Deck 12: Statement Cash Flows

Question 1

Computing Cash Flows from Operating Activities (Indirect Method)
The income statement and selected balance sheet information for Direct Products Company for the year ended December31, 2013, is presented below.

Required:
Prepare the cash flows from operating activities section of the 2013 statement of cash flows using the indirect method-

Answer 1

The cash flow from operating activities section using indirect method is given below:
Hence, the Net cash flow from operating activities is $8,803.

Question 2

Preparing and Interpreting a Statement of Cash Flows (Indirect Method)
Heads Up Company was started several years ago by two hockey instructors. The company's comparative balance sheets and income statement follow, along with additional information.

Additional Data:
a. Bought new hockey equipment for cash, $500.
b. Borrowed $1,200 cash from the bank during the year.
c. Accounts Payable includes only purchases of services made on credit for operating purposes. Because there are no liability accounts relating to income tax, assume that this expense was fully paid in cash.
Required:
1. Prepare the statement of cash flows for the year ended December 31, 2013, using the indirect method.
2. Use the statement of cash flows to evaluate the company's cash flows.

Answer 2

1.
The required cash flow statement is given below:
*The calculation of net increase (decrease) in cash and cash equivalents is shown below:
2.
The evaluation of the cash flows of the HU Company is given below:
Cash flows from operating activities : The operating activities of HU Company have provided a net cash of $1,600. This amount shows that the company is performing very well and able to generate cash internally through its operations. The management of current assets and current liabilities is also good.
Cash flows from investing activities : This section shows cash outflow of $500. It means that the company is spending more money to acquire new long term assets. It is normal for a healthy growing company.
Cash flows from financing activities : This section shows cash inflow of $1,200. The company has made payment for the notes payable and the dividends. The additional borrowings are made in order to generate cash.
HU Company is in the growth phase of corporate life cycle. Hence, the company is generating cash inflows from operating activities and spending significant amount on long term assets resulting in negative investing cash flows. Funds are obtained by financing activities.

Question 3

Preparing and Interpreting a Statement of Cash Flows (Direct Method)
Refer to PA12-4
Required:
Complete requirements 1 and 2 using the direct method.

Answer 3

1.
The required cash flow statement using direct method is given below:
*The calculation of net increase (decrease) in cash and cash equivalents is shown below:
Working Notes :
A.
The calculation of cash collected from customers is shown below:
B.
The calculation of cash paid to employees and suppliers is shown below:
2.
The evaluation of the cash flows of the HU Company is given below:
Cash flows from operating activities : The operating activities of HU Company have provided a net cash of $1,600. This amount shows that the company is performing very well and able to generate cash internally through its operations. The management of current assets and current liabilities is also good.
Cash flows from investing activities : This section shows cash outflow of $500. It means that the company is spending more money to acquire new long term assets. It is normal for a healthy growing company.
Cash flows from financing activities : This section shows cash inflow of $1,200. The company has made additional borrowings of long term debt.
HU Company is in the growth phase of corporate life cycle. Hence, the company is generating cash inflows from operating activities and spending significant amount on long term assets resulting in negative investing cash flows. Funds are obtained by financing activities.

Question 4

Reporting and Interpreting Cash Flows from Operating Activities from an Analyst's Perspective (Indirect Method)
New Vision Company completed its income statement and balance sheet for 2013 and provided the following information:

Required:
1. Present the operating activities section of the statement of cash flows for New Vision Company using the indirect method.
2. Of the potential causes of differences between cash flow from operations and net income, which are the most important to financial analysts

Question 5

Computing Cash Flows from Operating Activities (Direct Method)
Refer to the two cases presented in M12-5, and show the cash flow from operating activities section of the 2013 statement of cash flows using the direct method.

Question 6

Computing Cash Flows from Operating Activities (Indirect Method)
The income statement and selected balance sheet information for Calendars Incorporated for the year ended December 31, £013, is presented below.

Required:
Prepare the cash flows from operating activities section of the 2013 statement of cash flows using the indirect method.

Question 7

Preparing and Interpreting a Statement of Cash Flows (Indirect Method)
Dive In Company was started several years ago by two diving instructors. The company's comparative balance sheets and income statement are presented below. Additional information is presented on the following page.

