SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 18-1
(a)
(b)
(c)
(d)
Cash inflow from financing activity, $200,000
Cash outflow from investing activity, $150,000
Cash inflow from investing activity, $30,000
Cash outflow from financing activity, $50,000
BRIEF EXERCISE 18-2
(a)
(b)
(c)
(d)
(e)
Investing activity
Investing activity
Financing activity
Financing activity
Financing activity
BRIEF EXERCISE 18-3
BAKER COMPANY
Cash Flow Statement (Partial)
For the Year Ended December 31, 2003
Cash flows from financing activities
Proceeds from issue of bonds payable ...............................
Payment of dividends ............................................................
Net cash provided by financing activities ....................
$200,000
(45,000)
$155,000
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BRIEF EXERCISE 18-4
DRESSMART.COM, INC.
Cash Flow Statement (Partial)
For the Year Ended December 31, 2003
Net income ........................................................................
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization expense ............................. $280,000
Accounts receivable decrease ...............
350,000
Accounts payable decrease ................... (310,000)
Net cash provided by operating activities .........
$2,500,000
320,000
$2,820,000
BRIEF EXERCISE 18-5
STERLING ENGINEERING CO.
Cash Flow Statement (Partial)
For the Year Ended December 31, 2003
Cash flows from operating activities
Net income ........................................................................
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization expense .............................
$60,000
Loss on sale of capital assets ................
9,000
Net cash provided by operating activities .........
$250,000
0 69,000
$319,000
2
BRIEF EXERCISE 18-6
HARDEN COMPANY
Cash Flow Statement (Partial)
For the Year Ended December 31, 2003
Net income ......................................................................................
Adjustments to reconcile net income to net
cash provided by operating activities:
Decrease in accounts receivable........................ $75,000
Increase in prepaid expenses ............................. (12,000)
Increase in inventories ........................................ (30,000)
Net cash provided by operating activities ......................
$220,000
33,000
$253,000
BRIEF EXERCISE 18-7
Original cost of equipment sold ...................................................
Less: Accumulated amortization ................................................
Book value of equipment sold .....................................................
Less: Loss on sale of equipment ................................................
Cash received from sale of equipment ........................................
$22,000
( (5,500)
16,500
( (4,900)
$11,600
BRIEF EXERCISE 18-8
Receipts from
Sales
=
customers
revenues
+ Decrease in accounts receivable
- Increase in accounts receivable
$460,000 = $470,000 – $10,000 Increase in accounts receivable
BRIEF EXERCISE 18-9
Cash payment
for income tax
=
Income
tax
+ Decrease in income tax payable
3
expense
– Increase in income tax payable
$95,000 = $90,000 + $5,000 Decrease in income tax payable
BRIEF EXERCISE 18-10
+ Increase in prepaid expenses
– Decrease in prepaid expenses
Cash
Operating
And
payments for
expenses,
=
+ Decrease in accrued expenses
operating
excluding
expenses
amortization payable
– Increase in accrued expenses
payable
$91,000 = $100,000 – $6,600 Decrease in prepaid expenses –
$2,400 Increase in accrued expenses payable
4
BRIEF EXERCISE 18-11
($ in millions)
(a) Cash current debt coverage
$558.2
 0.96 times
$581.6
(b) Cash return on sales
$558.2
 72%
$771.6
(c) Cash flow per share
$558.2  $666.2  $52.5
 ($1.97)
28.2
(d) Cash total debt coverage
$558.2
 0.63 times
$884.6
*BRIEF EXERCISE 18-12
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
8,000 (given)
9,000
14,000 (given)
3,000
35,000 (given)
31,000 (given)
20,000
120,000
40,000
5
SOLUTIONS TO EXERCISES
EXERCISE 18-1
1.
2.
3.
4.
Noncash investing and
financing activities, (d)
Financing activities, (c)
Operating activities, (a)
Financing activities, (c)
5.
6.
7.
Investing activities, (b)
Financing activities, (c)
Operating activities, (a)
EXERCISE 18-2
(a)
(b)
(c)
(d)
Investing activity
Financing activity
Investing activity
Noncash investing
activities
(e) Financing activity
(f) Operating activity
(g) Financing activity
(h) Operating activity
(i) Noncash investing and financing
activity
(j) Operating activity
(k) Operating activity (loss); Investing
activity (cash proceeds from sale)
(l) Operating activity
EXERCISE 18-3
PESCI COMPANY
Cash Flow Statement (Partial)
For the Year Ended July 31, 2003
Net income ......................................................................................... $195,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization expense ............................................... $45,000
Increase in accounts receivable ............................... (15,000)
Increase in accounts payable ...................................
