Gibraltar Industries is a Buffalo, New York–based manufacturer of high-value-added steel products. In a recent year, it reported the following activities:

$$\begin{array} {lrrrrr} \text{Acquisitions (investments in other companies)}& \hspace{10pt}\text{\$\hspace{10pt}(8,724)}&\\ \text{Decrease in inventories}& \hspace{10pt}\text{1,770}&\\ \text{Depreciation and amortization}& \text{33,907}&\\ \text{Long-term debt reduction}& \hspace{10pt}\text{(185,567)}&\\ \text{Net cash provided by operating activities}& \hspace{10pt}\text{107,874}&\\ \text{Net income}& \text{24,068}&\\ \text{Net proceeds from issuance of common stock}& \text{250}&\\ \text{Net proceeds from sale of property and equipment}& \hspace{10pt}\text{2,692}&\\ \text{Payment of dividends}& \hspace{10pt}\text{(5,985)}&\\ \text{Proceeds from long-term debt}& \text{53,439}&\\ \text{Proceeds from sale of other equity investments}& \text{34,701}&\\ \text{Purchases of property, plant, and equipment}& \text{(21,595)}&\\ \end{array}$$

Required:

1. Based on this information, present the cash flows from investing and financing activities sections of the cash flow statement.

2. Compute the capital acquisitions ratio. What does the ratio tell you about Gibraltar’s ability to finance purchases of property, plant, and equipment with cash provided by operating activities?

3. What do you think was Gibraltar management’s plan for the use of the cash generated by selling other equity investments?

During the period, Wong Company sold some excess equipment at a loss. The following information was collected from the company’s accounting records:

$$\begin{array} {lrrrrr} \textbf{From the Income Statement}\\ \hspace{10pt}\text{Depreciation expense}& \hspace{10pt}\text{\$\hspace{10pt}820}&\\ \hspace{10pt}\text{Loss on sale of equipment}& \hspace{10pt}\text{4,400}&\\ \textbf{From the Balance Sheet}\\ \hspace{10pt}\text{Beginning equipment }& \text{19,000}&\\ \hspace{10pt}\text{Ending equipment}& \hspace{10pt}\text{12,100}&\\ \hspace{10pt}\text{Beginning accumulated depreciation}& \hspace{10pt}\text{1,800}&\\ \hspace{10pt}\text{Ending accumulated depreciation }& \text{1,900}&\\ \end{array}$$

No new equipment was bought during the period.

Required:

1. For the equipment that was sold, determine its original cost, its accumulated depreciation, and the cash received from the sale. (Use the equipment and accumulated depreciation T-accounts to infer the book value of the equipment sold.)

2. Wong Company uses the indirect method for the Operating Activities section of the cash flow statement. What amount related to the sale would be added or subtracted in the computation of Net Cash Flows from Operating Activities?

3. What amount related to the sales would be added or subtracted in the computation of Net Cash Flows from Investing Activities?

How is the sale of equipment reported on the statement of cash flows using the indirect method?

What are noncash investing and financing activities? Give two examples. How are they reported on the statement of cash flows?

During two recent years Perez Construction, Inc., disposed of the following plant and equipment:

$$\begin{array} {|lrr|}\hline &{\hspace{15pt}\textbf{Year 1}\hspace{5pt}}&{\hspace{15pt}\textbf{Year 2}\hspace{5pt}}\\\hline \text{Plant and equipment (at cost)}\hspace{5pt} \ &\ \text{\$75,000}&\text{\$13,500}\\ \text{Accumulated depreciation on equipment disposed of}\hspace{5pt}&\text{40,385}&\text{3,773}\\ \text{Cash received}&\text{17,864}&\text{12,163}\\ \text{Gain (loss) on sale }&\text{(16,751)}&\text{2,436}\\ \hline \end{array}$$

Required:

1. Determine the cash flow from the sale of property for each year that would be reported in the investing activities section of the cash flow statement.

2. Perez uses the indirect method for the operating activities section of the cash flow statement. What amounts related to the sales would be added or subtracted in the computation of Net Cash Flows from Operating Activities for each year?

A recent statement of cash flows for Apple contained the following information (dollars in millions):

$$\begin{array}{c} \hline \hspace{70pt}\textbf{Operations}\hspace{70pt}\\ \hline \end{array}$$

$$\begin{array} {lrrrrr} \text { Net income } & \$11,875\\ \text { Depreciation } & {703} \\ \text { Changes in assets and liabilities }\\ \hspace{10pt}\text { Accounts receivable} & (939)\\ \hspace{10pt}\text { Inventories } & 54\\ \hspace{10pt}\text { Other current assets} & (1,050)\\ \hspace{10pt}\text { Accounts payable} & 92\\ \hspace{10pt}\text { Deferred revenue }& 6,908\\ \hspace{10pt}\text { Other current liabilities} & (184)\\ \hspace{10pt}\text { Other adjustments} & \underline{\hspace{8pt}(7,300)} \\ \text { Cash generated by operations } & \underline{\underline{\$\hspace{5pt}10,159}} \\\\ \hline \end{array}$$

Required:

For each of the asset and liability accounts listed on the statement of cash flows, determine whether the account balances increased or decreased during the period.

What are the typical cash inflows from financing activities? What are the typical cash outflows from financing activities?

What are the typical cash inflows from investing activities? What are the typical cash outflows from investing activities?

