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1、- 可编辑Chapter 10 Statement of Cash FlowsPROBLEMSPROBLEM 10-1Cash Flows Classification Effect on Cash_Data_OperatingActivityInvestingActivityFinancingActivityIncreaseDecreaseNon-cashTrans-actiona. Net Lossb. Increase in inventoryc. Decrease in receivablesd. Increase in prepaid insurancee. Issuance of
2、common stockf. Acquisition of land using notes payableg. Purchase of land using cashh. Paid cash dividendi. Payment of income taxesj. Retirement of bonds using cashk. Sale of equipment for cashXXXXXXXXXXXXXXXXXXXX- 可编辑- 可编辑PROBLEM 10-2Cash Flows ClassificationEffect on CashDataOperatingActivityInves
3、tingActivityFinancingActivityIncreaseDecreaseNon-cashTrans-actiona. Net incomeb. Paid cash dividendc. Increase in receivablesd. Retirement of debt, paying cashe. Purchase of treasury stockf. Purchase of equipmentg. Sale of equipmenth. Decrease in inventoryi. Acquisition of land using common stockj.
4、Retired bonds using common stockk. Decrease in accounts payableXXXXXXXXXXXXXXXXXXXX- 可编辑PROBLEM 10-3a. BBB CompanyStatement of Cash FlowsFor the Year Ended December 31, 2005Cash flows from operating activities:Net income $ 500Noncash expenses, revenues, losses, and gains included in income: Deprecia
5、tion $2,800 Gain on sale of land (800) Decrease in accounts receivable 400 Decrease in inventory 500 Increase in accounts payable 800 Increase in wages payable 50Decrease in taxes payable (1,000) 2,750Net cash flow from operating activities 3,250Cash flows from investing activities:Land was sold for
6、 1,800Equipment was purchased for (3,500)Net cash used for investing activities (1,700)Cash flows from financing activities:Dividends declared and paid (4,350)Common stock was sold for 3,800Net cash used for financing activities (550)Net increase in cash and marketable securities $ 1,000- 可编辑b. Net
7、cash flow from operating activities was substantially more than the net income. Cash dividends were greater than the net cash flow from operating activities.The cash from issuing the common stock was sufficient to cover the net cash used for investing activities, increase the cash and marketable sec
8、urities accounts, and partially cover the large cash dividend.The fact that a long-term source of funds (common stock) was used to cover part of the cash dividends is a negative observation. The large cash dividend in relation to net cash flow from operating activities would also be considered a neg
9、ative situation.- 可编辑PROBLEM 10-4Frish Companya. Schedule of Change From Accrual ToCash Basis Income StatementAccrual Basis Adjustments Add(Subtract) Cash BasisNet sales $640,000 Increase in accounts receivable ($27,000) $613,000Less expenses:Cost of goods sold 360,000 Increase in accounts payable (
10、15,000)Increase in inven- tories 35,000Depreciation expense (15,000) 365,000Selling and administrative expense 43,000 Decrease in prepaid expenses (1,000) Increase in accrued liabilities (3,000)Depreciation expense (5,000) 34,000Other expense 2,000 Amortization of goodwill (3,000)Amortization of bon
11、d premium 1,000 -0- Income before _ income taxes 235,000 214,000Income tax 92,000 Decrease in income- 可编辑 taxes payable 10,000 102,000Net income $143,000 $112,000b. (1) Direct Approach Receipts from customers $613,000Payments to suppliers (365,000)Selling and administrative expenses ( 34,000)Income
12、taxes paid (102,000)Cash flows from operating activities $112,000- 可编辑(2) Indirect ApproachNet income $143,000Add (deduct) items not affecting cash Depreciation 20,000Amortization of goodwill 3,000Amortization of bond premium (1,000)Increase in accounts receivable (27,000)Increase in accounts payabl
