The Statement of Cash Flows
CHAPTER 14
The Statement of Cash Flows
EXERCISES
E14–2
1. Not included on the statement of cash flows because it does not affect cash. As proof, the entry for this event would be:
Allowance for Doubtful Accounts (+A) XX
Accounts Receivable (–A) XX
Wrote off uncollectible accounts.
2. Investing activity
3. Financing activity
4. Any gain or loss would be adjusted out of operating activities. The exchange of notes for the building would have no net impact on the statement of cash flows because it does not affect cash. As proof, the entry for this event would be:
Notes Receivable (+A) XX
Accumulated Depreciation: Building (+A) XX
Building (–A) XX
Sold a building in exchange for a five year note.
5. Not included on the statement of cash flows because it does not affect cash. As proof, the entry for this event would be:
Dividend (–SE) XX
Dividend Payable (+L) XX
Declared a dividend.
6. Not included on the statement of cash flows because it does not affect cash. As proof, the entry for this event would be:
Bonds Payable (–L) XX
Common Stock (+SE) XX
Retired bonds with common stock.
7. Investing activity
8. Not included on the statement of cash flows because it does not affect cash. As proof, the entry for this event would be:
Dividend (–SE) XX
Common Stock (+SE) XX
Additional Paid-in Capital, Common Stock (+SE) XX
Declared and issued a stock dividend.
9. Not included on the statement of cash flows because it does not affect cash. As proof, the entry for this event would be:
Depreciation Expense (E, –SE) XX
Accumulated Depreciation (–A) XX
Depreciated fixed assets.
10. Operating activity
11. Not included on the statement of cash flows because it does not affect cash. As proof, the entry for this event would be:
Inventory (+A) XX
Accounts Payable (+L) XX
Purchased inventory on account.
12. Operating activity
13. Any gain or loss would be included in operating activities only to adjust Net Income. The balance of the transaction would not be included on the statement of cash flows because it does not affect cash. As proof, the entry for this event would be:
Land (+A) XX
Accumulated Depreciation: Building (+A) XX
Building (–A) XX
Exchanged a building for land.
14. Financing activity
15. Operating activity
PROBLEMS
P14–2
a., b., and c.
Transaction Section Inflow Outflow Amount
1. Operating X $ 52,000
2. Investing X 12,000
3. Operating X 30,000
4. N/A
5. Operating X 10,000
Investing X 90,000
6. Operating X 45,000
7. Financing X 50,000
8. Financing X 40,000
9. Operating X 25,000
10. Financing X 300,000
11. N/A
12. N/A
13. N/A
P14–5
Transaction Effect on Cash Section of Statement Explanation
1. $50,000 Operating Operations is defined in terms of inventory activity.
2. (55,000) Operating Cash payments for operating expenses.
3. 100,000 Investing Sale of a nonoperating asset.
Note: If the company uses the indirect method to prepare its statement of cash flows, the $15,000 loss on sale of fixed assets would be included in the operating activities section as an adjustment to net income to arrive at net cash flow from operating activities.
4. (70,000) Financing Dividend payment.
5. (500,000) Financing Stock repurchase.
6. (100,000) Operating Cash payment associated with operating assets.
7. No effect N/A No effect on cash.
8. (500,000) Investing Cash payment for an investment in equity securities,
a nonoperating asset.
9. $202,000 Financing Issuing debt provides financing to the company.
10. No effect Operating Net income would be lower but
would be offset by an increase in
rent payable. The net of these
two is a zero effect on cash.
P14–7
a. 2006 2005 2004
Cash provided (used) by operating activities $11,353 $8,028 $5,088
Cash provided (used) by investing activities (2,787) (1,757) (2,454)
Cash provided (used) by financing activities (6,077) (5,023) (4,159)
Increase (decrease) in cash 2,489 1,248 (1,525)
Cash balance at beginning of year 13,911 12,663 14,188
Cash balance at end of year $ 16,400 $ 13,911 $ 12,663
b. Cash from operations has been consistently strong over the three-year period. H-P uses this cash flow to invest in its growing business (negative cash from investing activities in all three years) and is still able to return cash to shareholders and repay any debt (negative cash from financing activities in all three years). The company’s strong cash flow from operations allows it to continue to fund its growth and to return cash to the sources of funding (debt and equity providers).