PROBLEM 12–7A Prepare a Statement of Cash Flows [LO12–1, LO12–2] For this year,
ID: 2399323 • Letter: P
Question
PROBLEM 12–7A Prepare a Statement of Cash Flows [LO12–1, LO12–2] For this year, the company reported net income as follows
Comparative Balance Sheet December 31, 2015 and 2014
2015 2014
Assets
Cash $9 $15
Accounts receivable 340 240
Inventory 125 175
Prepaid Expenses 10 6
Total current assets 484 436
Property, plant, and equipment 610 470
Net property, plant, and equipment 517 385
Long-term investments 16 19
Total assets . $1017 $840
Liabilities and Stockholders’ Equity
Accounts payable $310 230
Accrued liabilities 60 72
Income taxes payable 40 34
Total current liabilities 410 336
Bonds payable 290 180
Total liabilities 700 516
Common stock . 210 250
Retained earnings 107 74
Total stockholders’ equity 317 324
Total liabilities and stockholders’ equity $1017 $840
Weaver Company Income Statement For the Year Ended December 31, 2015
Sales ……………………………….. ….. $800
Cost of goods sold……………………….500
Gross margin …………………………….300
Selling and administrative expenses………213
Net operating income…………………….87
Nonoperating items:
Gain on sale of investments…………… $7
Lossonsaleofequipment ….....(4)…………3
Incomebeforetaxes ……………………..90
Income taxes…………………………….27
Netincome………………………………$63
During 2015, Weaver sold some equipment for $20 that had cost $40 and on which there was accumu- lated depreciation of $16. In addition, the company sold long-term investments for $10 that had cost $3 when purchased several years ago. A cash dividend was paid during 2015 and the company repurchased $40 of its own stock. Weaver did not retire any bonds during 2015. Required: 1. Using the indirect method, determine the net cash provided by operating activities for 2015. 2. Using the information in (1) above, along with an analysis of the remaining balance sheet accounts, prepare a statement of cash flows for 2015.
Problem 12-7A
1. Net cash provided by operating activities:
Step 1: The following equation can be applied to the Accumulated Depreciation account to compute the depreciation to add back to net income:
Beginning balance – Debits + Credits = Ending balance
$ – $ + Credits = $
Credits = $ – $ + $
Credits = $
Step 2: The guidelines from Exhibit 12-2 can be used to analyze the changes in noncash balance sheet accounts that impact net income as follows:
Increase in Account Balance
Decrease in Account Balance
Current Assets
Accounts receivable......
Inventory....................
Prepaid expenses.........
Current Liabilities
Accounts payable.........
Accrued liabilities..........
Income taxes payable...
Step 3: The gain on sale of investments is subtracted from net income and the loss on the sale of equipment is added to net income.
Problem 12-7A (continued)
The net cash provided by operating activities is computed as follows:
Net income.....................................................
$?63
Adjustments to convert net income to cash basis:
Depreciation...............................................
in accounts receivable...................
in inventory.................................
in prepaid expenses......................
in accounts payable......................
in accrued liabilities.......................
in income taxes payable................
Gain on sale of investments.........................
Loss on sale of equipment...........................
Net cash provided by operating activities...........
2. Prepare a statement of cash flows.
Investing and Financing activities:
The guidelines from Exhibit 12-3 can be used to analyze the changes in noncash balance sheet accounts that impact investing and financing cash flows as follows:
Increase in Account Balance
Decrease in Account Balance
Noncurrent Assets
Property, plant, and equipment..............
Long-term investments..........................
Liabilities and Stockholders’ Equity
Bonds payable.....................................
Common stock.....................................
Problem 12-7A (continued)
The decrease in the long-term investments account equals the cost of the long-term investment sold; therefore, Weaver did not purchase any long-term investments during the year. The proceeds from the sale of a long-term investment should be recorded as a cash inflow in the investing activities section of the statement.
Because Weaver did not retire any bonds during the year, the corresponding amount in the table on the prior page represents the gross cash inflow pertaining to a bond issuance. The company repurchased of its own stock, so the corresponding amount on the prior page is reported as a cash outflow in the financing activities section in the statement of cash flows. Property, plant, and equipment and retained earnings require further analysis as follows:
Property, plant, and equipment:
Beginning balance + Debits – Credits = Ending balance
$ + Debits – $ = $
Debits = $ – $ + $
Debits = $
The additions to property, plant, and equipment are recorded as a cash outflow and the proceeds from the sale of equipment are recorded as a cash inflow.
Retained earnings:
Beginning balance – Debits + Credits = Ending balance
$ – Debits + $ = $
$ = $ + Debits
Debits = $
The dividend payment should be recorded as a cash outflow in the financing activities section of the statement.