13、e 15,000Increase in inventories (35,000)Decrease in prepaid expenses 1,000Increase in accrued liabilities 3,000Decrease in income taxes payable (10,000)Cash flow from operating activities $ 112,00PROBLEM 10-5a. The income statement and other selected data for the Boyer Company is shown below.Boyer C
14、ompanySchedule of Change From Accrual ToCash Basis Income StatementAccrual BasisAdjustmentsAdd(Subtract)CashBasisSales$19,000Increase in receivables (400)$18,600Less operating expenses: Depreciation2,300Depreciation expense(2,300)-0-Other operating expenses12,000Increase in inventoriesIncrease in ac
15、counts payable 800 (500)12,300Operating income4,7006,300Loss on sale of land1,500Loss on sale of land(1,500)_-0- 可编辑Income before tax expense3,2006,300Tax expense1,000Decrease in income taxes payable 400 1,400Net income$2,200$4,900- 可编辑b. (1) Direct ApproachReceipts from customers $18,600 Payments t
16、o suppliers (12,300)Income taxes paid (1,400)Cash flow from operating activities $ 4,900 (2) Indirect ApproachNet income $ 2,200 Add (deduct) items not affecting cash: Depreciation $2,300 Increase in receivables (400) Increase in inventories (800) Increase in accounts payable 500 Loss on sale of lan
17、d 1,500 Decrease in income taxes payable (400) 2,700 Cash flow from operating activities $ 4,900 PROBLEM 10-6a. Sampson CompanyStatement of Cash FlowsFor the Year Ended December 31, 2005Net cash flow from operating activities:Net income $19,000 Noncash expenses, revenues, losses, and gains included
18、in income: Depreciation expense $10,000 Increase in net receivables ( 7,000) Increase in inventory (13,000) Increase in accounts payable 5,000 Decrease in accrued liabilities (17,000)- 可编辑Net cash outflow from operating activities (3,000)Cash flows from investing activities: Plant assets increase (1
19、5,000)Cash flows from financing activities: Mortgage payable increase $11,000 Common stock increase 6,000 Dividends paid (21,000)Net cash flows from financing activities $( 4,000)Net decrease in cash $(22,000)- 可编辑b. Sampson CompanyStatement of Cash FlowsFor the Year Ended December 31, 2005Cash flow
20、 from customers $138,000($145,000 - $7,000)Cash payments to suppliers (123,000)($108,000 - $10,000 + $13,000 - $5,000 +$17,000)Cash outflow for other expenses (6,000)Tax payments (12,000)Net cash outflow from operating activities ($ 3,000)Cash flows from investing activities:Plant assets increase (1
21、5,000)Cash flows from financing activities:Mortgage payable increase $11,000Common stock increase 6,000Dividends paid (21,000)Net cash outflow from financing activities (4,000)Net decrease in cash $(22,000)c. All major segments of cash flows were negative. Net cash outflow from operating activities
22、was negative by $3,000, and yet dividends were paid in the amount of $21,000. Also, the company had a negative cash flow from investing activities. These negative cash flows were partially made up for by issuing a mortgage payable ($11,000) and common stock ($6,000).PROBLEM 10-7a. CommentThe usual g
23、uideline for the current ratio is two to one. Arrowbell Company had a 1.14 to 1 ratio in 2004 and a .85 to 1 ratio in 2005. The usual - 可编辑guideline for the acid-test ratio is one to one. Arrowbell Company had a .68 to 1 ratio in 2004 and a .49 to 1 ratio in 2005.The cash ratio dropped from .19 in 2
24、004 to .12 in 2005. The working capital in 2004 was $197,958, and in 2005 it had declined to a negative $319,988.The short-term debt position appears to be very poor.- 可编辑Computation of RatiosCurrent Ratio = Current Assets Current Liabilities 2005 2004 $1,755,303 = .85 $1,599,193 = 1.14 $2,075,291 $
