activity (loss); investing
(g) Operating activity. activity (cash proceeds from sale).
(h) Financing activity. (n) Financing activity.

EXERCISE 17-3

1. (a) Cash............................................................ 15,000

Land..................................................... 12,000
Gain on Disposal of Plant Assets..... 3,000
(b) The cash receipt ($15,000) is reported in the investing section. The gain
($3,000) is deducted from net income in the operating section.

2. (a) Cash............................................................ 20,000

Common Stock................................... 20,000
(b) The cash receipt ($20,000) is reported in the financing section.

3. (a) Depreciation Expense................................ 17,000

Accumulated Depreciation—
Buildings.......................................... 17,000
(b) Depreciation expense ($17,000) is added to net income in the operating
section.
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EXERCISE 17-3 (Continued)

4. (a) Salaries and Wages Expense................................. 9,000

Cash................................................................. 9,000

(b) Salaries and wages expense is not reported separately on the

statement of cash flows. It is part of the computation of net income
in the income statement, and is included in the net income amount on
the statement of cash flows.

5. (a) Equipment................................................................ 8,000

Common Stock................................................ 1,000
Paid-in Capital in Excess of Par—
Common Stock............................................ 7,000

(b) The issuance of common stock for equipment ($8,000) is reported

as a noncash investing and financing activity at the bottom of the
statement of cash flows.

6. (a) Cash......................................................................... 1,200

Loss on Disposal of Plant Assets.......................... 1,800
Accumulated Depreciation—Equipment............... 7,000
Equipment........................................................ 10,000

(b) The cash receipt ($1,200) is reported in the investing section. The loss
($1,800) is added to net income in the operating section.

EXERCISE 17-4

GUTIERREZ COMPANY
Partial Statement of Cash Flows
For the Year Ended December 31, 2017

Cash flows from operating activities

Net income................................................................ $225,000
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation expense...................................... $45,000
Loss on disposal of equipment....................... 5,000
Decrease in accounts receivable.................... 15,000
Decrease in prepaid expenses........................ 4,000
Increase in accounts payable.......................... 17,000 86,000
Net cash provided by operating activities........ $311,000
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EXERCISE 17-5

SCOGGIN INC.
Partial Statement of Cash Flows
For the Year Ended December 31, 2017

Cash flows from operating activities

Net income............................................................ $153,000
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation expense................................... $24,000)
Increase in accounts receivable.................. (21,000)
Decrease in inventory.................................. 14,000)
Increase in prepaid expenses...................... (5,000)
Decrease in accounts payable.................... (7,000)
Increase in accrued expenses payable...... 10,000) 15,000
Net cash provided by operating activities..... $168,000

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EXERCISE 17-6

HERRICK CORP
Partial Statement of Cash Flows
For the Year Ended December 31, 2017

Cash flows from operating activities

Net income......................................................... $ 77,000)
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation expense................................ $ 28,000)
Loss on disposal of equipment................ 7,000) 35,000)
Net cash provided by operating
activities.................................................. 112,000)

Cash flows from investing activities

Sale of equipment.............................................. 12,000*
Construction of equipment............................... (53,000)
Purchase of equipment..................................... (70,000)
Net cash used by investing activities...... (111,000)

Cash flows from financing activities

Payment of cash dividends.............................. (14,000)

*Cost of equipment sold................................... $ 49,000)

*Accumulated depreciation.............................. (30,000)
*Book value........................................................ 19,000)
*Loss on sale of equipment.............................. (7,000)
*Cash proceeds................................................. $ 12,000)

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EXERCISE 17-7

(a) ROJAS CORPORATION

Statement of Cash Flows
For the Year Ended December 31, 2017

Cash flows from operating activities

Net income........................................................... $ 22,630)
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation expense.................................. $ 5,000)
Loss on disposal of land............................. 1,100
Decrease in accounts receivable................ 2,200
Decrease in accounts payable.................... (18,730) (10,430)
Net cash provided by operating activities......... 12,200

Cash flows from investing activities

Sale of land.......................................................... 4,900

Cash flows from financing activities

Issuance of common stock................................. $ 6,000
Payment of dividends.......................................... (19,500)
Net cash used by financing activities................ (13,500)

Net increase in cash................................................... 3,600

Cash at beginning of period...................................... 10,700
Cash at end of period................................................. $ 14,300

