5th Edition Appendix B Computing and Analyzing Cash Flows - Financial Statement Analysis 5e Complete Test Bank by Easton. DOCX document preview.
Appendix B
Computing and Analyzing
Cash Flows
Learning Objectives – Coverage by question | |||||
True/False | Multiple Choice | Exercises | Problems | Essays | |
LO B1 – Describe the framework for the statement of cash flows. | 1, 2, 5, 12-14, 18 | 1-9, 17, 18, 20, 21, 26 | 1, 6, 7, 10-12 | 1, 3, 4 | |
LO B2 – Determine and analyze net cash flows from operating activities. | 4, 6, 8-11, 15 | 6-11, 19 | 8-9 | 1, 2, 4-9 | 2 |
LO B3 – Determine and analyze net cash flows from investing activities. | 3, 14-16 | 17-19 | 8-9 | 4-9 | 3 |
LO B4 – Determine and analyze net cash flows from financing activities. | 3, 13, 17-19 | 20-22 | 10-12 | 4-9 | 4 |
LO B5 – Examine and interpret cash flow information. | 9 | ||||
LO B6 – Compute and interpret ratios based on operating cash flows. | 20, 21 | 23-25 | 13-15 | 5 | |
LO B7 – Explain and construct a direct method statement of cash flows (Appendix B1). | 7 | 12-16 | 2-5 | 1-3 | 2 |
Appendix B: Computing and Analyzing Cash Flows
True/False
Topic: Cash and Cash Equivalents
LO: 1
1. The statement of cash flows encompasses only a firm’s cash because cash equivalents are really marketable securities, which are short-term investments.
Topic: Sections in Statement of Cash Flows
LO: 1
2. The statement of cash flows separates cash flows into operating, nonoperating, and financing categories.
Topic: Sections in Statement of Cash Flows
LO: 3, 4
3. Information about noncash investing and financing activities must be disclosed in a schedule that is separate from the statement of cash flows.
Topic: Direct versus Indirect Statement of Cash Flows
LO: 2
4. Two different methods of determining and presenting the net cash flow from operating activities are the direct method and the reconciliation method.
Topic: Format of the Statement of Cash Flows
LO: 1
5. The net change in cash during a period must equal the net change in all other balance sheet accounts.
Topic: Indirect Method of Statement of Cash Flows
LO: 2
6. The direct method of presenting the net cash flow from operating activities reconciles net income to the net cash flow from operating activities.
Topic: Sections in Statement of Cash Flows
LO: 7
7. The direct method of presenting the net cash flow from operating activities shows the major categories of operating cash receipts and payments.
Topic: Operating Section of Statement of Cash Flows
LO: 2
8. If accounts payable decreases during an accounting period, then the cash paid for merchandise purchased is less than the merchandise purchases for the period.
Topic: Operating Section of Statement of Cash Flows
LO: 2
9. If prepaid insurance increases during an accounting period, then the cash paid for insurance is less than the period’s insurance expense.
Topic: Operating Section of Statement of Cash Flows
LO: 2
10. If accounts receivable decrease during an accounting period, then the cash received from customers is more than the sales revenue for the period.
Topic: Operating Section of Statement of Cash Flows
LO: 2
11. Depreciation expense is added back to net income in determining the net cash flow from operating activities under the indirect method.
Topic: Operating Cash Flow
LO: 1
12. Cash received from customers for services rendered is classified as a cash flow from operating activities in a statement of cash flows.
Topic: Operating versus Financing Cash Flow
LO: 1, 4
13. Caterpillar Inc. sells heavy equipment and also finances the sales for its customer. The interest earned from customers on the financing piece of the sale is classified as cash from financing activities on the statement of cash flows.
Topic: Investing Cash Flow
LO: 1, 3
14. Cash received from the sale of one of a firm’s warehouses is classified as a cash flow from operating activities in a statement of cash flows but only if the warehouse was used for ordinary operations.
Topic: Investing Cash Flow
LO: 2, 3
15. A gain from the sale of a company’s property, plant, and equipment does not appear in the statement of cash flows prepared on the indirect method.
Topic: Investing Cash Flow
LO: 3
16. Sales proceeds from disposal of marketable securities that are debt instruments such as long-term bonds represent cash from investing activities.
Topic: Financing Cash Flow
LO: 4
17. Cash paid as dividends to stockholders is classified as a cash flow from financing activities in a statement of cash flows.
Topic: Financing Cash Flow
LO: 1, 4
18. Cash paid as interest is classified as a cash flow from financing activities in a statement of cash flows because it arises from short-term and long-term debt, which are both financing activities.
Topic: Financing Cash Flow
LO: 4
19. Bonds issued during the year generate cash that is reported in the financing section of the statement of cash flows.
Topic: Operating Cash Flow Ratios
LO: 6
20. The ratio of operating cash flow to annual capital expenditures is a liquidity ratio.
Topic: Operating Cash Flow Ratios
LO: 6
21. The ratio of operating cash flow to current liabilities is a liquidity ratio.
Topic: Format of Statement of Cash Flows
LO: 1
1. The statement of cash flows explains changes in a firm’s:
A) Cash on hand and cash in the bank
B) Cash and cash equivalents
C) Cash, cash equivalents, and accounts receivable
D) Working capital
E) None of the above
Topic: Cash and Cash Equivalents
LO: 1
2. To qualify as a cash equivalent, an investment must:
A) Be easily convertible into a known cash amount
B) Be three months or more from maturity
C) Be over $100,000 in amount
D) All of the above
E) None of the above
Topic: Components of Statement of Cash Flow (Numerical calculations required)