25、1,401,235 Cash Equivalents & Net Receivables &Acid-Test Ratio = Marketable Securities_ Current Liabilities2005 $250,480 + $760,950 = .49 $2,075,2912004 $260,155 + $690,550 = .68 $1,401,235Cash Ratio = Cash Equivalents & Marketable Securities Current Liabilities 2005 2004 $250,480 = .12 $260,155 = .1
26、9 $2,075,291 $1,401,235Operating Cash Flow/Current Operating Cash Flow Maturities of Long-Term Debt = Current Maturities of Long-Termand Current Notes Payable Debt and Current Notes Payable- 可编辑 2005 2004 $429,491 = 46.93% $177,658 = 32.29% $915,180 $550,155b. Suppliers will be concerned that Arrowb
27、ell Company will not be able to pay its creditors and, if payment is made, it will be later than the credit terms. The short-term creditors are financing the expansion program.- 可编辑c. The debt ratio has increased in 2005 to .61 from .58 in 2004. The debt/equity ratio has increased in 2005 to 1.55 fr
28、om 1.36 in 2004. (A similar increase in the debt to tangible net worth as the increase in the debt/equity ratio.) There was an improvement in the operating cash flow/total debt, but this ratio remains very low.This indicates that a substantial amount of funds are coming from creditors. In general th
29、e dependance on creditors worsened in 2005.Not enough information is available to compute the times interest earned, but we can estimate this to be between 2 and 3, based on the earnings and the debt. We would like to see the times interest earned to be higher than this amount.The review of the Stat
30、ement of Cash Flows indicates that long-term creditors are going to be concerned by the use of debt to expand property, plant, and equipment. They also are going to be concerned by the payment of a dividend while the working capital is in poor condition.Debt Ratio = AssetsTotalDebtTotal200561.$4,316
31、,598$2,625,2912004$2,176,894 = .58$3,776,711Debt/Equity = EquityrsStockholdeDebtTotal2005551.$1,691,307$2,625,2912004- 可编辑361.$1,599,817$2,176,894- 可编辑Debt to Tangible Net Worth =AssetsIntangible-EquityrsShareholdesLiabilitieTotal2005 2004%.0-$1,691,307$2,625,29122155%.0-$1,599,817$2,176,89407136Ope
32、rating Cash Flow/Total Debt = DebtTotalFlowCashOperating2005 2004%.$2,625,291$429,4913616%.$2,176,894$177,658168d. A banker would be especially concerned about the short-term debt situation. This could lead to bankruptcy, even though the firm is profitable. A banker would be particularly concerned w
33、hy management had used short-term credit to finance long-term expansion.e. Management should consider the following or a combination of the following:1. Discontinue the expansion program at this time and get the short-term debt situation in order. Tighten control of accounts receivable and inventory
34、, along with using funds from operations to reduce short-term debt.2. Issue additional stock to improve the short-term liquidity problem and the long-term debt situation. Because of the poor record on profitability and the way that management has financed past expansion, additional stock will probab
35、ly not be well-accepted in the market place at this time.PROBLEM 10-8- 可编辑a. Bernett Company had a decrease in cash of $23,000, although net cash flow from operating activities was $21,000. Net cash provided by financing activities was $116,000, while net cash used by investing activities was $160,0
36、00. The cash flows from operations and financing activities were not sufficient to cover the very significant net cash used by investing activities.- 可编辑b. 1. Current ratio: Current assets: Cash $ 5,000 Accounts receivable 92,000 Inventory 130,000 Prepaid expense 4,000 Total current assets $231,000
