Brief Exercise 5-12
Sweet Beverage Company reported the following items in the most recent year.
Net income $42,900
Dividends paid 5,950
Increase in accounts receivable 12,630
Increase in accounts payable 7,850
Purchase of equipment (capital expenditure) 9,890
Depreciation expense 4,850
Issue of notes payable 20,130
Compute net cash provided by operating activities, the net change in cash during the year. (Show amounts that decrease cash flow with either a – sign e.g. -15,000 or in parenthesis e.g. (15,000).)
SWEET BEVERAGE COMPANY
Statement of Cash Flows
$
$
$
Compute free cash flow.
Free Cash Flow $
Exercise 5-13
The major classifications of activities reported in the statement of cash flows are operating, investing, and financing. Classify each of the transactions listed below as:
1. Operating activity-add to net income.
2. Operating activity-deduct from net income.
3. Investing activity.
4. Financing activity.
5. Reported as significant noncash activity
The transactions are as follows.
Transactions Classifications of Activities
(a) Issuance of common stock.
(b) Purchase of land and building.
(c) Redemption of bonds
(d) Sale of equipment.
(e) Depreciation of machinery.
(f) Amortization of patent.
(g) Issuance of bonds for plant assets.
(h) Payment of cash dividends.
(i) Exchange of furniture for office equipment.
(j) Purchase of treasury stock.
(k) Loss on sale of equipment.
(l) Increase in accounts receivable during the year.
(m) Decrease in accounts payable during the year.
Exercise 5-14
Your answer is partially correct. Try again.
The comparative balance sheets of Nash Inc. at the beginning and the end of the year 2017 are as follows.
NASH INC.
BALANCE SHEETS
Dec. 31, 2017 Jan. 1, 2017 Inc./Dec.
Assets
Cash $ 46,480 $ 14,480 $32,000 Inc.
Accounts receivable 94,200 89,720 4,480 Inc.
Equipment 42,200 23,720 18,480 Inc.
Less: Accumulated Depreciation-Equipment 20,200 11,000 9,200 Inc.
Total $162,680 $116,920
Liabilities and Stockholders’ Equity
Accounts payable $ 23,200 $ 16,720 6,480 Inc.
Common stock 101,480 81,720 19,760 Inc.
Retained earnings 38,000 18,480 19,520 Inc.
Total $162,680 $116,920
Net income of $47,200 was reported, and dividends of $27,680 were paid in 2017. New equipment was purchased and none was sold.
Prepare a statement of cash flows for the year 2017. (Show amounts that decrease cash flow with either a – sign e.g. -15,000 or in parenthesis e.g. (15,000).)
NASH INC.
Statement of Cash Flows
$
Adjustments to reconcile net income to
$
$
Brief Exercise 23-1
Your answer is partially correct. Try again.
Novak Corporation is preparing its 2017 statement of cash flows, using the indirect method. Presented below is a list of items that may affect the statement. Using the code below, indicate how each item will affect Novak’s 2017 statement of cash flows.
Code Letter Effect
A Added to net income in the operating section
D Deducted from net income in the operating section
R-I Cash receipt in investing section
P-I Cash payment in investing section
R-F Cash receipt in financing section
P-F Cash payment in financing section
N Noncash investing and financing activity
(a) Purchase of land and building.
(b) Decrease in accounts receivable.
(c) Issuance of stock.
(d) Depreciation expense.
(e) Sale of land at book value.
(f) Sale of land at a gain.
(g) Payment of dividends.
(h) Increase in accounts receivable.
(i) Purchase of available-for-sale debt investment.
(j) Increase in accounts payable.
(k) Decrease in accounts payable.
(l) Loan from bank by signing note.
(m) Purchase of equipment using a note.
(n) Increase in inventory.
(o) Issuance of bonds.
(p) Redemption of bonds payable.
(q) Sale of equipment at a loss.
(r) Purchase of treasury stock.
Exercise 23-13
Pronghorn Inc., a greeting card company, had the following statements prepared as of December 31, 2017.
PRONGHORN INC.
COMPARATIVE BALANCE SHEET
AS OF DECEMBER 31, 2017 AND 2016
12/31/17 12/31/16
Cash $6,000 $6,900
Accounts receivable 61,800 50,900
Short-term debt investments (available-for-sale) 35,200 17,900
Inventory 40,300 60,600
Prepaid rent 5,100 3,900
Equipment 155,100 131,300
Accumulated depreciation—equipment (35,200 ) (24,800 )
Copyrights 45,800 50,400
Total assets $314,100 $297,100
Accounts payable $45,600 $40,000
Income taxes payable 4,000 6,000
Salaries and wages payable 8,100 4,000
Short-term loans payable 7,900 10,000
Long-term loans payable 60,500 68,900
Common stock, $10 par 100,000 100,000
Contributed capital, common stock 30,000 30,000
Retained earnings 58,000 38,200
Total liabilities & stockholders’ equity $314,100 $297,100
PRONGHORN INC.
