Chapter 5
KNOWLEDGE CHECK 5.1
 Ushta Ltd. is manufactures auto parts. The company purchases materials from
suppliers and stores them in a warehouse, holding them for an average of 30 days
before using them in the manufacturing process. The manufactured parts are held
for an average of 15 days until they are sold and shipped to customers. Ushta pays
its suppliers 40 days after receiving the goods, and customers pay 30 days after
delivery. Calculate the following for Ushta and explain the cash implications of
the inventory self-financing period:
o payables deferral period
40
o inventory conversion period
45
o receivables conversion period
30
o inventory self-financing period
35
o number of days between receiving inventory from suppliers and receiving
cash from customers
75
KNOWLEDGE CHECK 5.2
 In 2017, Baltic Ltd. (Baltic) reported net income of $16,000, based on revenues of
$100,000; expenses other than depreciation of $70,000; depreciation of $6,000; and a
loss on the sale of a piece of land of $8,000. All revenues and expenses (other than
depreciation) were for cash.
Calculate Baltic’s CFO for 2017 using the indirect method.
Net income
$16,000
Add: amortization expense
6,000
Add: loss on sale of land
8,000
Cash from operations
$30,000
KNOWLEDGE CHECK 5.3
 You are provided the following information about Ituna Inc. (Ituna) for 2017. Use this
information to calculate the amount that net income would be adjusted by (how much
would be added or subtracted from net income) in reconciling from net income to CFO
using the indirect method.
Ituna Inc.
Information About the Year 2017
Inventory on December 31, 2016 = $8,500
Inventory on December 31, 2017 = $5,600
Accounts payable on December 31, 2016 =
6,200
Accounts payable on December 31, 2017 =
4,900
Cost of goods sold during 2017 = 47,250
Add to net income the decrease in inventory
$2,900
Subtract from net income the decrease in accounts payable 1,300
Net addition to net income
$1,600