Exercise 22-1
Example
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1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Sale of common stock
Sale of land
Purchase of treasury stock
Merchandise sales
Issuance of a long-term note payable
Purchase of merchandise
Repayment of note payable
Employee salaries
Sale of equipment at a gain
Issuance of bonds
Acquisition of bonds of another corporation
Payment of semiannual interest on bonds payable
Payment of a cash dividend
Purchase of building
Collection of nontrade note receivable (principal amount)
Loan to another firm
Retirement of common stock
Income taxes
Issuance of a short-term note payable
Sale of a copyright
1
Exercise 22-13
Requirement 1
Cash Flows From Investing Activities:
Proceeds from sale of land
$ 12
Purchase of Microsoft common stock
Net cash outflows from investing activities
(160)
$(148)
Requirement 2
Cash Flows From Financing Activities:
Payment for the early extinguishment of
long-term bonds (carrying amount: $97 million)
Proceeds from the sale of treasury stock (cost: $17 million)
Distribution of cash dividends declared in 2002
Net cash outflows from financing activities
2
$(102)
22
(40)
$(120)
Exercise 22-16
Investing Activities:
Beilich would report the $600 million investment as a cash outflow among investing
activities in its statement of cash flows.
Operating Activities:
By the indirect method of reporting cash flows from operating activities, Beilich
would subtract from net income the $60 million investment revenue since it didn’t
actually provide cash but would add the $12 million cash dividend. Alternatively, the
company might just subtract the $48 million difference.
3
Exercise 22-17
RECONCILIATION OF NET INCOME TO
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income
$50,000
Adjustments for noncash effects:
Depreciation expense
Increase in inventory
Decrease in salaries payable
Decrease in accounts receivable
Amortization of patent
Decrease in bond premium
Increase in accounts payable
Net cash flows from
operating activities
7,000
(1,500)
(800)
2,000
500
(1,000)
4,000
$60,200
4
Exercise 22-24
Indirect Method
Cash Flows from Operating Activities:
Net income
Adjustments for noncash effects:
Decrease in accounts receivable
Decrease in inventory
Increase in accounts payable
Decrease in salaries payable
Increase in interest payable
Depreciation expense
Patent amortization expense
Extraordinary loss (earthquake damage)
Increase in income tax payable
Net cash flows from operating activities
5
$ 86
12
10
6
(6)
5
90
5
10
5
$223
Exercise 22-26
Indirect Method
Cash Flows From Operating Activities:
Net income
Adjustments for noncash effects:
Depreciation expense
Patent amortization expense
Extraordinary gain (early extinguishment of debt)
Decrease in accounts receivable
Decrease in inventory
Increase in accounts payable
Decrease in salaries payable
Increase in interest payable
Increase in income tax payable
Net cash flows from operating activities
Exercise 22-29
1.
2.
3.
c
a
d
6
$192
180
10
(20)
12
10
6
(6)
5
5
$394
Exercise 22-30
Whoops, Inc.
Spreadsheet for the Statement of Cash Flows
Dec.31
2002
Balance Sheet
Assets:
Cash
Accounts receivable
Prepaid insurance
Inventory
Buildings and equipment
Less: Acc. depreciation
Liabilities:
Accounts payable
Accrued expenses payable
Notes payable
Bonds payable
Shareholders' Equity:
Common stock
Retained earnings
110
132
3
175
350
(240)
530
100
11
0
0
400
19
530
Changes
Debits
(3)
(4)
(5)
(8)
(9)
(6)
(7)
46
4
110
230
171
(13)
86
(9)
180
50
(2)
13
5
(10)
(11)
(12)
7
Dec. 31
2003
Credits
50
(1)
50
160
103
24
178
7
285
400
(119)
775
87
6
50
160
400
72
775
Exercise 22-30 (continued)
Spreadsheet for the Statement of Cash Flows
(continued)
Dec.31
2002
Statement of Cash Flows
Net income
Adjustments for noncash effects:
Depreciation expense
Increase in accounts receivable
Increase in prepaid insurance
Increase in inventory
Decrease in accounts payable
Decrease in accrued expenses
Net cash flows
Investing activities:
Purchase of equipment
Sale of equipment
Net cash flows
Financing activities:
Issuance of note payable
Issuance of bonds payable
Payment of cash dividends
Net cash flows
Net decrease in cash
Totals
Changes
Debits
Dec. 31
2003
Credits
(1)
103
(2)
50
(3)
(4)
(5)
(6)
(7)
46
4
110
13
5
(25)
(8)
(9)
230
9
(221)
(10)
(11)
50
160
(12)
(13)
160
(86)
86
1,087
8
50
1,087
Exercise 22-30 (concluded)
Whoops, Inc.
Statement of Cash Flows
For year ended December 31, 2003 ($ in millions)
Cash flows from operating activities:
Net income
Adjustments for noncash effects:
Depreciation expense
Increase in accounts receivable
Increase in prepaid insurance
Increase in inventory
Decrease in accounts payable
Decrease in accrued expenses payable
Net cash flows from operating activities
$ 103
50
(46)
(4)
(110)
(13)
(5)
$ (25)
Cash flows from investing activities:
Purchase of equipment
Sale of equipment
Net cash flows from investing activities
(230)
9
Cash flows from financing activities:
Issuance of note payable
Issuance of bonds payable
Payment of cash dividends
Net cash flows from financing activities
50
160
(50)
(221)
160
Net decrease in cash
(86)
Cash balance, January 1
Cash balance, December 31
110
$ 24
9
Problem 22-8 (Requirement 2 only)
Indirect Method
Cash Flows From Operating Activities:
Net income
$ 88
Adjustments for noncash effects:
Increase in accounts receivable
Decrease in inventory
Increase in accounts payable
Increase in salaries payable
Decrease in prepaid insurance
Depreciation expense
Decrease in bond discount
Gain on sale of buildings
Loss on sale of machinery
Deferred income tax liability
Net cash flows from operating activities
10
(108)
104
93
9
22
123
10
(11)
12
8
$350