(b) $12,200 – $0 – $19,500 = ($7,300)

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EXERCISE 17-8

VELO COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2017

Cash flows from operating activities

Net income................................................... $93,000)
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation expense.......................... $34,000)
Increase in accounts receivable......... (9,000)
Decrease in inventory.......................... 19,000)
Decrease in accounts payable............ (8,000) 36,000)
Net cash provided by operating
activities............................................ 129,000)
Cash flows from investing activities
Sale of land................................................... 25,000)
Purchase of equipment............................... (70,000)
Net cash used by investing
activities............................................ (45,000)

Cash flows from financing activities

Issuance of common stock......................... 42,000)
Payment of cash dividends......................... (35,000)
Redemption of bonds.................................. (50,000)
Net cash used by financing
activities............................................ (43,000)

Net increase in cash............................................ 41,000)

Cash at beginning of period............................... 22,000)
Cash at end of period.......................................... $ 63,000)

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EXERCISE 17-9

(a) RODRIQUEZ CORPORATION

Statement of Cash Flows
For the Year Ended December 31, 2017

Cash flows from operating activities

Net income.................................................... $ 18,300)
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation expense........................... $ 5,200* )
Loss on disposal of equipment............ 5,500**
Increase in accounts receivable.......... (2,900)
Increase in accounts payable............... 3,500 11,300))
Net cash provided by operating activities..... 29,600)

Cash flows from investing activities

Sale of equipment......................................... 3,300)
Purchase of investments............................. (4,000)
Net cash used by investing activities............ (700)

Cash flows from financing activities

Issuance of common stock.......................... $ 5,000
Payment of dividends................................... (16,400)
Retirement of bonds..................................... (20,000)
Net cash used by financing activities............ (31,400)

Net increase in cash............................................. (2,500)

)
Cash at beginning of period................................ 17,700
Cash at end of period........................................... $ 15,200

*[$14,000 – ($10,000 – $1,200)] **[$3,300 – ($10,000 – $1,200)]

(b) $29,600 – $0 – $16,400 = $13,200

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*EXERCISE 17-10

Sales revenue............................................................. $192,000)

Deduct: Increase in accounts receivable............... (60,000)
Cash receipts from customers*........................ $132,000
Operating expenses.................................................. 78,000)
Deduct: Increase in accounts payable.................... (23,000)
Cash payments for operating expenses**....... 55,000
Net cash provided by operating activities............... $ 77,000

** Accounts Receivable
Balance, Beginning of year 0
Revenues for the year 192,000 Cash receipts for year 132,000
Balance, End of year 60,000

** Accounts Payable
Balance, Beginning of year 0
Payments for the year 55,000 Operating expenses for year 78,000
Balance, End of year 23,000

*EXERCISE 17-11

(a) Cash payments to suppliers

Cost of goods sold................................... $4,852.7 million
Add: Increase in inventory..................... 18.1
Cost of purchases.................................... $4,870.8 million
Deduct: Increase in accounts payable..... 136.9
Cash payments to suppliers................... $4,733.9 million

(b) Cash payments for operating expenses

Operating expenses exclusive
of depreciation...................................... $9,470.5 million
($10,671.5 – $1,201)
Add: Increase in prepaid expenses....... $ 56.3)
Deduct: Increase in accrued
expenses payable..................... 160.9 (104.6)
Cash payments for operating expenses.... $9,365.9 million

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*EXERCISE 17-12

Cash flows from operating activities

Cash receipts from
Customers.................................................... $230,000*
Dividend revenue......................................... 18,000*
$248,000*
Less cash payments:
To suppliers for merchandise..................... 115,000
For salaries and wages............................... 53,000
For operating expenses.............................. 28,000
For income taxes......................................... 12,000
For interest................................................... 10,000 218,000
Net cash provided by operating activities.... $ 30,000*

*$48,000 + $182,000

*EXERCISE 17-13

Cash payments for rent

Rent expense....................................................... $ 48,000*
Add: Increase in prepaid rent............................ 3,100*
Cash payments for rent...................................... $ 51,100*

Cash payments for salaries

Salaries expense................................................. $ 54,000*
Add: Decrease in salaries payable................... 2,000*
Cash payments for salaries................................ $ 56,000*

Cash receipts from customers

Sales revenue...................................................... $175,000*
Add: Decrease in accounts receivable............. 9,000*
Cash receipts from customers........................... $184,000*