LO: 1
3. During the year, a company had the cash flows listed below. What was the total net cash flow for the year?
Cash inflow from operating activities | $102,000 |
Cash outflow from investing activities | 73,200 |
Cash outflow from financing activities | 38,400 |
Cash outflow from nonoperating activities | 33,600 |
A) Cash outflow of $68,400
B) Cash inflow of $216,800
C) Cash inflow of $136,800
D) Cash outflow of $9,600
E) None of the above
Topic: Cash and Cash Equivalents
LO: 1
4. A typical example of a cash equivalent is an investment in:
A) Treasury bills
B) Commercial paper
C) A money market fund
D) All of the above
E) None of the above
Topic: Classification on the Statement of Cash Flows
LO: 1
5. Which of the following is not a category for classifying cash flows in a statement of cash flows?
A) Operating activities
B) Nonoperating activities
C) Financing activities
D) Investing activities
E) None of the above
Topic: Operating Cash Flow
LO: 1, 2
6. A firm’s net cash flow from operating activities includes which of the following:
A) Cash received from sale of equipment
B) Cash received from issuance of common stock
C) Cash received from sale of merchandise
D) Cash received as payment of loan from a borrower
E) None of the above
Topic: Operating Cash Flow
LO: 1, 2
7. Which of the following is classified as a cash flow from operating activities in a statement of cash flows?
A) Payment of dividends
B) Receipt of dividends
C) Receipt of cash for loan collection
D) Payment of cash for loan repayment
E) None of the above
Topic: Operating Cash Flow
LO: 1, 2
8. In a statement of cash flows, interest received from loans made as investments is classified as a cash flow from:
A) Operating activities
B) Trading activities
C) Financing activities
D) Investing activities
E) None of the above
Topic: Operating Cash Flow
LO: 1, 2
9. A firm’s net cash flow from operating activities is not affected by:
A) Cash paid for interest
B) Cash paid to suppliers
C) Cash received for income tax refunds
D) Cash received from customers
E) None of the above
Topic: Operating Cash Flow
LO: 2
10. Which of the following is added to net income to reconcile to cash from operations?
A) Increases in accounts receivable
B) Increases in inventory
C) Increase in taxes payable
D) Decrease in accounts payable
E) None of the above
Topic: Operating Cash Flow
LO: 2
11. Which of the following is added to net income to reconcile to cash from operations?
A) Loss from sale of property, plant and equipment
B) Decrease in accounts receivable
C) Depreciation expense
D) All of the above
E) None of the above
Topic: Operating Cash Flow
LO: 7
12. Which of the following statements is correct?
A) An increase in accounts receivable is added to sales to convert sales to cash received from customers.
B) A decrease in prepaid insurance is added to insurance expense to convert insurance expense to cash paid for insurance.
C) An increase in wages payable is deducted from wages expense to convert wages expense to cash paid to employees.
D) A decrease in accumulated depreciation is added to depreciation expense to convert depreciation expense to cash paid for depreciation.
E) None of the above
Topic: Cash Received from Customers (Numerical calculations required)
LO: 7
13. A company reported annual sales revenue of $2,772,000. During the year, accounts receivable decreased from a $102,000 beginning balance to a $69,600 ending balance.
How much cash was received from customers for the year?
A) $2,804,400
B) $3,036,600
C) $3,003,000
D) $ 33,600
E) None of the above
Topic: Cash for Inventory (Numerical calculations required)
LO: 7
14. A company reported cost of goods sold of $826,800 for the year. During the year, inventory increased from a $180,000 beginning balance to a $216,000 ending balance, and accounts payable increased from a $56,400 beginning balance to a $66,000 ending balance.
How much cash was paid for merchandise purchased during the year?
A) $826,800
B) $800,400
C) $945,100
D) $853,200
E) None of the above
Topic: Cash Paid for Wages (Numerical calculations required)
LO: 7
15. A company reported annual wages expense of $348,000 and insurance expense of $42,000. During the year, wages payable decreased from an $18,000 beginning balance to a $13,200 ending balance, and prepaid insurance decreased from a $90,000 beginning balance to a $54,000 ending balance.
How much cash was paid to employees as wages and paid for insurance during the year?
A) $348,000 for wages and $42,000 for insurance
B) $343,200 for wages and $6,000 for insurance
C) $352,800 for wages and $6,000 for insurance
D) $352,800 for wages and $78,000 for insurance
E) None of the above
Topic: Cash Paid for Interest Expense (Numerical calculations required)
LO: 7
16. A company reported annual interest expense of $46,800. During the year, interest payable decreased from a $10,200 beginning balance to a $5,640 ending balance.
How much cash was paid for interest during the year?
A) $52,440
B) $51,360
C) $42,240
D) $57,000
E) None of the above
Topic: Investing Cash Flow
LO: 1, 3
17. A firm’s cash flow from investing activities includes:
A) Cash received from the sale of a plant asset
B) Cash paid to purchase marketable securities
C) Cash paid for a merger transaction
D) Cash paid to purchase land
E) All of the above
Topic: Investing Cash Flow
LO: 1, 3
18. A firm’s cash flow from investing activities is not affected by:
A) Cash received from sale of a piece of land
B) Cash received from issuance of bonds payable
C) Cash paid to purchase a plant asset
D) Cash paid to purchase common stock of another company
E) None of the above
Topic: Investing Cash Flow (Numerical calculations required)
LO: 2, 3
19. A firm sold property, plant, and equipment for cash proceeds of $4,200. The equipment originally cost $8,160. The company recorded a loss on sale of $2,520. The company uses the indirect method to prepare its statement of cash flows.
Which of the following amounts would be included in cash from operations and cash from investing, respectively?
