Income to Net Cash Flows

from Operating Activities:

Depreciation expense $75,200

Decrease in accounts receivable 10,000

Increase in food inventory (5,000)

Increase in prepaid expenses (1,000)

Increase in accounts payable 8,000

Increase in wages payable 1,500

Decrease in interest payable (1,500)

Increase in taxes payable 2,100 89,300

Net Cash Flows from Operating Activities $689,700

(1) Revenues - Expenses = Net Income

$3,500,800 - $2,900,400 = $600,400

Problem 7: Solution

1. The increase in accounts receivable of $12,000 means less cash has been received, since more amounts are being charged. The decrease in food inventory of $5,000 means less inventory is being purchased and less cash expended. Both accounts are shown under the net cash flows from operating activities section.

2. $200,000 was borrowed during 20X4. $30,000 was paid to retire debt during 20X4. Both the amounts borrowed and paid are shown under the net cash flows from financing activities section.

3. The increase in accounts payable of $20,000 means suppliers have provided more credit; thus, cash flow is increased. The decrease in wages payable decreases cash flow. Both accounts are shown under the net cash flows from operating activities section.

4. $70,000 in dividends was paid during 20X4. The amount is shown under the net cash flows from financing activities section.

Problem 7: Solution (continued)

5. $25,000 – $22,000 = $3,000

$ 5,000 – $3,000 = $2,000 gain

The gain is shown under the net cash flows from operating activities section. The proceeds from the sale are shown under the net cash flows from activities section.

$690,000 – $25,000 = $665,000

$750,000 – $665,000 = $85,000 of equipment purchased during 20X4.

Equipment purchases are shown under the net cash flows from investing activities section.

Problem 8: Solution

Net Cash Flows from Financing Activities:

Borrowed long-term debt $10,000,000

Sold shares of stock 8,500,000 (1)

Payment of long-term debt (700,000) (2)

Payment of cash dividends (2,500,000)

Net Cash Flows from Financing Activities: $15,300,000

(1) 100,000 × $85 = $8,500,000

(2) $750,000 - $50,000 = $700,000

Problem 9: Solution

Net Cash Flows from Operating Activities:

Net income $258,000

Adjustments to Reconcile Net

Income to Net Cash Flows

from Operating Activities:

Depreciation expense $150,000

Gain on sale of equipment (1,500) (1)

Loss on sale of investments 10,000 (2)

Loss on sale of equipment 2,000 (3)

Decrease in accounts receivable 5,000

Increase in food inventory (10,000)

Increase in prepaid insurance (4,000)

Increase in accounts payable 9,000

Increase in accrued payroll 3,000

Increase in taxes payable 2,000 $165,500

Net Cash Flows from Operating Activities $423,500

(1) $2,500 - $1,000 = $1,500

(2) $60,000 - $50,000 = $10,000

(3) $3,000 - $1,000 = $2,000

Problem 10: Solution

Illini Inn

Statement of Cash Flows

For the Year Ended December 31, 20X2

Cash Flows from Operating Activities:

Net income $100,000

Adjustments to reconcile net income to net

cash flows from operating activities:

Depreciation $200,000

Amortization 100,000