INCOME STATEMENT
FOR THE YEAR ENDING DECEMBER 31, 2017
Sales revenue $336,275
Cost of goods sold 173,300
Gross profit 162,975
Operating expenses 121,200
Operating income 41,775
Interest expense $11,400
Gain on sale of equipment 2,000 9,400
Income before tax 32,375
Income tax expense 6,475
Net income $25,900
Additional information:
1. Dividends in the amount of $6,100 were declared and paid during 2017.
2. Depreciation expense and amortization expense are included in operating expenses.
3. No unrealized gains or losses have occurred on the investments during the year.
4. Equipment that had a cost of $19,900 and was 70% depreciated was sold during 2017.
Prepare a statement of cash flows using the direct method. (Show amounts that decrease cash flow with either a – sign e.g. -15,000 or in parenthesis e.g. (15,000).)
PRONGHORN INC.
Statement of Cash Flows
$
$
$
Exercise 23-14
Ayayai Inc., a greeting card company, had the following statements prepared as of December 31, 2017.
AYAYAI INC.
COMPARATIVE BALANCE SHEET
AS OF DECEMBER 31, 2017 AND 2016
12/31/17 12/31/16
Cash $6,100 $6,900
Accounts receivable 62,500 51,000
Short-term debt investments (available-for-sale) 34,800 18,100
Inventory 39,600 60,200
Prepaid rent 4,900 4,000
Equipment 154,500 130,100
Accumulated depreciation—equipment (34,800 ) (25,300 )
Copyrights 46,300 50,400
Total assets $313,900 $295,400
Accounts payable $46,000 $40,200
Income taxes payable 4,000 6,000
Salaries and wages payable 8,100 4,000
Short-term loans payable 8,000 10,000
Long-term loans payable 59,700 69,000
Common stock, $10 par 100,000 100,000
Contributed capital, common stock 30,000 30,000
Retained earnings 58,100 36,200
Total liabilities & stockholders’ equity $313,900 $295,400
AYAYAI INC.
INCOME STATEMENT
FOR THE YEAR ENDING DECEMBER 31, 2017
Sales revenue $339,075
Cost of goods sold 175,000
Gross profit 164,075
Operating expenses 119,900
Operating income 44,175
Interest expense $11,300
Gain on sale of equipment 2,000 9,300
Income before tax 34,875
Income tax expense 6,975
Net income $27,900
Additional information:
1. Dividends in the amount of $6,000 were declared and paid during 2017.
2. Depreciation expense and amortization expense are included in operating expenses.
3. No unrealized gains or losses have occurred on the investments during the year.
4. Equipment that had a cost of $19,900 and was 70% depreciated was sold during 2017.
Prepare a statement of cash flows using the indirect method. (Show amounts that decrease cash flow with either a – sign e.g. -15,000 or in parenthesis e.g. (15,000).)
AYAYAI INC.
Statement of Cash Flows
$
Adjustments to reconcile net income to
$
The Procter & Gamble Company on p. 1458
Instructions
Refer to P&G’s financial statements and the accompanying notes to answer the following questions.
(a)What specific items does P&G discuss in its Note 1—Summary of Significant Accounting Policies? (List the headings only.)
BSpecimen Financial Statements: The Procter & Gamble Company
Once each year, a corporation communicates to its stockholders and other interested parties by issuing a complete set of audited financial statements. The annual report, as this communication is called, summarizes the financial results of the company’s operations for the year and its plans for the future. Many annual reports are attractive, multicolored, glossy public relations pieces, containing pictures of corporate officers and directors as well as photos and descriptions of new products and new buildings. Yet the basic function of every annual report is to report financial information, almost all of which is a product of the corporation’s accounting system.
The content and organization of corporate annual reports have become fairly standardized. Excluding the public relations part of the report (pictures, products, etc.), the following are the traditional financial portions of the annual report:
• Financial Highlights
• Letter to the Stockholders
• Management’s Discussion and Analysis
• Financial Statements
• Notes to the Financial Statements
• Management’s Responsibility for Financial Reporting
• Management’s Report on Internal Control over Financial Reporting
• Report of Independent Registered Public Accounting Firm
• Selected Financial Data
The official SEC filing of the annual report is called a Form 10-K, which often omits the public relations pieces found in most standard annual reports. On the following pages, we present The Procter & Gamble Company (P&G)’s financial statements taken from the company’s 2014 Form 10-K. To access P&G’s Form 10-K, including notes to the financial statements, follow these steps:
1. Go to http://www.pginvestor.com/.
2. Select the Financial Reporting link.
3. Select the 10-K annual report dated June 30, 2014.
4. The Notes to Consolidated Financial Statements begin on page 52.
Consolidated Statements of Earnings
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows