Connect Online Access for Financial Accounting
Connect Online Access for Financial Accounting
18th Edition
ISBN: 9781260706260
Author: Author
Publisher: Mcgraw-hill Higher Education (us)
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Chapter 13, Problem 8AP

a.

To determine

Prepare a worksheet for statement of cash flows.

a.

Expert Solution
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Explanation of Solution

Spreadsheet: A spreadsheet is a worksheet. It is used while preparing a financial statement. It is a type of form having multiple columns and it is used in the adjustment process. The use of a worksheet is optional for any organization. A worksheet can neither be considered as a journal nor a part of the general ledger.

 Connect Online Access for Financial Accounting, Chapter 13, Problem 8AP , additional homework tip  1

Connect Online Access for Financial Accounting, Chapter 13, Problem 8AP , additional homework tip  2

Table (1)

b.

To determine

Prepare a formal statement of cash flows for 2018.

b.

Expert Solution
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Explanation of Solution

Statement of cash flows: Statement of cash flows reports all the cash transactions which are responsible for inflow and outflow of cash and result of these transactions is reported as ending balance of cash at the end of reported period. Statement of cash flows includes the changes in cash balance due to operating, investing, and financing activities.

Indirect method: Indirect method uses the accrual basis of accounting, where the Net Income is adjusted to determine the net cash provided from operating activities.

Cash flows from operating activities: Operating activities refer to the normal activities of a company to carry out the business.

The below table shows the way of calculation of cash flows from operating activities:

Cash flows from operating activities (Indirect method)
 
Add: Decrease in current assets
         Increase in current liability
         Depreciation expense and amortization expense
         Loss on sale of plant assets
 
Deduct: Increase in current assets
              Decrease in current liabilities
              Gain on sale of plant assets
Net cash provided from or used by operating activities

Table (2)

Cash flows from investing activities: Cash provided by or used in investing activities is a section of statement of cash flows. It includes the purchase or sale of equipment or land, or marketable securities, which is used for business operations.

Cash flows from investing activities
 
Add: Proceeds from sale of fixed assets
         Sale of marketable securities / investments
 
Deduct: Purchase of fixed assets/long-lived assets
              Purchase of marketable securities
Net cash provided from or used by investing activities

Table (3)

Cash flows from financing activities: Cash provided by or used in financing activities is a section of statement of cash flows. It includes raising cash from long-term debt or payment of long-term debt, which is used for business operations.

Cash flows from financing activities
 
Add: Issuance of common stock
          Proceeds from borrowings
          Proceeds from sale of treasury stock
          Proceeds from issuance of debt
 
Deduct: Payment of dividend
              Repayment of debt
              Interest paid
              Redemption of debt
              Purchase of treasury stock
Net cash provided from or used by financing activities

Table (4)

Non-Cash Transactions:

The transaction, which does not involve any cash dealings, is known as non-cash transactions. In these type transactions there will not be any inflow or outflow of cash. Simply put, the transaction, which does not have an impact on the inflow or outflow of cash, is called as non-cash transactions.

Examples of significant non-cash transactions are stated below:

  • Issue of common stock to retire long-term debt.
  • Purchase of machinery by issuing notes payable.
  • Issuance of common stock for purchase of land.
M Incorporation
Statement of Cash Flows - Indirect Method (Partial)
For the Year Ended December 31, 2018
DetailsAmount ($)Amount ($)
Cash flows from operating activities:  
Net loss (34,000)
Adjustment to reconcile net income to net cash provided by operating activities:  
Depreciation expense35,000 
Decrease in accounts receivable17,000 
Increase in inventory(2,000) 
Decrease in accrued expenses(3,000) 
Increase in accounts payable23,000 
Loss on sales of marketable securities1,00071,000
Net cash provided by operating activities 37,000
  
Cash flows from investing activities:  
Cash paid to acquire plant assets(2,000) 
Proceeds from sales of marketable securities14,000 
Net cash provided by investing activities 12,000
   
Cash flows from financing activities:  
Dividend paid(4,000) 
Payment of note payable(10,000) 
Issuance of capital stock15,000 
Net cash provided by financing activities 1,000
Net increase (decrease) in Cash 50,000
Cash and cash equivalents, January 1, 2018 10,000
Cash and cash equivalents, December 31, 2018 $60,000
Schedule of Noncash Investing and Financing Activities
Purchase of plant assets $20,000
Less: Portion financed by issuing long-term debt 18,000
Cash paid to acquire plant assets $2,000

Table (5)

Working note:

Prepare a schedule of changes of current assets and liabilities.

Schedule in the change of current assets and liabilities
DetailsAmount ($)Impact
End of the yearBeginning year

Increase/

(Decrease)

Accounts receivable23,00040,000(17,000)Add
Accounts payable73,00050,00023,000Add
Accrued operating expenses payable14,00017,000(3,000)Deduct
Increase in inventory122,000120,0002,000Deduct

Table (6)

c.