Additional Data:
a. Prepaid Expenses relate to rent paid in advance.
b. Other Operating Expenses were paid in cash.
c. An owner contributed capital by paying $200 cash in exchange for the company's stock.
Required:
1. Prepare the statement of cash flows for the year ended December 31, 2013, using the indirect method.
2. Use the statement of cash flows to evaluate the company's cash flows.

Question 8

Preparing and Interpreting a Statement of Cash Flows (Direct Method)
Refer to PB12-4.
Required:
Complete requirements 1 and 2 using the direct method.

Question 9

The total change in cash as shown near the bottom of the statement of cash flows for the year should agree to which of the following

A) the difference in retained earnings when reviewing the comparative balance sheet
B) net income or net loss as found on the income statement
C) the difference in cash when reviewing the comparative balance sheet
D) none of the above

Question 10

What are the typical cash inflows from financing activities What are the typical cash outflows from financing activities

Question 11

Accounting for Cash Flows
During a recent year (ended December 31, 2014), Nicole's Getaway Spa (NGS) reported net income of $2,300. The company reported the following activities:
a. Increase in inventories of $400.
b. Depreciation of $3,000.
c. Increase of $2,170 in prepaid expenses.
d. Payments of $4,600 on long-term debt.
e. Purchased new spa equipment for $7,582.
f. Payments on accounts payable exceeded purchases by $320.
g. Collections on accounts receivable exceeded credit sales by $859.
h. Issued $10,000 of common stock.
Required:
Based on this information, prepare a statement of cash flows for the year ended December 31, 2014, using the indirect method. Assume the cash balance at December 31, 2013, was $7,000.

Question 12

What information does the statement of cash flows report that is not reported on the other required financial statements How do investors and creditors use that information

Question 13

What are the major categories of business activities reported on the statement of cash flows Define each of these activities.

Question 14

Describe the types of items used to compute cash flows from operating activities under the two alternative methods of reporting.

Question 15

Reporting Noncash Investing and Financing Activities
Which of the following transactions would be considered noncash investing and financing activities
_____ 1. Additional borrowing from bank.
_____ 2. Purchase of equipment with investments.
_____ 3. Dividends paid in cash.
_____ 4. Purchase of a building with a promissory note.

Question 16

Calculating and Understanding Operating Cash Flows Relating to Inventory Purchases (Indirect Method)
The following information was reported by three companies. When completing the requirements, assume that any and all purchases on account are for inventory.

Required:
1. What amount did each company deduct on the income statement related to inventory
2. What total amount did each company pay out in cash during the period related to inventory purchased with cash and on account
3. By what amount do your answers in 1 and 2 differ for each company
4. By what amount did each company's inventory increase (decrease) By what amount did each company's accounts payable increase (decrease)
5. Using the indirect method of presentation, what amount(s) must each company add (deduct) from net income to convert from accrual to cash basis
6. Describe any similarities between your answers to requirements 3 and 5. Are these answers the same Why or why not

Question 17

Determining Cash Flow Statement Effects of Transactions
For each of the following transactions, indicate whether operating (O), investing (I), or financing activities (F) are affected and whether the effect is a cash inflow ( + ) or outflow ( ), or (NE) if the transaction has no effect on cash.
TIP; Think about the journal entry recorded for the transaction. The transaction affects net cash flows if and only if the account Cash is affected.

Question 18

Comparing Financial Information
Refer to the financial statements of The Home Depot in Appendix A and Lowe's in Appendix B at the end of this book, or download the annual reports from the Cases section of the texts Web site at www.mhhe.com/phillips4e.
Required:
1. Which of the two basic reporting approaches for the cash flows from operating activities did Lowe's use Is this the same as what The Home Depot used
2. What amount of cash did Lowe's receive from issuing long-term debt during the year ended January 28, 2011
3. In the 2010-11 fiscal year, Lowe's generated $3,852 million from operating activities. Where did Lowe's spend this money List the two largest cash outflows reported in the investing or financing activities sections. Do Lowe's uses differ significantly from The Home Depot's

Question 19

Ethical Decision Making: A Real-Life Example
This case is based on a cash flow reporting fraud at Enron. The case is available online at www.mhhe.com/phillips4e. To complete this case, you will evaluate the statement of cash flow effects of misclassifying a loan as a sale.

