Increase in accounts payable 3,000 33,000

Net Cash Flows from Operating Activities 47,000

Cash Flows from Investing Activities:

Proceeds from sale of equipment $ 8,000

Proceeds from sale of investments 8,000

Purchase of equipment (145,000)

Net Cash Flows from Investing Activities (129,000)

Cash Flows from Financing Activities:

Dividends paid $(7,000)

Payment of mortgage payable (5,000)

Proceeds--notes payable 40,000

Proceeds--sale of common stock 50,000

Net Cash Flows from Financing Activities 78,000

Decrease in cash during 20X2 (4,000)

Cash--beginning of 20X2 10,000

Cash--end of 20X2 $ 6,000

Problem 14: Solution

Spartan Inn

Statement of Cash Flows

For the Year Ended December 31, 20X2

Cash Flows from Operating Activities:

Net income $290,000

Adjustments to reconcile net income to net

cash flows from operating activities:

Depreciation $ 400,000

Gain on sale of investments (300,000)

Decrease in accounts receivable 5,000

Increase in inventory (5,000)

Increase in accounts payable 10,000 110,000

Net Cash Flows from Operating Activities 400,000

Cash Flows from Investing Activities:

Purchase of building (1,000,000)

Purchase of equipment (100,000)

Proceeds from sale of investments 340,000

Net Cash Flows from Investing Activities (760,000)

Cash Flows from Financing Activities:

Payment of LTD (100,000)

Borrowed--LTD 500,000

Dividends paid (30,000)

Net Cash Flows from Financing Activities 370,000

Increase in cash during 20X2 10,000

Cash at the beginning of 20X2 30,000

Cash at the end of 20X2 $ 40,000

Problem 15: Solution

Spartan Inn

Statement of Cash Flows

For the year ended December 31, 20X2

Cash flows from operating activities:

Cash receipts from sales $6,005,000

Cash disbursements for:

Inventory ($1,005,000)

Labor expenses (2,000,000)

Interest expense (450,000)

Income taxes (110,000)

Other cash expenses (2,040,000) (5,605,000)

Net cash flows from operating activities 400,000

Cash flows from investing activities:

Purchase of building (1,000,000)

Purchase of equipment (100,000)

Proceeds from sale of investments 340,000

Net cash flows from investing activities (760,000)

Cash flows from financing activities:

Payment of LTD (100,000)

Borrowed--LTD 500,000

Dividends paid (30,000)

Net cash flows from financing activities 370,000

Increase in cash during 20X2 10,000

Cash at the beginning of 20X2 30,000

Cash at the end of 20X2 $40,000

Reconciliation of net income and operating cash flows:

Net income $290,000

Adjustments:

Depreciation $400,000

Gain on sale of investments (300,000)

Decrease in accounts receivable 5,000

Increase in inventory (5,000)

Increase in accounts payable 10,000 110,000

Operating cash flows $400,000

Problem 16: Solution

Consider the following:

1. Inventory was increased by $9,000.

2. Equipment of $60,000 was purchased and financed with only $20,000 of long-term debt.

3. Accounts payable were reduced by $2,000.

4. Depreciation expense was $30,000.

5. Dividends paid equaled $52,000.

Impact on cash of each of the above points:

Inventory increase –$9,000

Equipment purchase net of debt increase –40,000

Reduction of accounts payable –2,000

Dividends paid –52,000

Depreciation expense 30,000

Net income plus reduction in cash -$73,000

Problem 17: Solution

1. $5,000 - $20,000 + $33,000 = $18,000 $33,000

2. $53,500 - 33,000 + $57,000 = $77,500 $57,000

3. $20,000 - $5,000 + $49,000 = $64,000 $49,000

4. $200,000 - $8,000 + $133,000 = $325,000 $133,000

5. $95,000 - $15,000 + $30,000 = $110,000 $30,000