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ACC-1A Lecture Notes - Lecture 6: Cash Flow Statement, Cash Flow, Current Liability

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lemonwasp425
6 Jun 2020
School
RCC
Department
Accounting
Course
ACC-1A
Professor
Rangel

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Document Summary

Shows where cash came from and how it was spent. Covers the same time span as the income statement: flow concept. Beginning and ending cash on the cash flow statement must equal balances reported on the balance sheet. Cash includes cash equivalents: money, market accounts, etc. There are 6 main parts to every cash flow. Beginning cash: must equal cash from balance sheet. Ending cash: must equal cash from balance sheet. Operating activities: includes everyday business activities, with consumers, suppliers and employees. Relates mostly to changes in current assets and current liabilities. Operating assets= current assets (except for short term investment) Operating liabilities = current liabilities (except for dividends payable and short term loans). Cash receipts of interest and dividends from investments are reported as operating activities. Cash payments of interest on liabilities are reposted as operating activities. Receipts of interest and dividends on investments: if the company has bonds for example.

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Related Questions

Problem 12-13A Prepare and Interpret a Statement of Cash Flows; Free Cash Flow [LO12-1, LO12-2, LO12-3]

Mary Walker, president of Rusco Company, considers $38,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $33,000 in cash was available at the end of 2015. Since the company reported a large net income for the year, and also issued both bonds and common stock, the sharp decline in cash is puzzling to Ms. Walker.
Rusco Company
Comparative Balance Sheet
July 31, 2015 and 2014
2015 2014
Assets
Current assets:
Cash $ 33,000 $ 54,600
Accounts Receivable 221,600 233,400
Inventory 266,200 206,800
Prepaid expenses 19,600 36,600
Total current assets 540,400 531,400
Long-term investments 144,000 210,000
Plant and equipment 896,000 768,000
Less accumulated depreciation 219,000 195,400
Net plant and equipment 677,000 572,600
Total assets
 $ 1,361,400 $ 1,314,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 191,200 $ 249,800
Accrued liabilities 9,800 18,600
Income taxes payable 56,400 48,000
Total current liabilities 257,400 316,400
Bonds Payable 254,000 0
Total liabilities 511,400 316,400
Stockholders’ equity:
Common stock 717,000 690,000
Retained earnings 133,000 307,600
Total stockholders' equity 850,000 997,600

Total liabilities and stockholders' equity $ 1,361,400 $ 1,314,000
Rusco Company
Income Statement
For the Year Ended July 31, 2015
Sales $ 1,160,000
Cost of goods sold 725,000
Gross margin 435,000
Selling and administrative expenses 310,300
Net operating income 124,700
Nonoperating items:
Gain on sale of investments $29,000
Loss on sale of equipment (9,600) 19,400
Income before taxes 144,100
Income taxes 43,140
Net income $ 100,960
The following additional information is available for the year 2015.
a. The company declared and paid a cash dividend.
b. Equipment was sold during the year for $58,400. The equipment had originally cost $126,000 and had accumulated depreciation of $58,000.
c. Long-term investments that had cost $66,000 were sold during the year for $95,000.
d. The company did not retire any bonds payable or repurchase any of its common stock.
Required:
1.

Using the indirect method, compute the net cash provided by operating activities for 2015. (Negative amount should be indicated by a minus sign.)
2.

Using the data from (1) above, and other data from the problem as needed, prepare a statement of cash flows for 2015. (List any deduction in cash and cash outflows as negative amounts.)
Rusco Company
Statement of Cash Flows - Indirect Method
For the year ended July 31,2015
Operating activities:
Adjustments to convert net income to cash basis:
Investing activities:
Financing activities:
Beginning Cash and Cash equivalents
Ending cash and cash equivalents

3.