A) $2,520 and $3,300
B) $4,200 and $2,520
C) $2,520 and $4,200
D) $2,520 and $0
E) None of the above
Topic: Financing Cash Flow
LO: 1, 4
20. A firm’s cash flow from financing activities includes:
A) Cash paid for merchandise purchased
B) Cash paid to acquire treasury stock
C) Cash received from sale of investment in bonds
D) Cash received as interest income
E) None of the above
Topic: Financing Cash Flow
LO: 1, 4
21. Which of the following is not a cash flow from financing activities?
A) Cash received from issuance of preferred stock
B) Cash paid to settle accounts payable
C) Cash paid as dividends on common stock
D) Cash received from issuance of bonds payable
E) None of the above
Topic: Financing Cash Flow (Numerical calculations required)
LO: 4
22. During the year Company A had the transactions listed below.
Cash to retire bonds | $4,200 |
Proceeds from bond issuance | 8,040 |
Proceeds from sale of common stock | 6,240 |
Cash to purchase common stock of Company A | 2,400 |
Cash to purchase common stock of Company B | 1,080 |
What amount would the company include in the financing section of the statement of cash flow?
A) $ 6,600
B) $20,880
C) $ 7,680
D) $ (7,680)
E) None of the above
Topic: Cash Flow Ratios (Numerical calculations required)
LO: 6
23. A company reports the amounts below in its financial statements.
Net cash flow from operating activities | $37,570 |
Total net cash flow | 73,440 |
Current liabilities beginning of year | 38,400 |
Current liabilities end of year | 43,200 |
What is the company’s operating cash flows to current liabilities ratio at the end of the year?
A) 0.92
B) 0.85
C) 1.80
D) 1.70
E) None of the above
Topic: Cash Flow Ratios (Numerical calculations required)
LO: 6
24. A company reports the amounts below in its statement of cash flows.
Net cash flow from investing activities | $66,480 |
Net cash flow from financing activities | $30,780 |
Total net cash flow | $123,000 |
Current liabilities beginning of year | $19,500 |
Current liabilities end of year | $23,400 |
What is the company’s operating cash flows to current liabilities ratio?
A) 1.19
B) 1.30
C) 1.20
D) 6.21
E) None of the above
Topic: Cash Flow Ratios (Numerical calculations required)
LO: 6
25. A company reports the amounts below in its financial statements.
Net cash flow from operating activities | $24,480 |
Total net cash flow | $50,400 |
Property, plant and equipment, beginning of year | $44,400 |
Property, plant and equipment, end of year | $55,200 |
Cash flow for acquisitions of property, plant and equipment | $7,200 |
What is the company’s operating cash flows to capital expenditures ratio at the end of the year?
A) 2.3
B) 3.4
C) 3.1
D) 7.0
E) None of the above
Topic: Statement of Cash Flows
LO: 1
26. A statement of cash flows usually does not include which of the following?
- Net income
- Increase in accounts receivable
- Contributed Capital
- Depreciation expense
- All of the above
Topic: Components of Statement of Cash Flow
LO: 1
1. During the year, a company had the cash flows listed below. What was the total net cash flow for the year?
Cash inflow from operating activities | $90,000 |
Cash outflow from investing activities | 74,400 |
Cash outflow from financing activities | 21,600 |
Cash outflow from nonoperating activities | 33,600 |
Topic: Cash Received From Customers
LO: 7
2. A company reported annual sales revenue of $5,544,000. During the year, accounts receivable decreased from an $204,000 beginning balance to a $139,200 ending balance.
How much cash was received from customers during the year?
Topic: Cash for Inventory
LO: 7
3. A company reported cost of goods sold of $826,800 for the year. During the year, inventory increased from a $180,000 beginning balance to a $216,000 ending balance, and accounts payable decreased from a $66,000 beginning balance to a $56,400 ending balance.
How much cash was paid for merchandise purchased during the year?
Topic: Cash Paid for Wages
LO: 7
4. A company reported annual wages expense of $696,000 and insurance expense of $84,000. During the year, wages payable decreased from a $36,000 beginning balance to an $26,400 ending balance, and prepaid insurance decreased from a $180,000 beginning balance to a $108,000 ending balance.
How much cash was paid to employees as wages and paid for insurance during the year?
Topic: Cash Paid for Interest Expense
LO: 7
5. A company reported annual interest expense of $78,000. During the year, interest payable decreased from a $10,200 beginning balance to a $9,120 ending balance.
How much cash was paid for interest during the year?
Topic: Determining Operating Cash Flow
LO: 1
6. The following schedule of cash receipts and payments relates to Yosemo, Inc. for the year 2017:
Cash receipts: | |
From customers | $348,000 |
From issuance of bonds payable | 162,000 |
From sale of delivery truck | 9,000 |
Cash payments: | |
For purchase of equipment | $ 70,800 |
To employees and suppliers | 246,000 |
For interest expense | 17,400 |
To shareholders for dividends | 74,400 |
For purchase of treasury stock | 14,400 |
For income taxes | 21,600 |
What is the cash flow from operations for Yosemo, Inc. for 2017?
Cash receipts from customers | $348,000 |
Cash paid to employees and suppliers | (246,000) |
Cash paid for interest expense | (17,400) |
Cash paid for income taxes | (21,600) |
Cash from operating activities | $ 63,000 |
Topic: Determining Investing Cash Flow
LO: 1
7. The following schedule of cash receipts and payments relates to Yosemo, Inc. for the year 2017:
Cash receipts: | |
From customers | $348,000 |
From issuance of bonds payable | 162,000 |
From sale of delivery truck | 9,000 |
Cash payments: | |
For purchase of equipment | $ 70,800 |
To employees and suppliers | 246,000 |
For interest expense | 17,400 |
To shareholders for dividends | 74,400 |
For purchase of treasury stock | 14,400 |
For income taxes | 21,600 |
What is the cash flow from investing for Yosemo, Inc. for 2017?
Cash from sale of delivery truck | $ 9,000 |
Cash for purchase of equipment | (70,800) |
Cash for investing activities | $(61,800) |
Topic: Investing Cash Flow
LO: 2, 3
8. A firm sold property, plant, and equipment for cash proceeds of $8,400. The equipment originally cost $16,320. The company recorded a loss on sale of $5,040. The company uses the indirect method to prepare its statement of cash flows.
