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.....................

Answer 1

• All working forms part of the answer
• Please follow the calculations in following Workings.
• Working #1

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	$                       -

• Working #2

	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

• Working #3

Net Income	$                63.00
Beginning Retained Earnings balance	$                74.00
Ending Retained Earnings balance	$              107.00
Dividend paid during the year	$                30.00

• Working #4

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

• Working #5

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

• Cash Flow Statement on the basis of above workings:

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