Question 20

Critical Thinking: Interpreting Adjustments Reported on the Statement of Cash Flows from a Management Perspective (Indirect Method)
QuickServe, a chain of convenience stores, was experiencing some serious cash flow difficulties because of rapid growth. The company did not generate sufficient cash from operating activities to finance its new stores, and creditors were not willing to lend money because the company had not produced any income for the previous three years. The new controller for QuickServe proposed a reduction in the estimated life of store equipment to increase depreciation expense; thus, "we can improve cash flows from operating activities because depreciation expense is added back on the statement of cash flows." Other executives were not sure that this was a good idea because the increase in depreciation would make it more difficult to report positive earnings: "Without income, the bank will never lend us money."
Required:
What action would you recommend for QuickServe Why

Question 21

Explain why a $50,000 increase in inventory during the year must be included in computing cash flows from operating activities under both the direct and indirect methods.

Question 22

What are noncash investing and financing activities Give two examples. How are they reported on the statement of cash flows

Question 23

Matching Items Reported to Cash Flow Statement Categories (Indirect Method)
NIKE, Inc. , is the best-known sports shoe, apparel, and equipment company in the world because of its association with sports stars such as LeBron James and Serena Williams. Some of the items included in its recent statement of cash flows presented using the indirect method are listed here.
Indicate whether each item is disclosed in the operating activities (O), investing activities (I), or financing activities (F) section of the statement or use (NA) if the item does not appear on the statement.

Question 24

Preparing a Statement of Cash Flows (Indirect Method)
Hunter Company is developing its annual financial statements at December 31, 2013. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statement are summarized:

Additional Data:
a. Bought equipment for cash, $9,000.
b. Paid $10,000 on the long-term note payable.
c. Issued new shares of stock for $20,000 cash.
d. Declared and paid a $3,800 cash dividend.
e. Other expenses included depreciation, $6,000; wages, $10,000; taxes, $3,000; other, $8,000.
f. Accounts Payable includes only inventory purchases made on credit. Because there are no liability accounts relating to taxes or other expenses, assume that these expenses were fully paid in cash.
Required:
1. Prepare the statement of cash flows for the year ended December 31, 2013, using the indirect method.
2. Use the statement of cash flows to evaluate Hunter's cash flows.
TIP; The demonstration cases provide good examples of information to consider when evaluating cash flows.

Question 25

Computing Cash Flows from Operating Activities (Direct Method)
Refer to the information in CP12-2.
Required:
Prepare the cash flows from operating activities section of the 2013 statement of cash flows using the direct method.
TIP: Convert the cost of goods sold to cash paid to suppliers by adding the increase in inventory and subtracting the increase in accounts payable.

Question 26

(Supplement 12A) Preparing and Interpreting a Statement of Cash Flows with Loss on Disposal (Indirect Method)
Assume the same facts as CP12-4, except for additional data item ( a ) and the income statement. Instead of item ( a ) from CP12-4, assume that the company bought new golf clubs for $3,000 cash and sold existing clubs for $1,000 cash. The clubs that were sold cost $2,000 and had Accumulated Depreciation of $500 at the time of sale. The income statement follows.

Required:
1. Prepare the statement of cash flows for the year ended December 31, 2013, using the indirect method.
2. Use the statement of cash flows to evaluate the company's cash flows.

Question 27

Using a Spreadsheet to Answer "What If" Management Decisions (Indirect or Direct Method)
Change the amounts for selected balance sheet accounts in the spreadsheets created for either S12-7 or S12-8 to calculate the net cash flows from operating activities if, just before the current year-end, the company's management took the actions listed in the following requirements. Consider each question independently, unless indicated otherwise.
Required:
1. What if the company collected $10,000 of the accounts receivable
2. What if the company had paid down its interest payable by an extra $2,000
3. What if the company waited an additional month before paying $6,000 of its accounts payable
4. What if the company had reported $5,000 more depreciation expense
5. What if all four of the above events had taken place at the same time

Question 28

Reporting Cash Flows from Investing and Financing Activities
Rowe Furniture Corporation is a Virginia-based manufacturer of furniture. In a recent quarter, it reported the following activities:

Required:
Based on this information, present the cash flows from investing and financing activities sections of the cash flow statement.