What amounts would be included in cash from operations and cash from investing, respectively?
Topic: Investing Cash Flow
LO: 2, 3
9. A firm sold property, plant, and equipment that had a net book value of $1,050,000 for a loss of $110,400. The equipment originally cost $1,265,600. The company uses the indirect method to prepare its statement of cash flows.
What amounts would the company include in cash from operations and cash from investing respectively?
Topic: Financing Cash Flow
LO: 1, 4
10. During the year Company X recorded the transactions listed below. What amount would the company include in the financing section of the statement of cash flow?
Cash to retire bonds | $70,800 |
Proceeds from bond issuance | 101,520 |
Cash for interest on bonds | 8,760 |
Proceeds from sale of common stock of Company X | 241,200 |
Proceeds from sale of common stock of Company Z | 110,640 |
Cash to purchase common stock of Company X | 97,800 |
Cash to purchase common stock of Company Y | 122,040 |
Cash to retire bonds | $(70,800) |
Proceeds from bond issuance | 101,520 |
Proceeds from sale of common stock of Company X | 241,200 |
Cash to purchase common stock of Company X | (97,800) |
Net cash from financing activities | $174,120 |
Topic: Financing Cash Flow
LO: 1, 4
11. During the year Company A had the transactions listed below. What amount would the company include in the financing section of the statement of cash flow?
Cash to retire bonds | $3,720 |
Proceeds from bond issuance | 7,440 |
Proceeds from sale of common stock | 6,600 |
Cash to purchase common stock of Company A | 3,360 |
Cash to purchase common stock of Company B | 2,400 |
Topic: Determining Financing Cash Flow
LO: 1, 4
12. The following schedule of cash receipts and payments relates to Yosemo, Inc. for the year 2017:
Cash receipts: | |
From customers | $348,000 |
From issuance of bonds payable | 162,000 |
From sale of delivery truck | 9,000 |
Cash payments: | |
For purchase of equipment | $ 70,800 |
To employees and suppliers | 246,000 |
For interest expense | 17,400 |
To shareholders for dividends | 74,400 |
For purchase of treasury stock | 14,400 |
For income taxes | 21,600 |
What is the cash flow from financing for Yosemo, Inc. for 2017?
Cash for purchase of treasury stock | $ (14,400) |
Cash from issuance of bonds payable | 162,000 |
Cash paid to shareholders for dividends | (74,400) |
Cash for investing activities | $ 73,200 |
Topic: Cash Flow Ratios
LO: 6
13. A company reports the amounts below in its financial statements. What is the company’s operating cash flows to current liabilities ratio at the end of the year?
Net cash flow from operating activities | $58,680 |
Total net cash flow | 82,330 |
Current liabilities beginning of year | 49,500 |
Current liabilities end of year | 54,300 |
Topic: Cash Flow Ratios
LO: 6
14. A company reports the amounts below in its statement of cash flows. What is the company’s operating cash flows to current liabilities ratio?
Net cash flow from investing activities | $77,590 |
Net cash flow from financing activities | $41,890 |
Total net cash flow | $205,000 |
Current liabilities beginning of year | $28,600 |
Current liabilities end of year | $34,500 |
Topic: Cash Flow Ratios
LO: 6
15. A company reports the amounts below in its financial statements. What is the company’s operating cash flows to capital expenditures ratio at the end of the year?
Net cash flow from operating activities | $35,690 |
Total net cash flow | $61,500 |
Property, plant and equipment, beginning of year | $55,500 |
Property, plant and equipment, end of year | $66,300 |
Cash flow for acquisitions of property, plant and equipment | $8,300 |
Topic: Direct and Indirect Method Statement of Cash Flows
LO: 2, 7
1. Moffett Company reports the following income statement for the year ended October 31, 2017:
Sales | $2,403,600 |
Cost of goods sold | 1,104,000 |
Gross profit | 1,299,600 |
Depreciation expense | 54,000 |
Wages expense | 268,800 |
Interest expense | 25,200 |
Net income | $ 951,600 |
The company also reports the following information from the balance sheet:
October 31, 2017 | October 31, 2016 | |
Cash | $ 68,400 | $51,600 |
Accounts receivable | 85,200 | 116,400 |
Inventory | 195,600 | 182,400 |
Accounts payable | 61,200 | 52,800 |
Interest payable | 8,400 | 6,000 |
Wages payable | 12,000 | 15,600 |
Notes payable | 240,000 | 288,000 |
Required:
a. Prepare, in good form, the operating section of the statement of cash flow, using the direct method for Moffett Company for October 31, 2017.
b. Prepare, in good form, the operating section of the statement of cash flow, using the indirect method for Moffett Company for October 31, 2017.
Moffett Company | |
Statement of Cash Flows (operating section) | |
For the Year Ended October 31, 2017 | |
Cash received from customers1 | $2,434,800 |
Cash paid for merchandise purchased2 | (1,108,800) |
Cash paid to employees3 | (272,400) |
Cash paid for interest4 | (22,800) |
Net cash from operating activities | $ 1,030,800 |
Moffett Company | |
Statement of Cash Flows (operating section) | |
For the Year Ended October 31, 2017 | |
Net income | $951,600 |
Depreciation expense | 54,000 |
Change in accounts receivable | 31,200 |
Change in inventory | (13,200) |
Change in accounts payable | 8,400 |
Change in interest payable | 2,400 |
Change in wages payable | (3,600) |
Net cash from operating activities | $1,030,800 |
Topic: Direct and Indirect Method Statement of Cash Flows
LO: 2, 7
2. Lake Isabella, Inc. reports the following income statement for the year ended December 31, 2017:
Sales | $2,268,000 |
Cost of goods sold | 732,480 |
Gross profit | 1,535,520 |
Depreciation expense | 63,600 |
Selling and administrative expense | 688,800 |
Income before tax | 783,120 |
Income tax expense | 161,736 |
Net income | $ 621,384 |
The company also reports the following information from the balance sheet:
December 31, 2017 | December 31, 2016 | |
Cash | $ 126,000 | $ 50,400 |
Accounts receivable | 102,000 | 60,000 |
Inventory | 28,800 | 37,200 |
Accounts payable | 198,000 | 226,800 |
Accrued selling and admin expenses | 38,400 | 31,200 |
Taxes payable | 136,800 | 86,400 |
Dividends payable | 26,400 | 57,600 |
Required:
a. Prepare, in good form, the operating section of the statement of cash flow, using the direct method for Lake Isabella, Inc. for December 31, 2017.
b. Prepare, in good form, the operating section of the statement of cash flow, using the indirect method for Lake Isabella, Inc. for December 31, 2017.