37、(A)Current liabilities: Accounts payable $ 49,000 Income taxes payable 5,000 Accrued liabilities 6,000 Current bonds payable 10,000 Total current liabilities $ 70,000 (B)(A) $231,000 = 3.30(B) $ 70,0002. Acid-test ratio: Cash $ 5,000 Accounts receivable 92,000$ 97,000 (A) Total current liabilities 7
38、0,000 (B)(A) $97,000 = 1.39(B) $70,0003. Operating cash flow/current maturities of long-term debt and current notes payable:Operating cash flow (from part (a) $ 21,000 (A)Current maturities of long-term debt and current notes payable $ 10,000 (B)(A) $21,000 = 2.10- 可编辑(B) $10,0004. Cash ratio:Cash $
39、 5,000 (A)Total current liabilities $ 70,000 (B)(A) $ 5,000 = 7.14%(B) $70,000- 可编辑c. 1. Times interest earned:Income before taxes $ 99,000Plus interest expense 11,000$110,000 (A)Interest expense $ 11,000 (B)(A) $110,000 = 10 times per year(B) $ 11,0002. Debt ratio:Total liabilities: Accounts payabl
40、e $ 49,000Income taxes payable 5,000Accrued liabilities 6,000Bonds payable 175,000Total liabilities $235,000 (A)Total assets $411,000 (B)%.$411,000$235,000(B)(A)18573. Operating cash flow/total debt:Operating cash flow (from part (a) $ 21,000 (A)Total debt (from part (d.2.) $235,000 (B)(A) $ 21,000
41、= 8.94%(B) $235,000d. 1. Return on assets:Net income $ 69,000 (A)Average assets - 可编辑($219,000 + $411,000) divided by 2 $315,000 (B)(A) $ 69,000 = 21.90%(B) $315,0002. Return on common equity:Net income $ 69,000 (A)Average common equity($96,000 + $50,000 + $106,000 + $70,000) divided by 2 $161,000 (
42、B)(A) $ 69,000 = 42.86%(B) $161,000e. Operating cash flow/cash dividends:Operating cash flow (from part (a) $ 21,000 (A)Cash dividends $ 49,000 (B)(A) $21,000 = .43(B) $49,000f. In general, the liquidity ratios look very good except for the cash ratio. The cash ratio is approximately 7%.g. Overall,
43、the debt position appears to be good. Times interest earned is very good, and the debt ratio and cash flow/total debt are good.h. The profitability appears to be extremely good. Both the return on assets and return on common equity are very high.i. Operating cash flow/cash dividends indicates that o
44、perating cash flow was less than half the cash dividends.j. Alternatives appear to be as follows:- 可编辑1. Reduce the rate of expansion or possibly stop expansion at this time. This would reduce the need to increase receivables and inventory in the future and provide cash to pay accounts payable.2. Is
45、sue additional long-term debt.3. Issue additional common stock.Possibly a combination of these alternatives should be considered. This company is very profitable, has a good debt position, and in general a good liquidity position, except for the most immediate ability to pay its bills. This needs to
46、 be corrected or there is the possibility of bankruptcy. The growth rate of this company is very high. Immediate cash is needed to fund the growth.- 可编辑PROBLEM 10-9a. Zaro had substantially more net cash flow from operating activities than it had net income. Major reasons for this were depreciation,
47、 decrease in accounts receivable, and decrease in inventory.The substantial cash flows from operating activities were used for investing activities and financing activities. Cash was particularly used for the financing activity of paying dividends.b. 1. Current Ratio:Current assets: Cash $ 30,000 Ac
48、counts receivable, net 75,000 Inventory 90,000 Prepaid expenses 3,000$198,000 (A)Current liabilities: Accounts payable $ 25,500 Income taxes payable 2,500 Accrued liabilities 5,000 Current portion of bonds payable 20,000$ 53,000 (B)(A) $198,000 = 3.74(B) $ 53,0002. Acid-Test Ratio:Cash $ 30,000Accou