Question 29

Where is the overall change in cash shown in the statement of cash flows

A) In the top part, before the operating activities section.
B) In one of the operating, investing, or financing activities sections.
C) In the bottom part, following the financing activities section.
D) None of the above.

Question 30

Understanding the Computation of Cash flows from Operating Activities (Indirect Method)
Suppose your company sells services for $325 cash this month. Your company also pays $100 in wages, which includes $15 that was payable at the end of the previous month and $85 for wages of this month.
Required:
1. Show the journal entries to record these transactions.
2. Calculate the amount that should be reported as net cash flow from operating activities.
3. Calculate the amount that should be reported as net income.
4. Show how the indirect method would convert net income (requirement 3) to net cash flow from operating activities (requirement 2).
5. What general rule about converting net income to operating cash flows is revealed by your answer to requirement 4

Question 31

Understanding the Computation of Cash Flows from Operating Activities (Indirect Method)
Suppose your company sells goods for $300, of which $200 is received in cash and $100 is on account. The goods cost your company $125 in a previous period. Your company also recorded wages of $70, of which only $30 has been paid in cash.
Required:
1. Show the journal entries to record these transactions.
2. Calculate the amount that should be reported as net cash flow from operating activities.
3. Calculate the amount that should be reported as net income.
4. Show how the indirect method would convert net income (requirement 3) to net cash flow from operating activities (requirement 2).
5. What general rule about converting net income to operating cash flows is revealed by your answer to requirement 4

Question 32

Preparing and Evaluating a Simple Statement of Cash Flows (Indirect Method)
Suppose the income statement for Goggle Company reports $95 of net income, after deducting depreciation of $35. The company bought equipment costing $60 and obtained a long-term bank loan for $70. The company's comparative balance sheet, at December 31, is presented on the following page.

Required:
1. Calculate the change in each balance sheet account, and indicate whether each account relates to operating, investing, and/or financing activities.
2. Prepare a statement of cash flows using the indirect method.
3. In one sentence, explain why an increase in accounts receivable is subtracted.
4. In one sentence, explain why a decrease in inventory is added.
5. In one sentence, explain why an increase in wages payable is added.
6. Are the cash flows typical of a start-up, healthy, or troubled company Explain.

Question 33

Reporting and Interpreting Cash Flows from Operating Activities from an Analyst's Perspective (Indirect Method)
Pizza International, Inc., operates 700 family restaurants around the world. The company's annual report contained the following information (in thousands):

Required:
1. Based on this information, compute cash flow from operating activities using the indirect method.
2. What were the major reasons that Pizza International was able to report positive cash flow from operations despite having a net loss
3. Of the potential causes of differences between cash flow from operations and net income, which are the most important to financial analysts

Question 34

How is the sale of equipment reported on the statement of cash flows using the indirect method

Question 35

Identifying Companies from Cash Flow Patterns
Based on the cash flows shown, classify each of the following cases as a growing start-up company (S), a healthy established company (E), or an established company facing financial difficulties (F).

Question 36

Total cash inflow in the operating section of the statement of cash flows should include which of the following

A) cash received from customers at the point of sale
B) cash collections from customer accounts receivable
C) cash received in advance of revenue recognition (unearned revenue)
D) all of the above

Question 37

Which of the following would not appear in the investing section of the statement of cash flows

A) Purchase of inventory.
B) Sale of investments.
C) Purchase of land.
D) All of the above would appear in the investing section of the statement of cash flows.

Question 38

Which of the following is not added when computing cash flows from operations using the indirect method

A) The net increase in accounts payable.
B) The net decrease in accounts receivable.
C) The net decrease in inventory.
D) All of the above should be added.

Question 39

If a company's current assets (such as accounts receivable and inventories) are allowed to grow out of control, which of the following would occur

A) Cash flows from investing activities would be reduced.
B) Cash flows from operating activities would be reduced.
C) Cash flows from financing activities would increase.
D) None of the above.