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*EXERCISE 17-14

INTERNATIONAL COMPANY
Worksheet
Statement of Cash Flows
For the Year Ended December 31, 2017

Balance Reconciling Items Balance

Balance Sheet Accounts 12/31/16 Debit Credit 12/31/17
Debits
Cash 22,000 (k) 51,000 73,000
Accounts receivable 76,000 (a) 9,000 85,000
Inventory 189,000 (b) 9,000 180,000
Land 100,000 (e) 25,000 75,000
Equipment 200,000 (f) 50,000 250,000
Total 587,000 663,000
Credits
Accumulated depreciation—equipment 42,000 (d) 24,000 66,000
Accounts payable 47,000 (c) 13,000 34,000
Bonds payable 200,000 (h) 50,000 150,000
Common stock 164,000 (i) 50,000 214,000
Retained earnings 134,000 (g) 70,000 (j) 135,000 199,000
Total 587,000 663,000

Statement of Cash Flow Effects

Operating activities
Net income (j) 135,000
Increase in accounts receivable (a) 9,000
Decrease in inventory (b) 9,000
Decrease in accounts payable (c) 13,000
Depreciation expense (d) 24,000
Investing activities
Sale of land (e) 25,000
Purchase of equipment (f) 50,000
Financing activities
Payment of dividends (g) 70,000
Redemption of bonds (h) 50,000
Issuance of common stock (i) 50,000
Totals 486,000
Increase in cash 435,000
Totals 486,000 (k) 51,000
486,000

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 SOLUTIONS TO PROBLEMS

PROBLEM 17-1A

SCF Activity Cash Inflow, Outflow,

Transaction
Affected or No Effect?
(a) Recorded depreciation
O No cash flow effect
expense on the plant assets.
(b) Recorded and paid interest
O Cash outflow
expense.
(c) Recorded cash proceeds from
I Cash inflow
a disposal of plant assets.
(d) Acquired land by issuing
NC No cash flow effect
common stock.
(e) Paid a cash dividend to preferred
F Cash outflow
stockholders.
(f) Paid a cash dividend
F Cash outflow
to common stockholders.
(g) Recorded cash sales. O Cash inflow
(h) Recorded sales on account. O No cash flow effect
(i) Purchased inventory for cash. O Cash outflow
(j) Purchased inventory on account. O No cash flow effect

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 PROBLEM 17-2A

(a) Net income can be determined by analyzing

the retained earnings account.
Retained earnings beginning of year........................... $250,000
Add: Net income (plug)................................................. 75,500*
325,500
Less: Cash dividends................................................... 15,000
Stock dividends.................................................. 10,500
Retained earnings, end of year.................................... $300,000

*($300,000 + $10,500 + $15,000 – $250,000)

(b) Cash inflow from the issue of stock was $19,500 ($170,000 – $140,000 –
$10,500).

Common Stock
140,000
10,500 Stock Dividend
19,500 Shares Issued for Cash
170,000

Cash outflow for dividends was $15,000. The stock dividend does not
use cash.

(c) Both of the above activities (issue of common stock and payment of
dividends) would be classified as financing activities on the statement
of cash flows.

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 PROBLEM 17-3A

WHITLOCK COMPANY
Partial Statement of Cash Flows
For the Year Ended November 30, 2017

Cash flows from operating activities

Net income........................................................... $1,650,000
Adjustments to reconcile net income
to net cash provided by operating activities
activities
Depreciation expense.............................. $ 70,000
Increase in accounts receivable ............ (200,000)
Decrease in inventory............................. 500,000
Increase in prepaid expenses................. (150,000)
Decrease in accounts payable................ (340,000)
Decrease in accrued expenses payable.... (100,000) (220,000)
Net cash provided by operating
activities................................................ $1,430,000

Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only) 17-19

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 *PROBLEM 17-4A

WHITLOCK COMPANY
Partial Statement of Cash Flows
For the Year Ended November 30, 2017

Cash flows from operating activities

Cash receipts from customers......... $7,500,000 (1)
Less cash payments:
To suppliers................................ $4,740,000 (2)
For operating expenses............. 1,330,000 (3) 6,070,000
Net cash provided by operating
activities.......................................... $1,430,000

Computations:

(1) Cash receipts from customers

Sales revenue....................................................
$7,700,000..................................................................
Deduct: Increase in accounts receivable....... 200,000
Cash receipts from customers......................... $7,500,000