49、nts receivable, net 75,000 105,000 (A) Current liabilities $ 53,000 (B)(A) $105,000 = 1.98- 可编辑(B) $ 53,0003. Operating cash flow/current maturities of long-term debt: and current notes payable:Operating cash flow $ 51,000 (A)Current maturities of long-term debt and current notes payable $ 20,000 (B
50、)(A) $51,000 = 2.55(B) $20,000- 可编辑4. Cash Ratio:Cash $ 30,000 (A)Current liabilities $ 53,000 (B)(A) $30,000 = .57(B) $53,000c. 1. Times Interest Earned:Income before taxes $ 34,000Plus interest expense 8,000 (B)$ 42,000 (A)(A) $42,000 = 5.25 times per year(B) $ 8,0002. Debt Ratio:Total liabilities
51、: Accounts payable $ 25,500 Income taxes payable 2,500 Accrued liabilities 5,000 Bonds payable 90,000$123,000 (A)Total assets $253,000 (B)(A) $123,000 = 48.62%(B) $253,000d. 1. Return on assets:7.59%$263,500$20,0002$274,000($253,000$20,0002. Return on Common Equity:- 可编辑2$45,000)$85,000$54,000($85,0
52、00$20,00014.87%$134,500$20,000e. All liquidity ratios are very good.f. The debt position is good.g. Profitability is good.h. Substantial cash flow came from operating activities. A relatively small amount of funds were used for investing activities and paying down bonds. This left substantial cash a
53、vailable.PROBLEM 10-10a.The Ladies StoreStatement of Cash FlowsFor the Year Ended December 31, 2005Cash flows from operating activities: Cash receipts from customers $150,000 Cash receipts from interest 5,000 Cash payments for merchandise (110,000) Cash payments for interest (2,000) Cash payments fo
54、r income taxes (15,000)Net cash flow from operating activities $ 28,000Cash flows from investing activities: Cash outflow for purchase of truck (20,000) Cash outflow for purchase of investment (80,000) Cash outflow for purchase of equipment (45,000)Net outflow for investing activities (145,000)Cash
55、flows from financing activities: Cash inflow from sale of bonds 100,000 Cash inflow from issuance of note payable 40,000Cash inflow from financing activities 140,000- 可编辑Net increase in cash $ 23,000b. The major inflow of cash was from financing activities. The major outflow of cash was for investin
56、g activities.PROBLEM 10-11a. 1 e. 4b. 5 f. 3c. 5 g. 3d. 5 h. 5- 可编辑PROBLEM 10-12a. Szabo CompanyStatement of Cash FlowsYears Ended December 31, 2005, 2004, 2003Total_ 2005_ 2004_ 2003_Increase (Decrease in Cash)Cash flows from operating activities Cash received from customers Cash paid to suppliers
57、& employees Interest received Interest paid Income taxes paidNet cash provided from operations$508,381 (451,801) 326 (1,357) (12,225) 43,324 $173,233 (150,668) 132 (191) (6,626) 15,880 $176,446 (157,073) 105 (389) (4,754) 14,335 $158,702 (144,060) 89 (777) (845) 13,109 Cash flow from investing activ
58、ities: Capital expenditures Proceeds from property, plant & equipment disposalsNet cash used in financing activities (21,156) 1,452 (19,704) (8,988) 1,215 (7,773) (5,387) 114 (5,273) (6,781) 123 (6,658)Cash flows from financing activities: Net increase (decrease) in short-term debt Increase in long-
59、term debt Dividends paid Purchase of company stockNet cash used in financing activities 12,300 13,000 (22,250) (11,412) (8,362) - - 4,100 (6,050) (8,233) (10,183) 5,100 3,700 (8,200) (3,109) (2,509) 7,200 5,200 (8,000) (70) 4,330 Net increase (decrease) in cash & cash equivalents 15,258 (2,076) 6,55
60、3 10,781 Cash & cash equivalents at beginning of yearCash & cash equivalents at end of year 7,551 $22,809 24,885 $22,809 18,332 $24,885 7,551 $18,332 Reconciliation of Net Income To Net CashProvided by Operating Activities_Total_2002_ 2001_ 2000_ Net incomeProvision for depreciation & amortizationPr
61、ovision for losses on accounts receivableGains on property, plant & equipment disposals$11,358 30,700 473 (4,620) $7,610 12,000 170 (2,000) $3,242 9,700 163 (1,120) $506 9,000 140 (1,500)- 可编辑Changes in operating assets & liabilities Accounts receivable Inventories: Other assets Accounts payable Acc
