ACTG 2010 Lecture Notes - Lecture 12: Cash Flow Statement, Cash Flow
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Comparative financial statement data for Carmono Company follow: |
This Year | Last Year | |||
Assets | ||||
Cash | $ | 7.50 | $ | 14.00 |
Accounts receivable | 50.00 | 43.00 | ||
Inventory | 92.50 | 79.20 | ||
Total current assets | 150.00 | 136.20 | ||
Property, plant, and equipment | 231.00 | 194.00 | ||
Less accumulated depreciation | 45.60 | 34.20 | ||
Net property, plant, and equipment | 185.40 | 159.80 | ||
Total assets | $ | 335.40 | $ | 296.00 |
Liabilities and Stockholdersâ Equity | ||||
Accounts payable | $ | 55.50 | $ | 46.00 |
Common stock | 118.00 | 91.00 | ||
Retained earnings | 161.90 | 159.00 | ||
Total liabilities and stockholdersâ equity | $ | 335.40 | $ | 296.00 |
For this year, the company reported net income as follows: |
Sales | $ | 850.00 |
Cost of goods sold | 510.00 | |
Gross margin | 340.00 | |
Selling and administrative expenses | 320.00 | |
Net income | $ | 20.00 |
This year Carmono declared and paid a cash dividend. There were no sales of property, plant, and equipment during this year. The company did not repurchase any of its own stock this year. Carmono CompanyStatement of Cash Flows - Indirect MethodFor This Year Ended December 31Operating activities:Net income$20.00Adjustments to convert net income to a cash basis:Depreciation$11.40Increase in accounts receivable(7.00)Increase in inventory(13.30)Increase in accounts payable9.500.60Net cash provided by operating activities20.60Investing activities:Increase in plant and equipment(37.00)Net cash used in investing activities(37.00)Financing activities:Increase in common stock27.00Cash dividends(17.10)Net cash provided by financing activities9.90Net decrease in cash(6.50)Beginning cash and cash equivalents14.00Ending cash and cash equivalents$7.50 |
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2. | Compute Carmonoâs free cash flow for this year. (Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to 2 decimal places.) |
Free cash flow$
3.
Changes in various accounts and gains and losses on the sale of assets during the year for Argon Company are given below: |
Item | Amount | ||
Accounts receivable | $ | 79,000 | decrease |
Inventory | $ | 120,000 | increase |
Prepaid expenses | $ | 3,500 | decrease |
Accounts payable | $ | 41,000 | decrease |
Accrued liabilities | $ | 9,600 | increase |
Income taxes payable | $ | 15,700 | increase |
Sale of equipment | $ | 8,100 | gain |
Sale of long-term investments | $ | 12,200 | loss |
Required: |
For each item, indicate whether the dollar amount should be added to or deducted from net income under the indirect method when computing the net cash provided by operating activities for the year. |
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4.
Apex Company prepared the statement of cash flows for the current year that is shown below: |
Apex Company Statement of Cash FlowsâIndirect Method | ||||
Operating activities: | ||||
Net income | $ | 41,500 | ||
Adjustments to convert net income to cash basis: | ||||
Depreciation | $ | 20,100 | ||
Increase in accounts receivable | (61,500) | |||
Increase in inventory | (25,100) | |||
Decrease in prepaid expenses | 9,400 | |||
Increase in accounts payable | 54,300 | |||
Decrease in accrued liabilities | (10,100) | |||
Increase in income taxes payable | 3,300 | (9,600) | ||
Net cash provided by operating activities | 31,900 | |||
Investing activities: | ||||
Proceeds from the sale of equipment | 15,200 | |||
Loan to Thomas Company | (41,900) | |||
Additions to plant and equipment | (121,800) | |||
Net cash used for investing activities | (148,500) | |||
Financing activities: | ||||
Increase in bonds payable | 88,800 | |||
Increase in common stock | 38,700 | |||
Cash dividends | (28,400) | |||
Net cash provided by financing activities | 99,100 | |||
Net decrease in cash | (17,500) | |||
Beginning cash balance | 27,200 | |||
Ending cash balance | $ | 9,700 | ||
Required: |
Compute Apex Companyâs free cash flow for the current year. (Negative amount should be indicated by a minus sign.) |
Free Cash Flow
5.