Question 40

Reporting and Interpreting Cash Flows from Investing and Financing Activities with Discussion of Management Strategy
Gibraltar Industries, Inc. , is a manufacturer of steel products for customers such as Home Depot, Lowe's, Chrysler, Ford, and General Motors. In the year ended December 31, 2010, it reported the following activities:

Required:
1. Based on this information, present the cash flows from the investing and financing activities sections of the cash flow statement.
2. Referring to your response to requirement 1, comment on whether you think Gibraltar's cash flows are typical of a healthy or struggling company.

Question 41

Determining Cash Flow Statement Effects of Transactions
Motif Furniture is an Austin-based furniture company. For each of the following first-quarter transactions, indicate whether operating (O), investing (I), or financing activities (F) are affected and whether the effect is a cash inflow (+) or outflow ( ), or (NE) if the transaction has no effect on cash.

Question 42

Determining the Effects of Account Changes on Cash Flows from Operating Activities (Indirect Method)
Indicate whether each item would be added (+) or subtracted ( ) in the computation of cash flow from operating activities using the indirect method.

Question 43

Computing Cash Flows from Operating Activities (Indirect Method)
For the following two independent cases, show the cash flows from operating activities section of the 2013 statement of cash flows using the indirect method.

Question 44

Computing Cash Flows from Financing Activities
Based on the following information, compute cash flows from financing activities under GAAP.

Question 45

Interpreting Cash Flows from Operating, Investing, and Financing Activities
Quantum Dots, Inc., is a nanotechnology company that manufactures "quantum dots," which are tiny pieces of silicon consisting of 100 or more molecules. Quantum dots can be used to illuminate very small objects, enabling scientists to see the blood vessels beneath a mouse's skin ripple with each heartbeat, at the rate of 100 times per second. Evaluate this research-intensive company's cash flows, assuming the following was reported in its statement of cash flows.

Question 46

Interpreting the Cash Flow Statement
The Walt Disney Company reported the following in its 2010 annual report (in millions).

Required:
1. Note that in all three years, net cash provided by operating activities is greater than net income. Given what you know about the Walt Disney Company from your own personal observations, provide one reason that could explain the sizable difference between net income and net cash provided by operating activities.
2. Based on the results for the three years, do you believe that Walt Disney Company needed external financing to purchase parks, resorts, and other property during these years

Question 47

Determining Cash Flow Statement Effects of Transactions
For each of the following transactions, indicate whether operating (O), investing (I), or financing activities (F) are affected and whether the effect is a cash inflow (+) or outflow ( ), or (NE) if the transaction has no effect on cash.

Question 48

Preparing a Statement of Cash Flows (Indirect Method)
XS Supply Company is developing its annual financial statements at December 31, 2013. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statement are summarized:

Additional Data;
a. Bought equipment for cash, $21,000.
b. Paid $6,000 on the long-term note payable.
c. Issued new shares of stock for $16,000 cash.
d. No dividends were declared or paid.
e. Other expenses included depreciation, $5,000; wages, $20,000; taxes, $6,000; other, $6,800.
f. Accounts Payable includes only inventory purchases made on credit. Because there are no liability accounts relating to taxes or other expenses, assume that these expenses were fully paid in cash.
Required:
1. Prepare the statement of cash flows for the year ended December 31, 2013, using the indirect method.
2. Evaluate the statement of cash flows.

Question 49

Computing Cash Flows from Operating Activities (Direct Method)
Refer to the information in PA12-2.
Required:
Prepare the cash flows from operating activities section of the 2013 statement of cash flows using the direct method.

Question 50

(Supplement 12A) Preparing and Interpreting a Statement of Cash Flows with Loss on Disposal (Indirect Method)
Assume the same facts as PA12-4, except for the income statement and additional data item ( a ). The new income statement is shown on the following page. Instead of item ( a ) from PA12-4, assume that the company bought new equipment for $1,800 cash and sold existing equipment for $500 cash. The equipment that was sold had cost $1,300 and had Accumulated Depreciation of $250 at the time of sale.

Required:
1. Prepare the statement of cash flows for the year ended December 31, 2013, using the indirect method.
2. Use the statement of cash flows to evaluate the company's cash flows.

