CHAPTER 16
STATEMENT OF CASH FLOWS
DISCUSSION QUESTIONS
1. It is costly to accumulate the data needed and to prepare the statement of cash flows.
2. It focuses on the differences between net income and cash flows from operating activities,
and the data needed are generally more readily available and less costly to obtain than is the
case for the direct method.
3. In a separate schedule of noncash investing and financing activities accompanying the
statement of cash flows.
4. The $30,000 increase must be added to income from operations because the amount of cash
paid to merchandise creditors was $30,000 less than the amount of purchases included in the
cost of goods sold.
5. The $25,000 decrease in salaries payable should be deducted from income to determine the
amount of cash flows from operating activities. The effect of the decrease in the amount of
salaries owed was to pay $25,000 more cash during the year than had been recorded as an
expense.
6. a. $100,000 gain
b. Cash inflow of $600,000
c. The gain of $100,000 would be deducted from net income in determining net cash flow
from operating activities; $600,000 would be reported as cash flows from investing
activities.
7. Cash flows from financing activities—issuance of bonds, $1,960,000
8. a. Cash flows from investing activities—Cash received from the disposal of fixed assets,
$15,000
The $15,000 gain on asset disposal should be deducted from net income in determining
net cash flow from operating activities under the indirect method.
b. No effect
9. The same. The amount reported as the net cash flow from operating activities is not affected
by the use of the direct or indirect method.
10. Cash received from customers, cash payments for merchandise, cash payments for operating
expenses, cash payments for interest, cash payments for income taxes.
16-1
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 16 Statement of Cash
Flows
PRACTICE EXERCISES
PE 16–1A
a. Operating d. Financing
b. Operating e. Financing
c. Investing f. Operating
PE 16–1B
a. Investing d. Operating
b. Investing e. Operating
c. Operating f. Financing
PE 16–2A
Net income......................................................................................................................... $107,500
Adjustments to reconcile net income to net cash flow from
operating activities:
Depreciation……………………………………...…………………………………… 7,500
Amortization of patents………………………………...…………………………… 2,750
Loss from sale of land…………………………..…………………………………… 4,000
Net cash flow from operating activities………………………..……………………… $121,750
PE 16–2B
Net income........................................................................................................................ $175,000
Adjustments to reconcile net income to net cash flow from
operating activities:
Depreciation……………………………………………………..…………………… 8,750
Amortization of patents…………………………………..…………………………… 3,250
Gain from sale of investments…………………………….……………………… (18,750)
Net cash flow from operating activities.........................................................................$168,250
16-2
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 16 Statement of Cash
Flows
PE 16–3A
Net income........................................................................................................................... $253,000
Adjustments to reconcile net income to net cash flow from
operating activities:
Changes in current operating assets and liabilities:
Decrease in accounts receivable………………………………...……………… 6,600
Increase in inventory…………………………………..…………………………… (3,080)
Increase in accounts payable……………………………….…………………… 2,420
Net cash flow from operating activities…………………………..……………………… $258,940
Note: The change in dividends payable impacts the cash paid for dividends,
which is disclosed under financing activities.
PE 16–3B
Net income…………………………………..………………………………………………… $160,000
Adjustments to reconcile net income to net cash flow from
operating activities:
Changes in current operating assets and liabilities:
Increase in accounts receivable………………………………...………………… (3,600)
Increase in inventory…………………………….…………………………………… (5,100)
Increase in accounts payable………………………….………………………… 6,900
Net cash flow from operating activities………………….……………………………… $158,200
Note: The change in dividends payable impacts the cash paid for dividends,
which is disclosed under financing activities.
PE 16–4A
Cash flows from operating activities:
Net income.................................................................................................$270,000
Adjustments to reconcile net income to net cash flow
from operating activities:
Depreciation…………………………………………...…………… 30,000
Gain on disposal of equipment…………………………………. (24,600)
Changes in current operating assets and liabilities:
Decrease in accounts receivable……………………..……… 16,800
Decrease in accounts payable……………………………... (4,320)
Net cash flow from operating activities……………………..……… $287,880
16-3
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 16 Statement of Cash
Flows
PE 16–4B
Cash flows from operating activities:
Net income..............................................................................................$280,000
Adjustments to reconcile net income to net cash flow
from operating activities:
Depreciation………………………………...……………………… 48,000
Loss on disposal of equipment……………………………..…… 19,520
Changes in current operating assets and liabilities:
Increase in accounts receivable……………………………… (17,280)
Increase in accounts payable……………………….……… 8,960
Net cash flow from operating activities……………………...……… $339,200
PE 16–5A
The loss on the sale of land is added to net income in the Operating Activities section.
Loss on sale of land……………………………………….…………………………… $ 60,000
The purchase and sale of land is reported as part of cash flows from investing
activities as shown below.
Cash received from sale of land…………………...………………………………… 120,000
Cash paid for purchase of land...................................................................................(360,000)
PE 16–5B
The gain on the sale of land is subtracted from net income in the Operating Activities
section.
Gain on sale of land………………………….………………………………………… $ (40,000)
The purchase and sale of land is reported as part of cash flows from investing
activities as shown below.
Cash received from sale of land…………………..…………………………………… 240,000
Cash paid for purchase of land………………………..……………………………… (400,000)
PE 16–6A
Sales…………………………………………………………………………………………… $480,000
Deduct increase in accounts receivable………………………………………………… 54,000
Cash received from customers…………………………………………………………… $426,000
PE 16–6B
Sales…………………………………………………………………………………………… $112,000
Add decrease in accounts receivable…………………………………………………… 10,500
Cash received from customers…………………………………………………………… $122,500
16-4
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
STATEMENT OF CASH FLOWS
DISCUSSION QUESTIONS
1. It is costly to accumulate the data needed and to prepare the statement of cash flows.
2. It focuses on the differences between net income and cash flows from operating activities,
and the data needed are generally more readily available and less costly to obtain than is the
case for the direct method.
