Textbook Notes (290,000)
CA (170,000)
Ryerson (10,000)
MKT (900)
MKT 100 (500)
Chapter 12

MKT 100 Chapter 12: Chapter 12, Cash 12-1 and 12-3 for Interpreting Cash Flow Statements.docx


Department
Marketing
Course Code
MKT 100
Professor
Gertrude
Chapter
12

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CASE 12-1 READING AND INTERPRETING CN’S STATEMENT OF CASH FLOWS LO 2, 5
1. The section D of the first note in the report is titled “Cash and cash equivalents.”
Cash and cash equivalents include highly liquid investments purchased three
months or less from maturity.
2. The change in accounts receivable of $229 million was added to net income. This is
an indication that accounts receivable decreased during the period; that is, the
company collected more than it sold.
3. Two items are responsible for a significant amount of the difference between net
income and the net cash provided by operating activities: depreciation and
amortization, and decrease in accounts payable and accrued charges. Depreciation
and amortization are added back to, and decrease in accounts payable and
accrued charges are subtracted from, net income to arrive at net cash provided by
operating activities.
4. CN’s largest source, or inflow, of cash was from the issuance of long-term debt in
the amount of $4,171 million. The largest use, or outflow, of cash, was the
company’s reduction of long-term debt of $3,589 million.
5. In the Financing Activities section of its statement of cash flows, CN reports
payments for the purchase of common stock in the amount of $1,584 million. This
same amount appears on the statement of shareholders’ equity in the last
column .The company bought back shares of its own during the year. The amount
paid for these shares reduces both the company’s cash (and therefore appears on
the statement of cash flows) and reduces shareholders’ equity.
CASE 12-3 READING AND INTERPRETING STATEMENT OF CASH FLOWS LO 1, 5
Killam Properties Inc. Solution
Consolidated Statements of Cash Flows for Killam Properties Inc.
1. Operating cash flow differs from net income because there are many items that are
recognized as revenues or expenses in a different period than the related cash flow.
For example, rents may be paid in advance of being earned; wages and other
expenses may be paid in a later period than incurred. The largest component of the
difference is the charge for depreciation and amortization, which is an expense
caused by the allocation of a cost (of capital assets) over several periods, and is
almost never recognized as expense in the same period as the related cash flow.
The additional information of operating cash flow tells us if the company is
generating sufficient cash from operations to pay their normal operating costs when
incurred, and a successful company would normally be expected to have a positive
cash flow from operations.
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