Question 51

Loan covenants require that E-Gadget Corporation (EGC) generate $200,000 cash from operating activities each year. Without intervening during the last month of the current year, EGC will generate only $180,000 cash from operations. What are the pros and cons of each of the following possible interventions: (a) pressuring customers to pay overdue accounts, (b) delaying payment of amounts owing to suppliers, and (c) purchasing additional equipment to increase depreciation

Question 52

Comparing the Direct and Indirect Methods
To compare statement of cash flows reporting under the direct and indirect methods, enter check marks to indicate which line items are reported on the statement of cash flows with each method.

Question 53

Compare the purposes of the income statement, the balance sheet, and the statement of cash flows.

Question 54

Preparing a Statement of Cash Flows (Indirect Method)
Audio City, Inc., is developing its annual financial statements at December 3L, 2013. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statement are summarized below:

Additional Data:
a. Bought equipment for cash, $73,000.
b. Paid $15,000 on the long-term note payable.
c. Issued new shares of stock for $30,000 cash.
d. Dividends of $5,000 were paid in cash.
e. Other expenses included depreciation, $15,000; wages, $20,000; taxes, $25,000.
f. Accounts Payable includes only inventory purchases made on credit. Because a liability relating to taxes does not exist, assume that they were fully paid in cash.
Required:
1. Prepare the statement of cash flows for the year ended December 31, 2013, using the indirect method.
2. Evaluate the statement of cash flows.

Question 55

Computing Cash Flows from Operating Activities (Direct Method)
Refer to the information in PB12-2.
Required:
Prepare the cash flows from operating activities section of the 2013 statement of cash flows using the direct method.

Question 56

Under the indirect method, depreciation expense is added to net income to report cash flows from operating activities. Does depreciation cause an inflow of cash

Question 57

Inferring Balance Sheet Changes from the Cash Flow Statement (Indirect Method)
Colgate-Palmolive was founded in 1806. Its statement of cash flows reported the following information (in millions) for the year ended December 31, 2010:

Required:
Based on the information reported in the operating activities section of the statement of cash flows for Colgate-Palmolive, determine whether the following accounts increased or decreased during the period: Accounts Receivable, Inventories, and Accounts Payable.

Question 58

Reporting and Interpreting Cash Flows from Operating Activities from an Analyst's Perspective (Direct Method)
Refer to the information for New Vision Company in E12-9.
Required:
1. Present the operating activities section of the statement of cash flows for New Vision Company using the direct method. Assume that Other Accrued Liabilities relate to Other Expenses on the income statement.
2. Of the potential causes of differences between cash flow from operations and net income, which are the most important to financial analysts

Question 59

Finding Financial information
Refer to the financial statements at The Home Depot in Appendix A at the end of this book, or download the annual report from the Cases section of the text's Web site at www.mhhe.com/phillips4e.
Required:
1. Which of the two basic reporting approaches for the cash flows from operating activities did The Home Depot use
a. Direct
b. Indirect
2. What amount of tax payments did The Home Depot make during the year ended January 30, 2011
a. $13,000,000
b. $108,000,000
c. $1,935,000,000
d. $2,067,000,000
3. In the 2010-11 fiscal year, The Home Depot generated $4,585 million from operating activities. Indicate where this cash was spent by listing the two largest cash outflows.
a. Amortization ($1,718,000,000) and Capital Expenditures ($1,096,000,000)
b. Share Repurchase ($2,608,000,000) and Capital Expenditures ($1,096,000,000)
c. Amortization ($1,718,000,000) and Share Repurchase ($2,608,000,000)
d. Dividends ($1,569,000,000) and Share Repurchase ($2,608,000,000)

Question 60

What are cash equivalents How are they reported on the statement of cash flows

Question 61

What are the typical cash inflows from operating activities What are the typical cash outflows from operating activities

Question 62

Using a Spreadsheet that Calculates Cash Flows from Operating Activities (Indirect Method)
You've recently been hired by B2B Consultants to provide financial advisory services to small business managers. B2B's clients often need advice on how to improve their operating cash flows and, given your accounting background, you're frequently called upon to show them how operating cash flows would change if they were to speed up their sales of inventory and their collections of accounts receivable or delay their payment of accounts payable. Each time you're asked to show the effects of these business decisions on the cash flows from operating activities, you get the uneasy feeling that you might inadvertently miscalculate their effects. To deal with this once and for all, you e-mail your friend Owen and ask him to prepare a template that automatically calculates the net operating cash flows from a simple comparative balance sheet. You received his reply today.