3. In a separate schedule of noncash investing and financing activities accompanying the
statement of cash flows.
4. The $30,000 increase must be added to income from operations because the amount of cash
paid to merchandise creditors was $30,000 less than the amount of purchases included in the
cost of goods sold.
5. The $25,000 decrease in salaries payable should be deducted from income to determine the
amount of cash flows from operating activities. The effect of the decrease in the amount of
salaries owed was to pay $25,000 more cash during the year than had been recorded as an
expense.
6. a. $100,000 gain
b. Cash inflow of $600,000
c. The gain of $100,000 would be deducted from net income in determining net cash flow
from operating activities; $600,000 would be reported as cash flows from investing
activities.
7. Cash flows from financing activities—issuance of bonds, $1,960,000
8. a. Cash flows from investing activities—Cash received from the disposal of fixed assets,
$15,000
The $15,000 gain on asset disposal should be deducted from net income in determining
net cash flow from operating activities under the indirect method.
b. No effect
9. The same. The amount reported as the net cash flow from operating activities is not affected
by the use of the direct or indirect method.
10. Cash received from customers, cash payments for merchandise, cash payments for operating
expenses, cash payments for interest, cash payments for income taxes.
16-1
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 16 Statement of Cash
Flows
PRACTICE EXERCISES
PE 16–1A
a. Operating d. Financing
b. Operating e. Financing
c. Investing f. Operating
PE 16–1B
a. Investing d. Operating
b. Investing e. Operating
c. Operating f. Financing
PE 16–2A
Net income......................................................................................................................... $107,500
Adjustments to reconcile net income to net cash flow from
operating activities:
Depreciation……………………………………...…………………………………… 7,500
Amortization of patents………………………………...…………………………… 2,750
Loss from sale of land…………………………..…………………………………… 4,000
Net cash flow from operating activities………………………..……………………… $121,750
PE 16–2B
Net income........................................................................................................................ $175,000
Adjustments to reconcile net income to net cash flow from
operating activities:
Depreciation……………………………………………………..…………………… 8,750
Amortization of patents…………………………………..…………………………… 3,250
Gain from sale of investments…………………………….……………………… (18,750)
Net cash flow from operating activities.........................................................................$168,250
16-2
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 16 Statement of Cash
Flows
PE 16–3A
Net income........................................................................................................................... $253,000
Adjustments to reconcile net income to net cash flow from
operating activities:
Changes in current operating assets and liabilities:
Decrease in accounts receivable………………………………...……………… 6,600
Increase in inventory…………………………………..…………………………… (3,080)
Increase in accounts payable……………………………….…………………… 2,420
Net cash flow from operating activities…………………………..……………………… $258,940
Note: The change in dividends payable impacts the cash paid for dividends,
which is disclosed under financing activities.
PE 16–3B
Net income…………………………………..………………………………………………… $160,000
Adjustments to reconcile net income to net cash flow from
operating activities:
Changes in current operating assets and liabilities:
Increase in accounts receivable………………………………...………………… (3,600)
Increase in inventory…………………………….…………………………………… (5,100)
Increase in accounts payable………………………….………………………… 6,900
Net cash flow from operating activities………………….……………………………… $158,200
Note: The change in dividends payable impacts the cash paid for dividends,
which is disclosed under financing activities.
PE 16–4A
Cash flows from operating activities:
Net income.................................................................................................$270,000
Adjustments to reconcile net income to net cash flow
from operating activities:
Depreciation…………………………………………...…………… 30,000
Gain on disposal of equipment…………………………………. (24,600)
Changes in current operating assets and liabilities:
Decrease in accounts receivable……………………..……… 16,800
Decrease in accounts payable……………………………... (4,320)
Net cash flow from operating activities……………………..……… $287,880
16-3
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 16 Statement of Cash
Flows
PE 16–4B
Cash flows from operating activities:
Net income..............................................................................................$280,000
Adjustments to reconcile net income to net cash flow
from operating activities:
Depreciation………………………………...……………………… 48,000
Loss on disposal of equipment……………………………..…… 19,520
Changes in current operating assets and liabilities:
Increase in accounts receivable……………………………… (17,280)
Increase in accounts payable……………………….……… 8,960
Net cash flow from operating activities……………………...……… $339,200
PE 16–5A
The loss on the sale of land is added to net income in the Operating Activities section.
Loss on sale of land……………………………………….…………………………… $ 60,000
The purchase and sale of land is reported as part of cash flows from investing
activities as shown below.
Cash received from sale of land…………………...………………………………… 120,000
Cash paid for purchase of land...................................................................................(360,000)
PE 16–5B
The gain on the sale of land is subtracted from net income in the Operating Activities
section.
Gain on sale of land………………………….………………………………………… $ (40,000)
The purchase and sale of land is reported as part of cash flows from investing
activities as shown below.
Cash received from sale of land…………………..…………………………………… 240,000
Cash paid for purchase of land………………………..……………………………… (400,000)
PE 16–6A
Sales…………………………………………………………………………………………… $480,000
Deduct increase in accounts receivable………………………………………………… 54,000
Cash received from customers…………………………………………………………… $426,000
PE 16–6B
Sales…………………………………………………………………………………………… $112,000
Add decrease in accounts receivable…………………………………………………… 10,500
Cash received from customers…………………………………………………………… $122,500
16-4
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