Lake Isabella, Inc. | |
Statement of Cash Flows (operating section) | |
For the Year Ended December 31, 2017 | |
Cash received from customers1 | $2,226,000 |
Cash paid for merchandise purchased2 | (752,880) |
Cash paid for selling and administrative expense3 | (681,600) |
Cash paid for income taxes4 | (111,336) |
Net cash from operating activities | $680,184 |
Lake Isabella, Inc. | |
Statement of Cash Flows (Operating section) | |
For the Year Ended December 31, 2017 | |
Net income | $621,384 |
Depreciation | 63,600 |
Change in accounts receivable | (42,000) |
Change in inventory | 8,400 |
Change in accounts payable | (28,800) |
Change in accrued expenses | 7,200 |
Change in taxes payable | 50,400 |
Net cash from operating activities | $680,184 |
Topic: Prepare Statement of Cash Flow Direct Method
LO: 7
3. Lupin, Inc. began fiscal 2017 with cash and cash equivalents of $1,018,800. The following schedule of cash receipts and payments relates to the company for the year 2017:
Cash receipts: | |
From customers | $9,612,000 |
From issuance of bonds payable | 1,116,000 |
From sale of excavating equipment | 52,800 |
From sale of marketable securities held as investment | 63,600 |
Cash payments: | |
For purchase of equipment | $ 964,800 |
To employees | 3,384,000 |
To suppliers | 3,756,000 |
For interest expense | 115,200 |
To shareholders for dividends | 222,000 |
For purchase of treasury stock | 744,000 |
For income taxes | 1,251,600 |
Required:
Prepare, in good form, a statement of cash flow using the direct method for fiscal 2017.
Lupin, Inc. | |
Statement of Cash Flows | |
For Fiscal Year 2017 | |
Cash flows from operating activities: | |
From customers | $ 9,612,000 |
To employees | (3,384,000) |
To suppliers | (3,756,000) |
For interest expense | (115,200) |
For income taxes | (1,251,600) |
Net cash flows from operations | 1,105,200 |
Cash flows from investing activities: | |
From sale of excavating equipment | 52,800 |
From sale of marketable securities | 63,600 |
For purchase of equipment | (964,800) |
Net cash flows from investing | (848,400) |
Cash flows from financing activities: | |
From issuance of bonds payable | 1,116,000 |
To shareholders for dividends | (222,000) |
For purchase of treasury stock | (744,000) |
Net cash flows from financing | 150,000 |
Net cash flows | 406,800 |
Cash and cash equivalents at beginning of year | 1,018,800 |
Cash and cash equivalents at end of year | $ 1,425,600 |
Topic: Preparing a Forecasted Statement of Cash Flows
LO: 2, 3, 4
4. Assume following are the forecasted income statement and balance sheet for Lockheed Martin Corporation for the year ended December 31, 2017.
Lockheed Martin Corporation | |||
Consolidated Income Statement | |||
For the year ended December 31, | |||
(In millions) | 2017 Forecasted | 2016 Actual | |
Net sales | |||
Products | $46,420 | $40,365 | |
Services | 8,328 | 6,883 | |
Total net sales | 54,748 | 47,248 | |
Cost of sales | |||
Products | 42,103 | 36,616 | |
Services | 7,304 | 6,040 | |
Severance and other charges | 0 | 80 | |
Other unallocated corporate costs | 0 | (550) | |
Total cost of sales | 49,407 | 42,186 | |
Gross profit | 5,341 | 5,062 | |
Other operating income | 487 | 487 | |
Operating profit | 5,828 | 5,549 | |
Interest expense | 663 | 663 | |
Earnings before income taxes | 5,165 | 4,886 | |
Income tax expense | 1,198 | 1,133 | |
Net earnings from continuing operations | 3,967 | 3,753 | |
Net earnings (loss) from discontinued op. | 0 | 1,549 | |
Net earnings | $ 3,967 | $ 5,302 | |
Lockheed Martin Corporation | ||
Consolidated Balance Sheet | ||
At December 31, | ||
(In millions) | 2017 Forecasted | 2016 Actual |
Cash and equivalents | $6,715 | $1,837 |
Receivables, net | 9,526 | 8,202 |
Inventories, net | 5,385 | 4,670 |
Other current assets | 399 | 399 |
Total current assets | 22,025 | 15,108 |
Property, plant and equipment, net | 5,358 | 5,549 |
Goodwill | 10,764 | 10,764 |
Intangible assets, net | 3,892 | 4,093 |
Deferred income taxes | 6,625 | 6,625 |
Other noncurrent assets | 5,667 | 5,667 |
Total assets | $54,331 | 47,806 |
Table continued next page
Table continued
Lockheed Martin Corporation | ||
Consolidated Balance Sheet—continued | ||
At December 31, | ||
(In millions) | 2017 Forecasted | 2016 Actual |
Accounts payable | 1,916 | 1,653 |
Customer advances and amounts in excess of costs | 7,829 | 6,776 |
Salaries, benefits and payroll taxes | 2,026 | 1,764 |
Current portion of long-term debt | 0 | 0 |
Other current liabilities | 2,349 | 2,349 |
Total current liabilities | 14,120 | 12,542 |
Long-term debt, net | 14,282 | 14,282 |
Accrued pension liabilities | 16,041 | 13,855 |
Other postretirement benefit liabilities | 985 | 862 |
Other noncurrent liabilities | 4,659 | 4,659 |
Total liabilities | 50,087 | 46,200 |
Common stock | 289 | 289 |
Retained earnings | 15,962 | 13,324 |
Accumulated other comprehensive (loss) | (12,102) | (12,102) |
Total stockholders’ equity | 4,149 | 1,511 |
Noncontrolling interests in subsidiary | 95 | 95 |
Total equity | 4,244 | 1,606 |
Total liabilities and equity | $54,331 | $47,806 |
The following additional information is relevant to the 2017 forecasted financial statements:
Depreciation expense for 2017 | $1,176 |
Amortization expense for 2017…………………………. | 201 |
Capital expenditures (acquisition of PPE) | 985 |
Disposals of PPE | 0 |
Dividends to shareholders | 1,670 |
Required:
Prepare a forecasted statement of cash flows for the company for 2017 using the indirect method.