Required:
Copy the account balances from the worksheets for the balance sheet and income statement into a spreadsheet file. Enter formulas into the balance sheet worksheet to compute the change in each account balance, and then enter the formulas for the statement of cash flows (indirect method only) into a third worksheet. From this third worksheet, report the net cash flow provided by (used in) operating activities.

Question 63

Matching Items Reported to Cash Flow Statement Categories (Direct Method)
Prestige Manufacturing Corporation reports the following items in its 2013 statement of cash flows presented using the direct method. Indicate whether each item is disclosed in the operating activities (O), investing activities (I), or financing activities (F) section of the statement under GAAP or use (NA) if the item does not appear on the statement.

Question 64

Reporting and Interpreting Cash Flows from Operating Activities from an Analyst's Perspective (Direct Method)
Refer back to the information given for E12-10, plus the following summarized income statement for Pizza International, Inc. (in millions):

Required:
1. Based on this information, compute cash flow from operating activities using the direct method. Assume that Prepaid Expenses and Accrued Liabilities relate to other expenses.
2. What were the major reasons that Pizza International was able to report positive cash flow from operations despite having a net loss
3. Of the potential causes of differences between cash flow from operations and net income, which are the most important to financial analysts

Question 65

Wiki Art Gallery (WAG)
Access the Wiki Art Gallery (WAG) instructional case in Connect, and read the case in sufficient depth to answer the following.
WAG reported $140,000 in total revenues in 2011. What amount of cash did WAG collect in 2011 from its customers (artwork buyers and artists)
a. $140,000.
b. $78,400
c. $71,550.
d. $61,650.

Question 66

Internet-Based Team Research: Examining an Annual Report
As a team, select an industry to analyze. Using your Web browser, each team member should access the annual report or IO-K for one publicly traded company in the industry, with each member selecting a different company. (See S1-3 in Chapter 1 for a description of possible resources for these tasks.)
Required:
1. On an individual basis, each team member should write a short report that incorporates the following:
a. Has the company generated positive or negative operating cash flows during the past three years
b. Has the company been expanding over the period If so, what appears to have been the source of financing for this expansion (operating cash flow, additional borrowing, issuance of stock)
c. Compare and analyze the difference between net income and operating cash flows over the past three years.
2. Then, as a team, write a short report comparing and contrasting your companies using these attributes. Discuss any patterns across the companies that you as a team observe. Provide potential explanations for any differences discovered.

Question 67

Ethical Decision Making: A Mini-Case
This case is available online at www.mhhe.com/phillips4e. To complete this case, you will evaluate two alternatives for increasing a sports club's reported operating cash flows.

Question 68

Reporting Cash Flows from Operating Activities (Indirect Method)
The following information pertains to Guy's Gear Company:

Required:
Present the operating activities section of the statement of cash flows for Guy's Gear Company using the indirect method.

Question 69

As a junior analyst, you are evaluating the financial performance of Digilog Corporation. Impressed by this year's growth in sales (20% increase), receivables (40% increase), and inventories (50% increase), you plan to report a favorable evaluation of the company. Your supervisor cautions you that those increases may signal difficulties rather than successes. When you ask what she means, she just says you should look at the company's statement of cash flows. What do you think you will find there What are the cash flow effects when a company's receivables and inventories increase faster than its sales

Question 70

(Supplement 12A) Determining Cash Flows from the Sale of Property
AMC Entertainment operates 380 movie theaters in the United States, Canada, and Europe. During fiscal 2008, the company sold its Fandango assets for $20,360,000 cash and recorded a gain on disposal of $18,360,000, which was included in the company's net income of $43,445,000.
Required:
1. Show how the disposal would be reported on the statement of cash flows, using the following format (which assumes the indirect method):

2. Compute the book value of the Fandango assets that were sold.

Question 71

Computing Cash Flows from Operating Activities (Indirect Method)
The income statement and selected balance sheet information for Hamburger Heaven for the year ended December 31, 2013, are presented below.

