Statement of Cash Flows: Indirect MethodP 5. Wu Company’s income statement for the year ended December 31, 2011,and its comparative...

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Home>Business & Finance homework help>Accounting homework help>Statement of Cash Flows: Indirect MethodP 5. Wu Company’s income statement for the year ended December 31, 2011,and its comparative...

Ch15 P5 (1)

Chapter 15, P 5.
1. Statement of cash flows prepared.
Wu Company
Statement of Cash Flows
For the Year Ended December 31, 2011
Cash flows from operating activities
Net income $ 11,000
Adjustments to reconcile net income to net cash
flows from operating activities
Depreciation
Gain on sale of furniture and fixtures
Changes in current assets and current liabilities
Decrease in accounts receivable 34,800
Decrease in merchandise inventory
Decrease in prepaid rent
Decrease in accounts payable
Decrease in income taxes payable 34,800
Net cash flows from operating activities $45,800
Cash flows from investing activities
Sale of furniture and fixtures* $ — 0
Purchase of furniture and fixtures
Net cash flows from investing activities — 0
Cash flows from financing activities
Repayment of notes payable
Issue of notes payable
Payment of dividends
Net cash flows from financing activities — 0
Net increase (decrease) in cash $45,800
Cash at beginning of year
Cash at end of year $45,800
Schedule of Noncash Investing and Financing Transactions
Conversion of bonds into common stock $100,000
*
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Ch15 P5 (2)

Chapter 15, P 5. (Continued)
2. User insight: Causes of increase in cash identified.
3. User insight: Computation and assessment of cash flow yield and free cash flow.
Cash Flow Yield = Net Cash Flows from Operating Activities
Net Income
2011 = = times
Free Cash Flow = Net Cash Flows from Operating Activities – Dividends –
Purchases of Plant Assets + Sales of Plant Assets
2011 = – – +
= $ — 0
Answer
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* +

Ch15 P1

Chapter 15, P 1.
Cash Flow Classification Effect on Cash Flows
Operating Investing Financing Noncash
Transaction Activity Activity Activity Transaction Increase Decrease No Effect
1. Paid a cash dividend. x x
2. Decreased accounts receivable. x x
3. Increased inventory.
4. Incurred a net loss.
5. Declared and issued a stock x
dividend.
6. Retired long-term debt with cash.
7. Sold available-for-sale securities
at a loss. x
8. Issued stock for equipment. x x
9. Decreased prepaid insurance.
10. Purchased treasury stock
with cash.
11. Retired a fully depreciated truck x x
(no gain or loss). x
12. Increased interest payable. x
13. Decreased dividends receivable
on investment.
14. Sold treasury stock. x x
15. Increased income taxes payable.
16. Transferred cash to money
market account.
17. Purchased land and building
with a mortgage. x x
*Cash equivalent.
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Ch16 P5

Chapter 16, P 5.
Effect
Transaction Ratio Increase Decrease None
a. Sold merchandise on account. Current ratio
b. Sold merchandise on account. Inventory turnover
c. Collected on accounts
receivable. Quick ratio
d. Wrote off an uncollectible
account. Receivable turnover
e. Paid on accounts payable. Current ratio
f. Declared cash dividend. Return on equity
g. Incurred advertising expense. Profit margin
h. Issued stock dividend. Debt to equity ratio
i. Issued bonds payable. Asset turnover
j. Accrued interest expense. Current ratio
k. Paid previously declared
cash dividend. Dividends yield
l. Purchased treasury stock. Return on assets
m. Recorded depreciation
expense. Cash flow yield
* Assumes perpetual inventory system.
** Assumes an allowance for uncollectible accounts is used.
*** Answer assumes a ratio before the transaction of >1. If the ratio were <1, the
effect would be a decrease.
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