62、rued income taxes Deferred income taxesNet cash provided by operating activities (5,350) (8,100) (57) 12,300 1,200 5,420 $43,324 (2,000) (3,100) - - - - 1,200 2,000 $15,880 (1,750) (2,700) - - 5,100 - - 1,700 $14,335 (1,600) (2,300) (57) 7,200 - - 1,720 $13,109 - 可编辑b. 1. The three-year analysis rev
63、ealed that 45% of cash flows from operations went into investing activities. The company is not replacing its productive assets.2. Cash flows used in financing activities are 19% of the cash flows from operating activities. At first glance, one might assume the company is paying down debt. Closer an
64、alysis reveals that the company actually increased its debt levels, but payment to stockholders in the form of dividends and share purchases used more cash than was raised in the borrowing. The company is borrowing, and therefore, increasing debt.3. Further analysis reveals that a substantial part o
65、f the borrowing is short-term rather than long-term. Such money is riskier.c. Szabo CompanyStatement of Cash FlowsFor Year Ended December 31, 2005(Inflow & Outflow by Activity)InflowOutflowInflow %Outflow %Cash flows from operating activities: Cash received from customers Cash paid to suppliers & em
66、ployees Interest received Interest paid Income taxes paidCash flows from operations$ 173,233 132 _ 173,365 $150,668 191 6,626 157,485 96.95.08 _ 97.0383.35.11 3.67 87.13Cash flows from investing activities: Capital expenditures Proceeds from property, plant & equipment disposalsCash flows from inves
67、ting activities 1,215 1,215 8,988 _8,988 .68.684.97 _4.97Cash flows from financing activities: Net increase (decrease) in short-term debt Increase in long-term debt Dividends paid Purchase of company stockCash flows from financing activities - - 4,100 _ 4,100 6,050 8,233 14,283 2.29_2.293.354.557.90
68、- 可编辑Total cash flowsIncrease (decrease) in cash) 178,680 (180,756)$ (2,076)$180,756 100.00100.00- 可编辑d. 1. 97% of cash inflows came from operations, and 2% came from financing activities. Significant cash inflows coming from operations is positive.2. 83% of cash outflows were payments to suppliers
69、and employees. 5% of outflows were used for investment in property, plant, and equipment. 8% of cash outflows were used to pay dividends and purchase shares. Almost as much was spent to pay stockholders as for outflows for capital expenditures.PROBLEM 10-13Owens appears to be the growth firm. Operat
70、ing activities may represent a use of cash because of the expansion of receivables and inventory. The expansion of fixed assets would use cash in investing activities. Financing activities are providing cash for expansion. Alpha appears to be the firm in danger of bankruptcy. Cash is used in operati
71、ons, capital expenditures appear to be nominal, and financing activities are using instead of providing cash. Arrow appears to be the older firm expanding slowly. Arrow is generating significant cash from operating activities, while nominal cash is used for investing activities. Financing activities
72、 are using cash instead of providing cash (dividends, repayment of long-term debt, etc.).PROBLEM 10-14a. Accounts receivable, January 1, 2005SalesAccounts receivable, December 31, 2005$ 30,000 480,000 510,000 (40,000)$470,000 - 可编辑b. Accounts receivable increased by $10,000 during the year 2005. Thus cash collected from customers was $10,000 less than sales.PROBLEM 10-15a.Revenues from customersDecrease in accounts receivable$150,000 8,000$158,000b. No. Depreciation expense is a non-cash charge reducing income.
