Chapter 12: Q6DQ (page 565)
Describe the indirect method of reporting cash flows from operating activities.
The indirect method calculates cash flow from operating activities by adjusting the net income by adding noncash transactions and change in current assets and current liabilities.
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The following summarized Cash T-account reflects the total debits and total credits to the Cash account of Thomas Corporation for calendar-year 2017.
| CASH | |||
Balance, Dec 31, 2016 | 333,000 | Payments for inventory | 2,590,000 |
Receipts from customers | 5,000,000 | Payments for wages | 550,000 |
Receipts from dividends | 208,400 | Payments for rent | 320,000 |
Receipts from land sale | 220,000 | Payments for interest | 218,000 |
Receipts from machinery sale | 710,000 | Payments for taxes | 450,000 |
Receipts from issuing stock | 1,540,000 | Payments for machinery | 2,236,000 |
Receipts from borrowing | 3,600,000 | Payments for long-term investments | 1,260,000 |
Payments for note payable | 386,000 | ||
Payments for dividends | 500,000 | ||
Payments for treasury stock | 218,000 | ||
Balance, Dec 31, 2017 | $….? | ||
Refer to Samsung’s statement of cash flows in Appendix A. What investing activities result in cash outflows for the year ended December 31, 2015? List items and amounts.
Refer to the information reported about Gazelle Corporation in Problem 12-3B. Required Prepare a complete statement of cash flows using a spreadsheet as in Exhibit 12A.1; report its operating activities using the indirect method. Identify the debits and credits in the Analysis of Changes columns with letters that correspond to the following list of transactions and events.
a. Net income was \(158,100.
b. Accounts receivable decreased.
c. Inventory decreased.
d. Prepaid expenses decreased.
e. Accounts payable decreased.
f. Depreciation expense was \)38,600.
g. Sold equipment costing \(51,000, with accumulated depreciation of \)22,850, for \(26,050 cash. This yielded a loss of \)2,100.
h. Purchased equipment costing \(113,250 by paying \)43,250 cash and (i.) by signing a long-term note payable for the balance.
j. Borrowed \(5,000 cash by signing a short-term note payable.
k. Paid \)47,500 cash to reduce the long-term notes payable.
l. Issued 3,000 shares of common stock for \(15 cash per share.
m. Declared and paid cash dividends of \)53,600.
BTN 12-7 Review the chapter’s opener involving Amazon.com and its founder, Jeff Bezos.
Required
1. In a business such as Amazon, monitoring cash flow is always a priority. Even though Amazon now has billions in annual sales and sometimes earns a positive net income, explain how cash flow can lag behind net income.
2. Amazon is a publicly traded corporation. What are potential sources of financing for its future expansion?
Refer to the information in Exercise 12-11. Using the direct method, prepare the statement of cash flows for the year ended June 30, 2017.
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