TIP: Prepaid Rent decreased in 2013 because the amount taken out of Prepaid Rent (and subtracted from net income as Rent Expense) was more than the amount paid for rent in cash during 2013.
Required:
Prepare the cash flows from operating activities section of the 2013 statement of cash flows using the indirect method.

Question 72

Preparing and Interpreting a Statement of Cash Flows (Indirect Method)
Soft Touch Company was started several years ago by two golf instructors. The company's comparative balance sheets and income statement are presented below, along with additional information.

Additional Data:
a. Bought new golf clubs using cash, $1,000.
b. Borrowed $2,000 cash from the bank during the year.
c. Accounts Payable includes only purchases of services made on credit for operating purposes. Because there are no liability accounts relating to income tax, assume that Income Tax Expense was fully paid in cash.
Required:
1. Prepare the statement of cash flows for the year ended December 31, 2013, using the indirect method.
2. Use the statement of cash flows to evaluate the company's cash flows.
TIP: The demonstration cases provide good examples of information to consider when evaluating cash flows.

Question 73

Preparing and Interpreting a Statement of Cash Flows (Direct Method)
Refer to CP12-4.
Required:
Complete requirements 1 and 2 using the direct method.
TIP: Remember to exclude depreciation expense when converting to the cash basis.

Question 74

If a company engages in a material noncash transaction, which of the following is required

A) The company must include an explanatory narrative or schedule accompanying the statement of cash flows.
B) No disclosure is necessary.
C) The company must include an explanatory narrative or schedule accompanying the balance sheet.
D) It must be reported in the investing and financing sections of the statement of cash flows.

Question 75

Inferring Balance Sheet Changes from the Cash Flow Statement (Indirect Method)
The statement of cash flows for Apple Inc. contained the following information (in millions) for the year ended September 25, 2010:

Required:
For each of the four current asset and liability accounts listed in the operating activities section of the statement of cash flows, determine whether the account balances increased or decreased during the period.

Question 76

(Supplement 12A) Determining Cash Flows from the Sale of Equipment
During the period, Teen's Trends sold some excess equipment at a loss. The following information was collected from the company's accounting records:

No new equipment was bought during the period.
Required:
For the equipment that was sold, determine its original cost, its accumulated depreciation, and the cash received from the sale.

Question 77

Understanding the Computation of Cash Flows from Operating Activities (Indirect Method)
Suppose your company sells services of $180 in exchange for $110 cash and $70 on account.
Required:
1. Show the journal entry to record this transaction.
2. Identify the amount that should be reported as net cash flow from operating activities.
3. Identify the amount that would be included in net income.
4. Show how the indirect method would convert net income (requirement 3) to net cash flow from operating activities (requirement 2).
5. What general rule about converting net income to operating cash flows is revealed by your answer to requirement 4

Question 78

Understanding the Computation of Cash Flows from Operating Activities (Indirect Method)
Suppose your company sells services of $150 in exchange for $120 cash and $30 on account. Depreciation of $50 also is recorded.
Required:
1. Show the journal entries to record these transactions.
2. Calculate the amount that should be reported as net cash flow from operating activities.
3. Calculate the amount that should be reported as net income.
4. Show how the indirect method would convert net income (requirement 3) to net cash flow from operating activities (requirement 2).
5. What general rule about converting net income to operating cash flows is revealed by your answer to requirement 4

Question 79

Preparing and Evaluating a Simple Statement of Cash Flows (Indirect Method)
Suppose your company's income statement reports $160 of net income, and its comparative balance sheet indicates the following.

Required:
1. Prepare the operating activities section of the statement of cash flows, using the indirect method.
2. Identify the most important cause of the difference between the company's net income and net cash flow from operating activities.

Question 80

Computing Cash Flows Under IFRS
Using the data from M12-6, calculate the maximum investing cash inflows that could be reported under IFRS. Using data from M12-7 calculate the maximum financing cash flows that could be reported under IFRS.