Forecasted Statement of Cash Flows for 2017 ($ millions) | ||
Net earnings | $ 3,967 | |
Adjustments to reconcile net earnings to cash from operations | ||
Depreciation expense | $5,549 × 21.2% | 1,176 |
Amortization expense | $4,093 x 4.9% | 201 |
Changes in operating assets and liabilities: | ||
Increase in receivables | $8,202 - $9,526 | (1,324) |
Increase in inventory | $4,670 - $5,385 | (715) |
Increase in accounts payable | $1,916 - $1,653 | 263 |
Increase in customer advances | $7,829 - $6,776 | 1,053 |
Increase in salaries, benefits and payroll taxes | $2,026 - $1,764 | 262 |
Increase in accrued pension liabilities | $16,041 - $13,855 | 2,186 |
Increase in other postretirement benefit liabilities | $985 - $862 | 123 |
Net cash provided by operating activities | 7,192 | |
Expenditures for property, plant and equipment | $54,748 × 1.8% | (985) |
Net cash used for investing activities | (985) | |
Common stock dividends | $3,967 × 33.5% | (1,329) |
Net cash used for financing activities | (1,329) | |
Net increase in cash and cash equivalents | 4,878 | |
Cash and cash equivalents at beginning of year | 1,837 | |
Cash and cash equivalents at end of year | $ 6,715 | |
Topic: Preparing a Forecasted Statement of Cash Flows
LO: 2, 3, 4
5. Assume following are the forecasted income statement and balance sheet for Snap-On Corporation for the year ended December 31, 2017.
Snap-On Incorporated | ||
Consolidated Statements of Earnings | ||
For the Year Ended | ||
(in millions) | 2017 (forecasted) | 2016 (actual) |
Net sales | $3,533.3 | $3,430.4 |
Cost of goods sold | (1,773.7) | (1,720.8) |
Gross profit | 1,759.6 | 1,709.6 |
Operating expenses, net | (1,084.7) | (1,054.1) |
Operating earnings before financial services | 674.9 | 655.5 |
Financial services revenue | 329.2 | 281.4 |
Financial services expenses | (96.8) | (82.7) |
Operating earnings from financial services | 232.4 | 198.7 |
Operating earnings | 907.3 | 854.2 |
Interest expense | (52.2) | (52.2) |
Other income (expense)-net | (0.6) | (0.6) |
Earnings before income taxes and equity earnings | 854.5 | 801.4 |
Income tax expense | (260.6) | (244.3) |
Earnings before equity earnings | 593.9 | 557.1 |
Equity earnings, net of tax | 2.5 | 2.5 |
Net earnings | 596.4 | 559.6 |
Net earnings attributable to noncontrolling interests | (14.3) | (13.2) |
Net earnings attributable to Snap-on Incorporated | $ 582.1 | $ 546.4 |
Continued next page
Snap-On Incorporated | ||
Consolidated Balance Sheets | ||
2017 (forecasted) | 2016 (actual) | |
(in millions) | ||
Cash and cash equivalents | $ 347.9 | $ 77.6 |
Trade and other accounts receivable-net | 618.3 | 598.8 |
Finance receivables-net | 472.5 | 472.5 |
Contract receivables-net | 88.1 | 88.1 |
Inventories, net | 547.7 | 530.5 |
Prepaid expenses and other assets | 116.5 | 116.5 |
Total current assets | 2,191.0 | 1,884.0 |
Property and equipment, net | 454.2 | 425.2 |
Deferred income tax assets | 72.8 | 72.8 |
Long-term finance receivables-net | 934.5 | 934.5 |
Long-term contract receivables-net | 286.7 | 286.7 |
Goodwill | 895.5 | 895.5 |
Other intangibles, net | 159.5 | 184.6 |
Other assets | 39.9 | 39.9 |
Total assets | $5,034.1 | $4,723.2 |
Notes payable and current maturities of LT debt | 0.0 | $ 301.4 |
Accounts payable | 176.7 | 170.9 |
Accrued benefits | 52.8 | 52.8 |
Accrued compensation | 89.8 | 89.8 |
Franchise deposits | 66.7 | 66.7 |
Other accrued liabilities | 318.0 | 307.9 |
Total current liabilities | 704.0 | 989.5 |
Long-term debt | 708.8 | 708.8 |
Deferred income tax liabilities | 13.1 | 13.1 |
Retiree health care benefits | 36.7 | 36.7 |
Pension liabilities | 246.5 | 246.5 |
Other long-term liabilities | 93.4 | 93.4 |
Total liabilities | 1,802.5 | 2,088.0 |
Shareholders’ equity attributable to Snap-On Inc. | ||
Common stock | 67.4 | 67.4 |
Additional paid-in capital | 317.3 | 317.3 |
Retained earnings | 3,967.0 | 3,384.9 |
Accumulated other comprehensive loss | (498.5) | (498.5) |
Treasury stock at cost | (653.9) | (653.9) |
Total shareholders’ equity attributable to Snap-On Inc. | 3,199.3 | 2,617.2 |
Noncontrolling interests | 32.3 | 18.0 |
Total shareholders’ equity | 3,231.6 | 2,635.2 |
Total liabilities and shareholders’ equity | $5,034.1 | $4,723.2 |
Continued next page
The following additional information is relevant to the 2017 forecasted financial statements:
Acquisition of new PPE | $ 81.3 |
Disposals of PPE | 0.0 |
Depreciation expense | 52.3 |
Amortization expense | 25.1 |
Dividends paid | 0.0 |
Required:
Prepare, in good form, a forecasted statement of cash flows for the company for 2017 using the indirect method.