8,000
Decrease in prepaid expenses..................................
4,000
Loss on sale of equipment ........................................
5,000 0 47,000
6
Net cash provided by operating activities .........................
7
$242,000
EXERCISE 18-4
INVEST.COM INC.
Cash Flow Statement (Partial)
For the Year Ended December 31, 2003
Cash flows from operating activities
Net income .............................................................................
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization expense ................................... $30,000
Increase in accounts receivable .................. (21,000)
Decrease in inventory ...................................
15,000
$163,000
Decrease in prepaid expenses
5,000
Increase in accrued expenses payable .......
10,000
Decrease in accounts payable .....................
(7,000)
Net cash provided by operating activities ..............
0 32,000
$195,000
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EXERCISE 18-5
DUPRÉ CORP.
Cash Flow Statement (Partial)
For the Year Ended December 31, 2003
Cash flows from operating activities
Net income ............................................................
Adjustments to reconcile net income
to net cash provided by operating activities:
Amortization expense ................................... $24,000
Loss on sale of equipment ...........................
0 4,000
Net cash provided by operating activities
Cash flows from investing activities
Sale of equipment .................................................
Purchase of equipment ........................................
Construction of equipment ..................................
Net cash used by investing activities .....
$ 57,000
028,000
85,000
$11,000*
(70,000)
(53,000)
(112,000)
Cash flows from financing activities
Payment of cash dividends ..................................
(14,000)
*Cost of equipment sold.......................................
Accumulated amortization .................................
Net book value.....................................................
Loss on sale of equipment .................................
Cash proceeds ....................................................
$45,000
030,000
15,000
004,000
$11,000
Cash.......................................................................
Accumulated Amortization ..................................
Loss on Sale of Equipment ..................................
Equipment .....................................................
11,000
30,000
4,000
45,000
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EXERCISE 18-10
(a)
VÉFOUR COMPANY
Cash Flow Statement
For the Year Ended December 31, 2003
Cash flows from operating activities
Net income ............................................................
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization expense ...................................
Increase in accounts receivable ..................
Decrease in inventory ...................................
Decrease in accounts payable .....................
Gain on sale of land ......................................
Net cash provided by operating activities
$125,000
$24,000
(9,000)
9,000
(13,000)
(5,000)
Cash flows from investing activities
Sale of land ...........................................................
Purchase of equipment ........................................
Net cash used by investing activities .....
$30,000
(60,000)
Cash flows from financing activities
Payment of cash dividends ..................................
Redemption of bonds ...........................................
Issue of common shares ......................................
Net cash used by financing activities ....
$(60,000)
(50,000)
050,000
(30,000)
(60,000)
Net increase in cash.....................................................
Cash, January 1 ............................................................
Cash, December 31 ......................................................
41,000
0 22,000
$ 63,000
EXERCISE 18-10 (Continued)
(b)
1.
006,000
131,000
Cash current debt coverage
10
$131,000
 3.2 times
 $34,000  $47,000 


2
2.
Cash return on sales
$131,000
 13.4%
$978,000
3.
Cash total debt coverage
$131,000
 0.6 times
 $184,000  $247,000 


2
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EXERCISE 18-11
Reitmans
La Senza
Cash
Current
Debt
Coverage
Cash
Return on
Sales
Cash Flow
per Share
Cash Total
Debt
Coverage
$32,548
$65,521
$32,548
$477,730
$33,810
8,764
$32,548
$65,689
= 0.50
times
= 6.8%
= $3.86
= 0.50
times
$24,784
$50,576
$24,784
$354,279
$3,584
9,338
$24,784
$106,480
= 0.49
times
= 6.9%
= $0.38
= 0.23
times
In terms of liquidity, both Reitmans and La Senza appear to be in a similar position since their cash current
debt coverage ratios are relatively the same.
With regards to profitability, both companies are generating similar cash returns on sales. However,
Reitman’s shareholders appear to be enjoying a better cash flow per share. However, cash flow per share is
difficult to compare between companies because of differences in the number of shares and share structure.
Looking at solvency, Reitmans appears to be in a stronger
position with significantly more cash generated for total debt
coverage.
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