(2) Cash payments to suppliers

Cost of goods sold............................................ $4,900,000
Deduct: Decrease in inventory........................ 500,000
Cost of purchases............................................. 4,400,000
Add: Decrease in accounts payable............... 340,000
Cash payments to suppliers............................. $4,740,000

(3) Cash payments for operating expenses

Operating expenses, exclusive
of depreciation................................ $1,080,000*
Add: Increase in prepaid
expenses................................... $150,000
Decrease in accrued
expenses payable..................... 100,000 250,000

Cash payments for operating

expenses......................................... $1,330,000

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 *($1,150,000 – $70,000)

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 PROBLEM 17-5A

ZUMBRUNN COMPANY
Partial Statement of Cash Flows
For the Year Ended December 31, 2017

Cash flows from operating activities

Net income............................................................ $230,000
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation expense................................... $ 60,000
Loss on disposal of equipment................... 16,000
Increase in accounts receivable.................. (10,000)
Increase in accounts payable...................... 18,000
Increase in income taxes payable............... 4,000 88,000
Net cash provided by operating activities..... $318,000

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 *PROBLEM 17-6A

ZUMBRUNN COMPANY
Partial Statement of Cash Flows
For the Year Ended December 31, 2017

Cash flows from operating activities

Cash receipts from customers.......... $960,000 (1)
Less cash payments:
For operating expenses............. $606,000 (2)
For income taxes........................ 36,000 (3) 642,000
Net cash provided by operating
activities.......................................... $318,000

(1) Computation of cash receipts from customers

Service revenue......................................................... $970,000
Deduct: Increase in accounts receivable
($75,000 – $65,000).................................... 10,000
Cash receipts from customers................................ $960,000

(2) Computation of cash payments for operating expenses

Operating expenses per income statement............ $624,000
Deduct: Increase in accounts payable
($46,000 – $28,000).................................... 18,000
Cash payments for operating expenses................. $606,000

(3) Computation of cash payments for income taxes

Income tax expense per income statement............ $ 40,000
Deduct: Increase in income taxes payable
($11,000 – $7,000)...................................... 4,000
Cash payments for income taxes............................ $ 36,000

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 PROBLEM 17-7A

(a) NOSKER COMPANY

Statement of Cash Flows
For the Year Ended December 31, 2017

Cash flows from operating activities

Net income........................................................... $32,000
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation expense................................... $14,500
Increase in accounts receivable.................. (16,000)
Increase in inventory.................................... (7,000)
Increase in accounts payable...................... 9,000
Decrease in income taxes payable............. (1,000) (500)
Net cash provided by operating activities..... 31,500

Cash flows from investing activities

Sale of equipment................................................ 8,500

Cash flows from financing activities

Issuance of common stock................................ 4,000
Redemption of bonds.......................................... (6,000)
Payment of dividends......................................... (20,000)
Net cash used by financing activities............ (22,000)

Net increase in cash................................................. 18,000

Cash at beginning of period..................................... 20,000
Cash at end of period............................................... $38,000

(b) $31,500 – $0 – $20,000 = $11,500

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 *PROBLEM 17-8A

(a) NOSKER COMPANY

Statement of Cash Flows
For the Year Ended December 31, 2017

Cash flows from operating activities

Cash receipts from customers...... $226,000 (1)
Less cash payments:
To suppliers............................. $173,000 (2)
For operating expenses.......... 9,500 (3)
For income taxes..................... 9,000 (4)
For interest............................... 3,000 194,500
Net cash provided by
operating activities.............. 31,500

Cash flows from investing activities

Sale of equipment........................... 8,500

Cash flows from financing activities

Issuance of common stock............ 4,000
Redemption of bonds..................... (6,000)
Payment of dividends..................... (20,000)
Net cash used by financing
activities............................... (22,000 )

Net increase in cash............................... 18,000

Cash at beginning of period.................. 20,000
Cash at end of period............................. $ 38,000

Computations:

(1) Cash receipts from customers

Sales revenue................................................... $242,000
Deduct: Increase in accounts receivable..... 16,000
Cash receipts from customers............................... $226,000

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*PROBLEM 17-8A (Continued)

(2) Cash payments to suppliers

Cost of goods sold................................................ $175,000
Add: Increase in inventory................................... 7,000
Cost of purchases................................................. 182,000
Deduct: Increase in accounts payable................ 9,000
Cash payments to suppliers................................. $173,000