To determine

Explain how M Incorporation achieved positive cash flows from operating activities.

c.

Expert Solution
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Explanation of Solution

  • The primary reason is M Incorporation has involved in liquidating its assets and not paying its debt or bills.
  • Most of the accounts receivable are converted into cash. Thus, it helps to reduce the credit sales.
  • If the sales are decreased then it reports in the income statement immediately. However, this may take months before its effects (decrease in sales) appear in a statement of cash flows. Therefore, M Incorporation achieved positive cash flows from operating activities.

d.

To determine

Explain whether the company’s financial position improving or deteriorating.

d.

Expert Solution
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Explanation of Solution

  • M Incorporation has more cash balance but the financial condition of the company is declining.
  • The marketable security of this company is considered as a highly liquid asset and that is almost gone.
  • Increase in accounts payable substantially exceeds the amount of cash in hand.
  • Moreover, sales and accounts receivable balance are declining which indicates that the company has an ability to generate cash from operating activities in future. In addition decline in sales affects the liquidity of the company’s inventory.

e.

To determine

Explain whether the operation of M Incorporation growing or contracting.

e.

Expert Solution
Check Mark

Explanation of Solution

  • M Incorporation is collapsing in terms of its operations because, the investment made in marketable securities, receivables and plant assets are declining.
  • In the income statement shows that operations are affecting the owners’ equity in the business.
  • Decrease in sales reduces the cash collected from customers. Therefore, this is the major factor which contributes to a positive cash flow from operating activities.

f.

To determine

Explain the management decision and the needed action.

f.

Expert Solution
Check Mark

Explanation of Solution

The first decision of the management is whether to attempt it or liquidate it because, the sales volume has declined and it will result in net loss over the period. Moreover, the operating cash flows also turn into negative.

If management has decided to liquidate it, then it should quit quickly because it may affects the future operating losses.

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Chapter 13 Solutions

Connect Online Access for Financial Accounting

Ch. 13 - 5. In the long run, is it more important for a...Ch. 13 - 6. Of the three types of business activities...Ch. 13 - Prob. 7DQCh. 13 - Prob. 8DQCh. 13 - Prob. 9DQCh. 13 - Prob. 10DQCh. 13 - Prob. 11DQCh. 13 - Prob. 12DQCh. 13 - Prob. 13DQCh. 13 - Prob. 14DQCh. 13 - Prob. 15DQCh. 13 - Prob. 1BECh. 13 - BRIEF EXERCISE 13.2 Cash Flows from Operations...Ch. 13 - BRIEF EXERCISE 13.3 Cash Flows from Operations...Ch. 13 - Prob. 4BECh. 13 - BRIEF EXERCISE 13.5 Cash Flows from Investing Old...Ch. 13 - Prob. 6BECh. 13 - Prob. 7BECh. 13 - BRIEF EXERCISE 13.8 Determining Beginning Cash...Ch. 13 - Prob. 9BECh. 13 - Prob. 10BECh. 13 - EXERCISE 13.1 Using a Statement of Cash...Ch. 13 - EXERCISE 13.2 Using a Statement of Cash Flows Auto...Ch. 13 - EXERCISE 13.3 Computing Cash Flows An analysis of...Ch. 13 - EXERCISE 13.4 Comparing Net Sales and Cash...Ch. 13 - Prob. 5ECh. 13 - EXERCISE 13.6 Reporting Lending Activities and...Ch. 13 - Prob. 7ECh. 13 - Prob. 8ECh. 13 - Prob. 9ECh. 13 - EXERCISE 13.10 Computation of Net Cash Flows from...Ch. 13 - Prob. 11ECh. 13 - EXERCISE 13.12 Classifying Cash Flows Among the...Ch. 13 - EXERCISE 13.13 Cash Flows from Investing...Ch. 13 - Prob. 14ECh. 13 - EXERCISE 13.15 Home Depot, Inc. Using a Statement...Ch. 13 - Prob. 1APCh. 13 - Prob. 2APCh. 13 - Prob. 3APCh. 13 - Prob. 4APCh. 13 - Prob. 5APCh. 13 - Prob. 6APCh. 13 - Prob. 7APCh. 13 - Prob. 8APCh. 13 - Prob. 1BPCh. 13 - PROBLEM 13.2B Reporting Investing Activities An...Ch. 13 - PROBLEM 13.3B Reporting Investing Activities An...Ch. 13 - Prob. 4BPCh. 13 - Prob. 5BPCh. 13 - Prob. 6BPCh. 13 - Prob. 7BPCh. 13 - Prob. 8BPCh. 13 - Prob. 1CTCCh. 13 - Prob. 2CTCCh. 13 - Prob. 3CTCCh. 13 - Prob. 4CTC
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