Forecasted Consolidated Statement of Cash Flows for 2017 | ||
($ millions) | ||
Net earnings | $596.4 | |
Adjustments to reconcile net earnings to net cash provided (used) by operating activities: | ||
Depreciation | $425.2 × 12.3% | 52.3 |
Amortization of other intangibles | $184.6 × 13.6% | 25.1 |
Changes in operating assets and liabilities, net of effects of acquisitions: | ||
Increase in receivables | $598.8 - $618.3 | (19.5) |
Increase in inventories | $530.5 - $547.7 | (17.2) |
Increase in accounts payable | $176.7 - $170.9 | 5.8 |
Increase in accruals | $318.0 - $307.9 | 10.1 |
Net cash provided by operating activities | 653.0 | |
Capital expenditures | $3,533.3 × 2.3% | (81.3) |
Net cash used by investing activities | (81.3) | |
Payment on long-term debt | (301.4) | |
Net cash used by financing activities | (301.4) | |
Increase (decrease) in cash and cash equivalents | 270.3 | |
Cash and cash equivalents at beginning of year | 77.6 | |
Cash and cash equivalents at end of year | $347.9 | |
Topic: Preparing a Statement of Cash Flows
LO: 2, 3, 4
6. The following schedule of information relates to Sirius Company for the year ended December 31, 2017:
Depreciation expense | $39,600 |
Net income | 258,000 |
Cash at start of year | 62,400 |
Other non-operating cash receipts: | |
From issuance of preferred stock | 242,400 |
From sale of plant assets (at book value) | 32,400 |
From loan repayment by borrower | 49,200 |
Other non-operating cash payments: | |
For purchase of common stock as investment | 225,600 |
To stockholders as dividends | 138,000 |
Change in working capital accounts: | |
Accounts receivable increase | 63,600 |
Inventory decrease | 27,600 |
Accounts payable decrease | 22,800 |
Accrued liabilities increase | 13,200 |
Required:
Prepare, in good form, a 2017 statement of cash flows for Sirius Company using the indirect method.
Sirius Company | |
Statement of Cash Flows | |
For the Year Ended December 31, 2017 | |
Net Income | $ 258,000 |
Depreciation | 39,600 |
Accounts receivable increase | (63,600) |
Inventory decrease | 27,600 |
Accounts payable decrease | (22,800) |
Accrued liabilities increase | 13,200 |
Net cash provided by operating activities | 252,000 |
Sale of Plant Assets | 32,400 |
Repayment of Loan by Borrower | 49,200 |
Purchase of Stock Investment | (225,600) |
Net Cash Used by Investing Activities | (144,000) |
Issuance of Preferred Stock | 242,400 |
Payment of Dividends | (138,000) |
Net Cash Provided by Financing | 104,400 |
Net Increase in Cash | 212,400 |
Cash at Beginning of Year | 62,400 |
Cash at End of Year | $ 274,800 |
Topic: Preparing a Statement of Cash Flows
LO: 2, 3, 4
7. The following schedule of information relates to Minerva Systems, Inc. for the year ended November 30, 2017:
Depreciation expense | $ 87,960 |
Net income | 502,800 |
Cash at start of year | 44,040 |
Nonoperating cash receipts: | |
From sale of plant assets (recorded a gain of $2,400) | 39,000 |
From sale of marketable securities | 93,600 |
Nonoperating cash payments: | |
For repurchase of preferred stock | 114,000 |
For purchase of bonds as investment | 319,320 |
To stockholders as dividends | 141,240 |
Change in working capital accounts: | |
Accounts receivable increase | 97,080 |
Inventory increase | 6,480 |
Accounts payable decrease | 44,400 |
Accrued liabilities increase | 7,920 |
Required:
Prepare, in good form, a 2017 statement of cash flows for Minerva Systems, Inc. using the indirect method.
Minerva Systems, Inc. | |
Statement of Cash Flows | |
For the Year Ended November 30, 2017 | |
Net Income | $ 502,800 |
Depreciation | 87,960 |
Gain on sale of plant assets | (2,400) |
Accounts receivable increase | (97,080) |
Inventory increase | (6,480) |
Accounts payable decrease | (44,400) |
Accrued liabilities increase | 7,920 |
Net cash provided by operating activities | 448,320 |
Sale of plant assets | 39,000 |
Sale of marketable securities | 93,600 |
Purchase of bonds | (319,320) |
Net cash used by investing activities | (186,720) |
Repurchase of preferred stock | (114,000) |
Payment of dividends | (141,240) |
Net cash provided by financing | (255,240) |
Net increase in cash | 6,360 |
Cash at beginning of year | 44,040 |
Cash at end of year | $ 50,400 |
Topic: Preparing a Statement of Cash Flows
LO: 2, 3, 4
8. The following schedule of information relates to Lumos, Inc. for the year ended December 31, 2017:
Nonoperating cash receipts: | |
For sale of common stock | $ 65,280 |
From sale of land (original cost $111,600) | 94,800 |
From sale of intangible assets (at net book value) | 37,800 |
Nonoperating cash payments: | |
For purchase of common stock as investment | 1,020,000 |
To stockholders as dividends | 117,600 |
The company’s balance sheet reports the following:
December 31, 2017 | December 31, 2016 | |
Cash | $ 134,160 | $ 100,800 |
Accounts receivable | 470,400 | 424,800 |
Inventory | 61,680 | 80,400 |
Accounts payable | 450,000 | 576,000 |
Accrued liabilities | 336,000 | 438,000 |
The company’s 2017 income statement reports the following:
Depreciation expense | $ 114,000 |
Fixed asset impairment | 9,000 |
Net income | 1,088,160 |
Required:
Prepare a statement of cash flow, in good form, for December 31, 2017 for Lumos, Inc. using the indirect method.