Problem 12-7A (continued)
Weaver Company
Statement of Cash Flows
For the Year Ended December 31, 2015
Operating activities:
Net income.....................................................
$?63
Adjustments to convert net income to cash basis:
Depreciation...............................................
in accounts receivable...................
in inventory.................................
in prepaid expenses......................
in accounts payable......................
in accrued liabilities.......................
in income taxes payable................
Gain on sale of investments.........................
Loss on sale of equipment...........................
Net cash provided by operating activities...........
Investing activities:
Proceeds from sale of long-term investments......
Proceeds from sale of equipment......................
Additions to plant and equipment......................
Net cash used in investing activities...................
Financing activities:
Issuance of bonds payable...............................
Decrease in common stock...............................
Cash dividends................................................
Net cash used in financing activities..................
Net decrease in cash.......................................
Beginning cash and cash equivalents.................
Ending cash and cash equivalents.....................
Increase in Account Balance
Decrease in Account Balance
Current Assets
Accounts receivable......
Inventory....................
Prepaid expenses.........
Current Liabilities
Accounts payable.........
Accrued liabilities..........
Income taxes payable...
Explanation / Answer
Answers
Current Assets
Increase in Account Balance
Decrease in Account Balance
Accounts receivable......
$ 100.00
$ -
Inventory....................
$ -
$ 50.00
Prepaid expenses.........
$ 4.00
$ -
Current Liabilities
Increase in Account Balance
Decrease in Account Balance
Accounts payable.........
$ 80.00
$ -
Accrued liabilities..........
$ 12.00
Income taxes payable...
$ 6.00
$ -
2015
2014
PPE
$ 610.00
$ 470.00
Net PPE
$ 517.00
$ 385.00
Accumulated Depreciation
$ 93.00
$ 85.00
Ending Accumulated Depreciation balance
$ 93.00
Add: Acc Dep on Equipment Sold
$ 16.00
Less: Beginning Accumulated Depreciation balance
$ 85.00
Depreciation expense for the year
$ 24.00
Net Income
$ 63.00
Beginning Retained Earnings balance
$ 74.00
Ending Retained Earnings balance
$ 107.00
Dividend paid during the year
$ 30.00
Noncurrent Assets
Increase in Account Balance
Decrease in Account Balance
Property, plant, and equipment..............
$ 140.00
Long-term investments..........................
$ 3.00
Liabilities and Stockholders’ Equity
Increase in Account Balance
Decrease in Account Balance
Bonds payable.....................................
$ 110.00
Common stock.....................................
$ 40.00
A
Beginning PPE Balance
$ 470.00
B
Equipment sold
$ 40.00
C
Ending PPE Balance
$ 610.00
D = B+C - A
Equipment purchased
$ 180.00
Weaver Company
Statement of Cash Flows
For the Year Ended December 31, 2015
Operating activities:
Net income.....................................................
$ 63.00
Adjustments to convert net income to cash basis:
Depreciation (Working #3)
$ 24.00
Increase in accounts receivable (Working #1)
$ (100.00)
Decrease in inventory (Working #1)
$ 50.00
Increase in prepaid expenses (Working #1)
$ (4.00)
Increase in accounts payable (Working #1)
$ 80.00
Decrease in accrued liabilities (Working #1)
$ (12.00)
Increase in income taxes payable (Working #1)
$ 6.00
Gain on sale of investments.........................
$ (7.00)
Loss on sale of equipment...........................
$ 4.00
$ 41.00
Net cash provided by operating activities...........
$ 104.00
Investing activities:
Proceeds from sale of long-term investments......
$ 10.00
Proceeds from sale of equipment......................
$ 20.00
Additions to plant and equipment (Working #5)
$ (180.00)
Net cash used in investing activities...................
$ (150.00)
Financing activities:
Issuance of bonds payable...............................
$ 110.00
Decrease in common stock...............................
$ (40.00)
Cash dividends (Working #3)
$ (30.00)
Net cash used in financing activities..................
$ 40.00
Net decrease in cash.......................................
$ (6.00)
Beginning cash and cash equivalents.................
$ 15.00
Ending cash and cash equivalents.....................
$ 9.00
Current Assets
Increase in Account Balance
Decrease in Account Balance
Accounts receivable......
$ 100.00
$ -
Inventory....................
$ -
$ 50.00
Prepaid expenses.........
$ 4.00
$ -
Current Liabilities
Increase in Account Balance
Decrease in Account Balance
Accounts payable.........
$ 80.00
$ -
Accrued liabilities..........
$ 12.00
Income taxes payable...
$ 6.00
$ -
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