(3) Cash payments for operating expenses

Operating expenses.............................................. $ 24,000
Deduct: Depreciation............................................ 14,500
Cash payments for operating expenses.............. $ 9,500

(4) Cash payments for income taxes

Income tax expense............................................... $ 8,000
Add: Decrease in income taxes payable............. 1,000
Cash payments for income taxes......................... $ 9,000

(b) $31,500 – $0 – $20,000 = $11,500

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 PROBLEM 17-9A

CHENG INC.
Statement of Cash Flows
For the Year Ended December 31, 2017

Cash flows from operating activities

Net income........................................................... $158,900
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation expense.................................. $46,500
Loss on disposal of plant assets............... 7,500
Increase in accounts receivable................. (59,800)
Increase in inventory................................... (14,650)
Increase in prepaid expenses..................... (2,400)
Increase in accounts payable..................... 44,700
Decrease in accrued expenses payable...... (500) 21,350
Net cash provided by operating activities..... 180,250

Cash flows from investing activities

Sale of plant assets............................................. 1,500
Purchase of investments.................................... (29,000)
Purchase of plant assets.................................... (85,000)
Net cash used by investing activities........... (112,500)

Cash flows from financing activities

Issuance of common stock................................ 45,000
Redemption of bonds......................................... (40,000)
Payment of cash dividends................................ (40,350)
Net cash used by financing activities........ (35,350)

Net increase in cash................................................... 32,400

Cash at beginning of period...................................... 48,400
Cash at end of period................................................. $ 80,800

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 *PROBLEM 17-10A

CHENG INC.
Statement of Cash Flows
For the Year Ended December 31, 2017

Cash flows from operating activities

Cash receipts from customers.............. $332,980 (1)
Less cash payments:
To suppliers..................................... $105,410 (2)
For income taxes............................ 27,280
For operating expenses................. 15,310 (3)
For interest...................................... 4,730 152,730
Net cash provided by operating
activities....................................... 180,250

Cash flows from investing activities

Sale of plant assets................................ 1,500
Purchase of investments....................... (29,000)
Purchase of plant assets....................... (85,000)
Net cash used by investing
activities....................................... (112,500 )

Cash flows from financing activities

Issuance of common stock................... 45,000
Redemption of bonds............................. (40,000)
Payment of cash dividends................... (40,350)
Net cash used by financing
activities....................................... (35,350)

Net increase in cash...................................... 32,400

Cash at beginning of period.......................... 48,400
Cash at end of period.................................... $ 80,800

Computations:

(1) Cash receipts from customers

Sales revenue.................................. $392,780
Deduct: Increase in accounts
receivable................................. 59,800
Cash receipts from customers...... $332,980

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*PROBLEM 17-10A (Continued)

(2) Cash payments to suppliers

Cost of goods sold.................................................. $135,460
Add: Increase in inventory.................................... 14,650
Cost of purchases................................................... 150,110
Deduct: Increase in accounts payable................. 44,700
Cash payments to suppliers.................................. $105,410

(3) Cash payments for operating expenses

Operating expenses exclusive of
depreciation............................................. $ 12,410
Add: Increase in prepaid expenses.......... $2,400
Decrease in accrued expenses
payable............................................ 500 2,900
Cash payment for operating expenses..... $ 15,310

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 PROBLEM 17-11A

ROTHLISBERGER COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2017

Cash flows from operating activities

Net income............................................................ $ 42,000
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation expense................................... $42,000
Loss on disposal of equipment................... 4,000*
Decrease in accounts receivable................ 21,000
Increase in inventory.................................... (9,450)
Decrease in prepaid expenses.................... 5,720
Increase in accounts payable...................... 7,730 71,000
Net cash provided by operating activities..... 113,000

Cash flows from investing activities

Sale of land........................................................... 25,000
Sale of equipment................................................. 6,000
Purchase of equipment........................................ (88,000)
Net cash used by investing activities......... (57,000)

Cash flows from financing activities

Payment of cash dividends................................. (20,000)

Net increase in cash..................................................... 36,000

Cash at beginning of period........................................ 45,000
Cash at end of period................................................... $ 81,000

Noncash investing and financing activities

Conversion of bonds by issuance
of common stock.......................................... $ 40,000

*($6,000 – $10,000)

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 *PROBLEM 17-12A

OAKLEY COMPANY
Worksheet—Statement of Cash Flows
For the Year Ended December 31, 2017

Balance Reconciling Items Balance

Balance Sheet Accounts 12/31/16 Debit Credit 12/31/17
Debits
Cash 47,250 (m) 35,450 82,700
Accounts receivable 57,000 (a) 33,800 90,800
Inventory 102,650 (b) 24,250 126,900
Investments 87,000 (e) 2,500 84,500
Equipment 205,000 (f) 97,000 (h) 47,000 255,000
Totals 498,900 639,900
Credits
Accumulated depreciation—equipment 40,000 (h) 40,200 (g) 49,700 49,500
Accounts payable 48,280 (c) 9,420 57,700
Accrued expenses payable 18,830 (d) 6,730 12,100
Bonds payable 70,000 (i) 30,000 100,000
Common stock 200,000 (j) 50,000 250,000
Retained earnings 121,790 (l) 83,400 (k) 132,210 170,600
Totals 498,900 639,900

Statement of Cash Flow Effects

Operating activities
Net income (k) 132,210
Increase in accounts receivable (a) 33,800
Increase in inventory (b) 24,250
Increase in accounts payable (c) 9,420
Decrease in accrued expenses payable (d) 6,730
Depreciation expense (g) 49,700
Gain on disposal of equipment (h) 8,750
Investing activities
Sale of investments (e) 2,500
Sale of equipment (h) 15,550
Purchase of equipment (f) 97,000
Financing activities
Issuance of common stock (j) 50,000
Issuance of bonds (i) 30,000
Payment of dividends (l) 83,400
Totals 610,210 574,760
Increase in cash (m) 35,450
Totals 610,210 610,210

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 BYP 17-1 FINANCIAL REPORTING PROBLEM

(a) Net cash provided by operating activities:

2013 $53,666 million

2012 $50,856 million

(b) The increase in cash and cash equivalents for the year ended September 28,
2013 was $3,513 million, and the increase was $931 million for the year
ended September 29, 2012.

(c) Apple uses the indirect method of computing and presenting the net
cash provided by operating activities.

(d) The change in accounts receivable used cash of $2,172 million in 2013.
The change in inventories used cash of $973 million in 2013. The
change in accounts payable provided cash of $2,340 million in 2013.

(e) The net cash used by investing activities in 2013 was $33,774 million.

(f) Under the “Supplemental cash flow disclosure” section cash flow
information disclosed income taxes paid of $9,128 million in 2013.

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 BYP 17-2 COMPARATIVE ANALYSIS PROBLEM

All amounts in millions PepsiCo Coca-Cola

(a) $9,688 – $2,795 – $3,434 = $3,459

$10,542 – $2,550 – $4,969 = $3,023

(b) The companies are similar in their ability to generate cash. Both had a
significant amount of “free cash” available after covering capital expen-
ditures and cash dividends.

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 BYP 17-3 COMPARATIVE ANALYSIS PROBLEM

All amounts in millions Amazon Wal-Mart

(a) $5,475 – $3,444 – $0 = $2,031

$23,257 – $13,115 – $6,139 = $4,003

(b) Both companies had a significant amount of “free cash” available after
covering capital expenditures and cash dividends (for Wal-Mart). Wal-
Mart’s free cash flow is almost twice as large as Amazon’s, even after
paying over $6,000 million more dividends.

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 BYP 17-4 DECISION MAKING ACROSS THE ORGANIZATION

(a) GUTHRIE COMPANY

Statement of Cash Flows
For the Year Ended January 31, 2017

Cash flows from operating activities

Net loss.................................................... $ (30,000)*
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation expense..................... $ 55,000
Gain from sale of investment......... (5,000) 50,000
Net cash provided by operating
activities....................................... 20,000

Cash flows from investing activities

Sale of investment.................................. 80,000
Purchase of investment......................... (75,000)
Purchase of fixtures and equipment..... (330,000)
Net cash used by investing
activities....................................... (325,000)*

Cash flows from financing activities

Sale of capital stock............................... 420,000
Purchase of treasury stock.................... (10,000)
Net cash provided by financing
activities....................................... 410,000
Net increase in cash....................................... 105,000
Cash at beginning of period.......................... 140,000
Cash at end of period..................................... $245,000

Noncash investing and financing activities

Issuance of note for truck...................... $ 20,000

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BYP 17-4 (Continued)

*Computation of net income (loss)

Sales of merchandise............................... $380,000
Interest revenue........................................ 6,000
Gain on sale of investment
($80,000 – $75,000)................................ 5,000
Total revenues and gains................. 391,000
Merchandise purchased........................... $258,000
Operating expenses
($160,000 – $55,000).............................. 105,000
Depreciation.............................................. 55,000
Interest expense........................................ 3,000
Total expenses................................... 421,000
Net loss...................................................... $ (30,000)

(b) From the information given, it appears that from an operating standpoint,
Guthrie Company did not have a superb first year, having suffered a
$30,000 net loss. Mary is correct; the statement of cash flows is not
prepared in correct form. The correct format classifies cash flows from
three activities—operating, investing, and financing; and it also presents
significant noncash investing and financing activities in a separate
schedule. Mary is wrong, however, about the actual increase in cash not
being $105,000; $105,000 is the correct increase in cash.

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 BYP 17-5 REAL-WORLD FOCUS

(a) Crucial to the SEC’s effectiveness is its enforcement authority. Each

year the SEC brings hundreds of civil enforcement actions against indi-
viduals and companies that break the securities laws. Typical infracti-
ons include insider trading, accounting fraud, and providing false or
misleading information about securities and the companies that issue
them.

(b) The main purposes of these laws can be reduced to two common-sense
notions:

 Companies publicly offering securities for investment dollars must

tell the public the truth about their businesses, the securities they
are selling, and the risks involved in investing.

 People who sell and trade securities—brokers, dealers, and exchan-

ges—must treat investors fairly and honestly, putting investors’
interests first.

(c) President Franklin Delano Roosevelt appointed Joseph P. Kennedy,

President John F. Kennedy’s father, to serve as the first Chairman of
the SEC.

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 BYP 17-6 REAL-WORLD FOCUS

Answers will vary depending on the company chosen by the student.

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 BYP 17-7 COMMUNICATION ACTIVITY

MEMO

To: Will Hardin

From: Student

Re: Statement of cash flows

The statement of cash flows provides information about the cash receipts
and cash payments of a firm, classified as operating, investing, and financing
activities. The operating activities section of the company’s statement of cash
flows shows that cash increased by $172,000 as a result of transactions which
affected net income. This amount is computed by adjusting net income for
those items which affect net income, but do not affect cash, such as sales
on account which remain uncollected at year-end.

The investing activities section of the statement reports cash flows resulting
from changes in investments and other long-term assets. The company
had a cash outflow from investing activities due to purchases of buildings
and equipment.

The financing activities section of the statement reports cash flows resulting
from changes in long-term liabilities and stockholders’ equity. The company
had a cash inflow from financing activities due to the issuance of common
stock and an outflow due to the payment of cash dividends.

If you have any further questions, please do not hesitate to contact me.

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 BYP 17-8 ETHICS CASE

(a) The stakeholders in this situation are:

Samuel Gunkle, president of Wesley Corporation.
Gerald Rondelli, controller.
The Board of Directors.
The stockholders of Wesley Corporation.

(b) The president’s statement, “We must get that amount above $1 million,”
puts undue pressure on the controller. This statement along with his
statement, “I know you won’t let me down, Gerald,” encourages Gerald
to do something unethical.

Controller Gerald Rondelli’s reclassification (intentional misclassification)

of a cash inflow from a long-term note (financing activity) issuance to an
“increase in payables” (operating activity) is inappropriate and unethical.

(c) It is unlikely that any board members (other than board members who are
also officers of the company) would discover the misclassification. Board
members generally do not have detailed enough knowledge of their
company’s transactions to detect this misstatement. It is possible that an
officer of the bank that made the loan would detect the misclassification
upon close reading of Wesley Corporation’s statement of cash flows. It
is also possible that close scrutiny of the balance sheet showing an
increase in notes payable (long-term debt) would reveal that there is
no comparable financing activity item (proceeds from note payable) in
the statement of cash flows.

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 BYP 17-9 ALL ABOUT YOU

(a) The article describes three factors that determine how much money
you should set aside. (1) Your willingness to take risk. You need to evaluate
how willing you are to experience wide swings in your financial position.
(2) Your needs. Your need to carefully evaluate your situation and evaluate
the possibility of various events and what the financial implications
would be. This is also impacted by the number of dependents you have.
(3) Your upcoming expenses. Here you need to look further out into the
horizon and consider the implications of larger events such as a big trip,
a wedding, or education costs.