Compute free cash flow for 2015. (Negative amount should be indicated by a minus sign.)
Free cash flow

A fire destroyed your firm’s ending balance sheet and income statement after the year-end
but before the financial statements are released. However, you have been successful in obtaining the
numbers for the beginning balance sheet and the statement of cash flows, which are provided to you and
your team members in Excel format. Fields representing the missing balance sheet and income statement
are End of year2 in the Excel sheet

CONSOLIDATED BALANCE SHEETS (USD $) End of year 2 End of year 1
In Thousands, unless otherwise specified
Current assets:
Cash and cash equivalents 　 598
Receivables, net 　 230
Inventories, net 　 2309
Other current assets 　 47
Total current assets 　 3184
Property and equipment, net of accumulated depreciation 　 1292
Assets held for sale 　 1
Goodwill 　 76
Intangible assets, net 　 29
Other assets, net 　 32
Assets, Total 　 4614
Current liabilities: 　 0
Current portion of long-term debt 　 0
Accounts payable 　 2030
Accrued expenses 　 380
Other current liabilities 　 150
Total current liabilities 　 2560
Long-term debt 　 604
Other long-term liabilities 　 239
Commitments and Contingencies 　 0
Stockholders Equity Attributable to Parent [Abstract] 　 0
Preferred stock, nonvoting, $00001 par value 　 0
Common stock, voting, $00001 par value 　 0
Additional paid-in capital 　 520
Treasury stock, at cost 　 -27
Accumulated other comprehensive income (loss) 　 3
Retained earnings 　 715
Total stockholders equity 　 1210
Liabilities and Stockholders Equity, Total 　 4613
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) 12 Months Ended
In Thousands, except Per Share data, unless otherwise specified Year 2
Net sales 　
Cost of sales, including purchasing and warehousing costs 　
Gross profit 　
Selling, general and administrative expenses 　
Operating income 　
Interest expense 　
Other income, net 　
Total other, net 　
Income before provision for income taxes 　
Provision for income taxes 　
Net income 　
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) 12 Months Ended
In Thousands, unless otherwise specified Year 2
Cash flows from operating activities:
Net income $392
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 208
Share-based compensation 13
Loss on property and equipment, net 1
Other 2
Provision for deferred income taxes -2
Excess tax benefit from share-based compensation -16
Increase Decrease in Operating Capital
Receivables, net -32
Inventories, net -204
Other assets 11
Accounts payable 113
Accrued expenses 63
Other liabilities -4
Net cash provided by operating activities 545
Cash flows from investing activities:
Purchases of property and equipment -196
Payments to Acquire Businesses, Gross -186
Sale of certain assets of acquired business 19
Proceeds from sales of property and equipment 1
Net cash used in investing activities -362
Cash flows from financing activities:
(Decrease) increase in bank overdrafts -3
Decrease in financed vendor accounts payable 0
Issuance of senior unsecured notes 449
Payment of debt related costs -9
Borrowings under credit facilities 0
Payments on credit facilities 0
Dividends paid -18
Proceeds from the issuance of common stock, primarily exercise of stock options 4
Tax withholdings related to the exercise of stock appreciation rights -22
Excess tax benefit from share-based compensation 16
Repurchase of common stock -81
Contingent payment accrued on acquisitions 5
Other -1
Net cash provided by (used in) financing activities 331
Net increase (decrease) in cash and cash equivalents 514
Cash and cash equivalents, beginning of period 598
Cash and cash equivalents, end of period 1,112
Supplemental cash flow information:
Interest paid 35
Income tax payments 219
Non-cash transactions:
Accrued purchases of property and equipment 21
Retirement of common stock 0
Contingent consideration accrued on acquisitions 0
Changes in other comprehensive income 1
Declared but unpaid cash dividends $4

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 Stockholders’ Equity
Accounts payable $ 55.50 $ 46.00
Common stock 118.00 91.00
Retained earnings 161.90 159.00
Total liabilities and stockholders’ 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
2.

Compute Carmono’s 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.
Item Amount Effect
Accounts receivable
Inventory
Prepaid expenses
Accounts payable
Accrued liabilities
Income taxes payable
Sale of equipment
Sale of long-term investments

4.

Apex Company prepared the statement of cash flows for the current year that is shown below:


Apex Company
Statement of Cash Flows—Indirect 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 Company’s 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 company’s 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.)