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POA11e15

# POA11e15 - CHAPTER 15Solutions The Statement of Cash Flows...

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Ch15 SE1 to SE2 The Statement of Cash Flows Chapter 15, SE 1. 1. b 4. d 2. c 5. c 3. a 6. c Chapter 15, SE 2. Cash Flow Yield = Net Cash Flows from Operating Activities Net Income = \$180,000 = 2.0times \$90,000 Cash Flows to Sales = Net Cash Flows from Operating Activities Sales = \$180,000 = 22.8% \$790,000 Cash Flows to Assets = Net Cash Flows from Operating Activities Average Total Assets = \$180,000 = 34.3% ( \$550,000 + \$500,000 2 Free Cash Flow = Net Cash Flows from Operating Activities Dividends Purchases of Plant Assets + Sales of Plant Assets = \$180,000 \$40,000 \$120,000 + \$20,000 = \$40,000 * Rounded. CHAPTER 15 Solutions ) ÷ * + * +

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Ch15 SE3 to SE4 Chapter 15, SE 3. The cash flow yield is 0.7 times, which indicates that cash flows from operations are only 70 percent of earnings. A yield of less than 1 signals potential problems. Lopata Corporation experienced this unfavorable yield primarily because of a \$50,000 decrease in accounts payable. The cash flows to assets is slightly larger than cash flows to sales because the asset turnover is slightly more than 1. Because cash flow yield is less than 1, we know that profit margin and return on assets are higher than the cash flows to sales and cash flows to assets. The key to improving all three efficiency ratios is better management of inventory, ac- counts payable, and accounts receivable, all of which affect cash flows from op- erations. Free cash flow is positive, which indicates that the company was able to finance its net expenditures for land and equipment from its cash flows from operations after paying dividends. Although the company did not replace its de- preciable assets, as indicated by a decline in the gross amount of equipment, it did reduce liabilities by 25 percent. Overall, the company improved its liquidity and its ability to borrow for possible future expansion. Chapter 15, SE 4. Wachowski Corporation Schedule of Cash Flows from Operating Activities For the Year Ended December 31, 2010 Cash flows from operating activities Net income \$33,000 Adjustments to reconcile net income to net cash flows from operating activities Depreciation \$14,000 Changes in current assets and current liabilities Increase in accounts receivable ( 11,000) Increase in accounts payable 5,000 8,000 Net cash flows from operating activities \$41,000
Ch15 SE5 to SE7 Chapter 15, SE 5. Minh Corporation Schedule of Cash Flows from Operating Activities For the Year Ended December 31, 2010 Cash flows from operating activities Net income \$144,000 Adjustments to reconcile net income to net cash flows from operating activities Depreciation \$16,000 Amortization 1,800 Changes in current assets and current liabilities Decrease in accounts receivable 8,200 Increase in inventories ( 5,400) Decrease in prepaid expenses 1,000 Decrease in accounts payable ( 14,000) Decrease in accrued liabilities ( 1,700) 5,900 Net cash flows from operating activities \$149,900 Chapter 15, SE 6. Cash flows from investing activities Sale of building \$ 95,000 Purchase of land (see below) ( 125,000) Net cash flows from investing activities (\$ 30,000) Schedule of Noncash Investing and Financing Transactions Issue of mortgage in partial payment for land \$250,000 (Note: Under the indirect method, the gain of \$75,000 would appear as a deduc- tion in the cash flows from operating activities section.)

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POA11e15 - CHAPTER 15Solutions The Statement of Cash Flows...

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