(b) They recommend having at least three months of living expenses set
aside, and up to six months.

(c) Responses to this question will vary. What is most important is that
students begin the process of considering their cash needs and
developing a plan to set aside enough money to provide a cushion in
the event of a financial “hiccup.”

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 BYP 17-10 FASB CODIFICATION ACTIVITY

(a) Cash equivalents are short-term, highly liquid investments that have
both of the following characteristics:

a. Readily convertible to known amounts of cash

b. So near their maturity that they present insignificant risk of

changes in value because of changes in interest rates.

Generally, only investments with original maturities of three months or

less qualify under that definition. Original maturity means original
maturity to the entity holding the investment. For example, both a
three-month U.S. Treasury bill and a three-year U.S. Treasury note
purchased three months from maturity qualify as cash equivalents.
However, a Treasury note purchased three years ago does not become
a cash equivalent when its remaining maturity is three months.
Examples of items commonly considered to be cash equivalents are
Treasury bills, commercial paper, money market funds, and federal
funds sold (for an entity with banking operations).

(b) Financing activities include obtaining resources from owners and

providing them with a return on, and a return of, their investment;
receiving restricted resources that by donor stipulation must be used
for long-term purposes; borrowing money and repaying amounts
borrowed, or otherwise setting the obligation; and obtaining and
paying for other resources obtained from creditors on long-term credit.

(c) Investing activities include making and collecting loans and acquiring
and disposing of debt or equity instruments and property, plant, and
equipment and other productive assets, that is, assets held for or used
in the production of goods or services by the entity (other than
materials that are part of the entity’s inventory). Investing activities
exclude acquiring and disposing of certain loans or other debt or
equity instruments that are acquired specifically for resale, as
discussed in paragraph 230-10-45-12 and 230-10-45-21.

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BYP 17-10 (Continued)

(d) Operating activities include all transactions and other events that are
not defined as investing or financing activities (see paragraph 230-10-
45-12 through 45-15). Operating activities generally involve producing
and delivering goods and providing services. Cash flow from operating
activities are generally the cash effects of transactions and other
events that enter into the determination of net income.

(e) The primary objective of a statement of cash flows is to provide

relevant information about the cash receipts and cash payments of an
entity during a period.

As indicated in the glossary at this same section, cash includes not

only currency on hand but demand deposits with banks or other
financial institutions. Cash also includes other kinds of accounts that
have the general characteristics of demand deposits in that the
customer may deposit additional funds at any time and also effectively
may withdraw funds at any time without prior notice or penalty. All
charges and credits to those accounts are cash receipts or payments
to both the entity owning the account and the bank holding it. For
example, a bank’s granting of a loan by crediting the proceeds to a
customer’s demand deposit account is a cash payment by the bank
and a cash receipt of the customer when the entry is made.

Thus, the basis for the statement of cash flows is cash, not broader
measures of liquidity, like working capital.

(f) Information about all investing and financing activities of an entity

during a period that affect recognized assets or liabilities but that do
not result in cash receipts or cash payments in the period shall be
disclosed. Those disclosures may be either narrative or summarized in
a schedule, and they shall clearly relate the cash and noncash aspects
of transactions involving similar items.

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 IFRS EXERCISES

IFRS 17-1

Under IFRS bank overdrafts are treated as part of cash and cash
equivalents on the balance sheet. As a result, on the statement of cash
flows they are part of the change in cash in cash equivalents. In contrast,
under GAAP they are treated as a liability on the balance sheet, as a source
of financing on the statement of cash flows.

IFRS 17-2

The treatment of these items under IFRS and GAAP is as follows:

IFRS GAAP
(a) Interest paid Operating or financing Operating
(b) Interest received Operating or investing Operating
(c) Dividends paid Operating or financing Financing
(d) Dividends received Operating or investing Operating

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 IFRS 17-3 INTERNATIONAL FINANCIAL REPORTING PROBLEM

(a) The company reports interest paid as an operating activity.

(b) The company reports dividends received as an operating activity.

(c) Under GAAP bank overdrafts are not reported in cash and cash
equivalents. Instead they are treated as a financing activity, and would
be reported on the balance sheet as a liability.

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