Lumos, Inc. | |
Statement of Cash Flows | |
For the Year Ended December 31, 2017 | |
Net income | $1,088,160 |
Asset impairment | 9,000 |
Depreciation | 114,000 |
Loss on sale of plant assets | 16,800 |
Accounts receivable increase | (45,600) |
Inventory decrease | 18,720 |
Accounts payable decrease | (126,000) |
Accrued liabilities decrease | (102,000) |
Net cash provided by operating activities | 973,080 |
Cash flows from investing activities | |
From sale of plant assets (loss of $16,800) | 94,800 |
From sale of intangible asset (at net book value) | 37,800 |
For purchase of common stock as investment | (1,020,000) |
Net cash used by investing activities | (887,400) |
Cash flows from financing activities | |
Sale of common stock | 65,280 |
Payment of dividends | (117,600) |
Net cash used by financing activities | (52,320) |
Net increase in cash | 33,360 |
Cash at beginning of year | 100,800 |
Cash at end of year | $134,160 |
Topic: Understanding a Statement of Cash Flows
LO: 2, 3, 4, 5
9. The following is the 2016 statement of cash flows for PulteGroup, Inc.
Consolidated Statements Of Cash Flows | 12 Months Ended | ||
$ thousands | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 |
Cash flows from operating activities: |
|
|
|
Net income | $ 602,703 | $ 494,090 | $ 474,338 |
Adjustments to reconcile net income to net cash from operating activities: |
|
|
|
Deferred income tax expense | 334,787 | 311,699 | 223,769 |
Write-down of land and pre-acquisition costs | 19,357 | 11,467 | 11,168 |
Depreciation and amortization | 54,007 | 46,222 | 39,864 |
Share-based compensation expense | 22,228 | 24,752 | 29,292 |
Loss on debt retirements | 657 | --- | 8,584 |
Other, net | 1,614 | (4,865) | (2,566) |
Increase (decrease) in cash due to: |
|
|
|
Inventories | (897,092) | (917,298) | (337,939) |
Residential mortgage loans available-for-sale | (99,527) | (104,609) | (53,734) |
Other assets | (45,721) | (175,150) | (46,249) |
Accounts payable, and other liabilities | 75,257 | (23,898) | (38,646) |
Net cash provided by (used in) operating activities | 68,270 | (337,590) | 307,881 |
Cash flows from investing activities: |
|
|
|
Capital expenditures | (39,295) | (45,440) | (48,790) |
Investment in unconsolidated subsidiaries | (14,539) | (454) | (9) |
Cash used for business acquisition | (430,458) | --- | (82,419) |
Other investing activities, net | 13,100 | 11,330 | 8,605 |
Net cash used in investing activities | (471,192) | (34,564) | (122,613) |
Cash flows from financing activities: |
|
|
|
Proceeds from debt issuance | 1,995,937 | 498,087 | --- |
Repayments of debt | (986,919) | (239,193) | (250,631) |
Borrowings under revolving credit facility | 619,000 | 125,000 | --- |
Repayments under revolving credit facility | (619,000) | (125,000) | --- |
Financial Services borrowings | 63,744 | 127,636 | 34,577 |
Stock option exercises | 5,845 | 10,535 | 15,627 |
Share repurchases | (603,206) | (442,738) | (253,019) |
Dividends paid | (124,666) | (115,958) | (75,646) |
Net cash provided by (used in) financing activities | 350,735 | (161,631) | (529,092) |
Net increase (decrease) | (52,187) | (533,785) | (343,824) |
Cash and cash equivalents, at beginning of period | 775,435 | 1,309,220 | 1,653,044 |
Cash and cash equivalents, at end of period | $ 723,248 | $ 775,435 | $ 1,309,220 |
Required:
a. In determining operating cash flow in 2016, the company includes share-based compensation expense of $22,228 thousand. Why does the company add this amount?
b. The operating section in 2016 includes an increase in cash of $75,257 for “Accounts payable, accrued and other liabilities.” Explain this reconciling item.
c. Does the composition of PulteGroup’s cash flow statement present a “healthy” picture? Explain.
Topic: Framework for the Statement of Cash Flows
LO: 1
1. What information is conveyed by the statement of cash flows? How does the statement convey that information?
Topic: Statement of Cash Flows – Direct versus Indirect Method
LO: 2, 7
2. What is the chief difference between the direct-method and the indirect-method statement of cash flows?
Topic: Investing Section of the Statement of Cash Flows
LO: 1, 3
3. What types of cash flows are included in the investing section of statement of cash flows? Provide four examples of investing cash flows.
Topic: Financing Section of the Statement of Cash Flows
LO: 1, 4
4. What types of cash flows are included in the financing section of statement of cash flows? Provide four examples of financing cash flows.
Topic: Ratios Based on Operating Cash Flows
LO: 6
5. Investors, creditors, and analysts often have as a goal to assess a company’s cash flow strength. Suggest two ratios that might be calculated to accomplish this goal and explain what each ratio measures.