For the just completed year, Hanna Company had net income of $95,000. Balances in the companyâs current asset and current liability accounts at the beginning and end of the year were as follows: |
December 31 | ||||
End of Year | Beginning of Year | |||
Current assets: | ||||
Cash | $ | 59,000 | $ | 80,000 |
Accounts receivable | $ | 164,000 | $ | 184,000 |
Inventory | $ | 448,000 | $ | 346,000 |
Prepaid expenses | $ | 11,500 | $ | 15,000 |
Current liabilities: | ||||
Accounts payable | $ | 366,000 | $ | 392,000 |
Accrued liabilities | $ | 8,000 | $ | 13,000 |
Income taxes payable | $ | 32,000 | $ | 25,000 |
The Accumulated Depreciation account had total credits of $42,000 during the year. Hanna Company did not record any gains or losses during the year. |
Required: |
Use the indirect method to determine the net cash provided by (or used in) operating activities for the year. (List any deduction in cash and cash outflows as negative amounts.) |
Question 11
The Kerchin Company purchased $60,000 worth of stock in theXeronics company in 2006. In 2012 the stock was sold for $78,000.On the statement of cash flows prepared using the indirect methodthe company will report:
A. | a subtraction of $60,000 in the investing section. | |
B. | an addition to net income of $18,000 in the operatingsection. | |
C. | a subtraction from net income of $18,000 in the operatingsection. | |
D. | an addition of $18,000 in the investing section. |
2 points
Question 12
When preparing the operating section of a statement of cashflows using the indirect method, various adjustments are needed.Which of the following adjustments is incorrectly stated?
A. | Add gains on sale of equipment. | |
B. | Add to net income any increases in current liabilities. | |
C. | Add to net income depreciation and amortization expense. | |
D. | Deduct any increases in inventories from net income. |
2 points
Question 13
In 2011 Armstrong Company sold for $76,000 cash, an asset whichhad an original cost of $204,000 and accumulated depreciation of$98,000. On the statement of cash flows prepared using the indirectmethod the company should report:
A. | an addition to net income in the operating section of$30,000. | |
B. | a subtraction from net income of $30,000 in the operatingsection. | |
C. | a subtraction of $106,000 in the investing section. | |
D. | an addition of $76,000 in the investing section. | |
E. | Both A and D are correct. |
2 points
Question 14
In 2011 Covington Company sold an asset which had an originalcost of $54,000 and accumulated depreciation of $28,000 for $15,000in cash. On the statement of cash flows prepared using the indirectmethod the company should report:
A. | an addition to net income in the operating section of$11,000. | |
B. | a subtraction from net income in the operating section of$11,000. | |
C. | a source of cash of $15,000 in the investing section. | |
D. | a use of cash in the investing section of $39,000. | |
E. | Both a and c are correct. |
2 points
Question 15
Henry Company's statement of cash flows indicated a $52,000decrease in cash during the year. The statement also indicated that$63,000 was provided by operating activities and $71,000 was usedby investing activities. How much are net cash used by financingactivities?
A. | $86,000 | |
B. | ($44,000) | |
C. | $42,000 | |
D. | $40,000 |
2 points
Question 16
Which of the following would be an example of a cashequivalent?
A. | Notes receivable. | |
B. | Accounts receivable. | |
C. | Money market funds. | |
D. | Investment in GMC stock. |
2 points
Question 17
Carte Company reported cost of goods sold for $100,000 anddepreciation expense totaling $7,000. On January 1, Carte hadinventory and accounts payable of $21,000 and $24,000,respectively. On December 31, inventory and accounts payable were$28,000 and $20,000, respectively. Net income is $60,000. Beginningaccounts receivable was $13,000 and ending was $12,000. How muchare the cash flows from operating activities using the indirectmethod?
A. | $57,000 | |
B. | $50,000 | |
C. | $65,000 | |
D. | $77,000 |
2 points
Question 18
The statement of cash flows is typically used to determine if acompany can:
A. | generate enough cash to pay cash dividends to stockholders. | |
B. | generate enough cash to pay an increase in employees wages. | |
C. | generate enough cash to acquire another company. | |
D. | generate enough cash to buy equipment. |
2 points
Question 19
Cash flows related to buying and selling long-term assets areclassified as:
A. | financing activities. | |
B. | investing activities. | |
C. | non-cash activities. | |
D. | operating activities. |
2 points
Question 20
Given the following information, what amount of cash wascollected from customers during 2012? All sales are on account.
2011 | 2012 | |
Accounts receivable | $ 800,000 | $ 580,000 |
Sales | 3,100,000 | 3,250,000 |
A. | $2,880,000 | |
B. | $3,620,000 | |
C. | $2,670,000 | |
D. | $3,470,000 |
2 points