A recent statement of cash flows for Colgate-Palmolive reported the following information (dollars in millions):

$$\begin{array}{c} \hline \hspace{50pt}\textbf{Operating Activities}\hspace{50pt}\\ \hline \end{array}$$

$$\begin{array} {lrrrrr} \text { Net income } & \$1,957.2\\ \text { Depreciation } & {347.6} \\ \text { Cash effect of changes in }\\ \hspace{10pt}\text { Receivables } & (69.8)\\ \hspace{10pt}\text { Inventories } & (134.7)\\ \hspace{10pt}\text { Other current assets }& (31.0)\\ \hspace{10pt}\text { Payables } & 125.2\\ \hspace{10pt}\text { Other } & \underline{\hspace{25pt}43.8} \\ \text { Net cash provided by operations } & \underline{\underline{\$\hspace{5pt}2,238.3}} \\\\ \hline \end{array}$$

Required:

Based on the information reported on the statement of cash flows for Colgate-Palmolive, determine whether the following accounts increased or decreased during the period: Receivables, Inventories, Other Current Assets, and Payables.

The total change in cash as shown near the bottom of the statement of cash flows for the year should agree with which of the following?

a. The difference in retained earnings when reviewing the comparative balance sheet.

b. Net income or net loss as found on the income statement.

c. The difference in cash when reviewing the comparative balance sheet.

d. None of the above.

In what order do the three sections of the statement of cash flows usually appear when reading from top to bottom?

a. Financing, Investing, Operating

b. Investing, Operating, Financing

c. Operating, Financing, Investing

d. Operating, Investing, Financing

Refer to the financial statements of American Eagle Outfitters given in Appendix B at the end of this book.

Required:

1. On the statement of cash flows, what was the largest item (in absolute value) listed under “Adjustments to reconcile net income to net cash provided by operating activities”? What was the largest “Changes in assets and liabilities” in the operating section of the cash flow statement? Explain the direction of the effect of each in the reconciliation.

2. Examine American Eagle Outfitters’s investing and financing activities. List the company’s three largest uses of cash over the past three years. List two major sources of cash for these activities.

3. What was free cash flow for the year ended January 31, 2009? What does this imply about the company’s financial flexibility?

Ingersol Construction Supply Company is developing its annual financial statements at December 31, 2012. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statement are summarized as follows:

$$\begin{array} {|lrr|} \hline &{\hspace{2pt}\textbf{2011}\hspace{10pt}}&{\hspace{2pt}\textbf{2010}\hspace{10pt}}\\ \hline {\textbf{Balance Sheet at December 31}}\\ \text{Cash}\hspace{5pt} \ &\ \text{\$34,000}&\text{\$29,000}\\ \text{Accounts receivable}\hspace{5pt}& \text{45,000}&\text{28,000}\\ \text{Merchandise inventory}\hspace{5pt} & \text{32,000} &\text{38,000}\\ \text{Property and equipment}\hspace{5pt} & \text{121,000} &\text{100,000}\\ \text{Less: Accumulated depreciation}\hspace{5pt} & \text{\underline{\hspace{7pt}{(30,000)}}}&\text{\underline{\hspace{7pt}{(25,000)}}}\\ & \underline{\underline{\$\hspace{5pt}\text{202,000}}}&\underline{\underline{\$\hspace{5pt}\text{170,000}}}\\\\ \text{Accounts payable}\hspace{5pt} \ &\ \text{\$36,000}&\text{\$27,000}\\ \text{Wages payable}\hspace{5pt} & \text{2,200} &\text{1,400}\\ \text{Note payable, long-term}\hspace{5pt} & \text{40,000} &\text{46,000}\\ \text{Contributed capital}\hspace{5pt} & \text{86,600} &\text{70,600}\\ \text{Retained earnings}\hspace{5pt} & \text{\underline{\hspace{15pt}{37,200}}}&\text{\underline{\hspace{15pt}{25,000}}}\\ & \underline{\underline{\$\hspace{5pt}\text{202,000}}}&\underline{\underline{\$\hspace{5pt}\text{170,000}}}\\\\ {\textbf{Income Statement for 2011}}\\ \text{Sales}\hspace{5pt} \ &\ \text{\$135,000}&\\ \text{Cost of goods sold}\hspace{5pt} & \text{70,000}\\ \text{Other expenses}\hspace{5pt} & \text{\underline{\hspace{15pt}{37,800}}}\\ \text{Net income}& \underline{\underline{\$\hspace{10pt}\text{27,200}}}\\\\ \hline \end{array}$$

Additional Data:

a. Bought equipment for cash, $21,000.

b. Paid$6,000 on the long-term note payable.

c. Issued new shares of stock for $16,000 cash.

d. Dividends of$15,000 were declared and paid in cash.

e. Other expenses included depreciation, $5,000; wages,$20,000; taxes, $6,000; and other,$6,800.

f. Accounts payable includes only inventory purchases made on credit. Because there are no liability accounts relating to taxes or other expenses, assume that these expenses were fully paid in cash.

Required:

1. Prepare the statement of cash flows using the indirect method for the year ended December 31, 2012.

2. Evaluate the statement of cash flows.

MillerCoors Brewing Company is the world’s fifth largest brewer. In the United States, its tie to the magical appeal of the Rocky Mountains is one of its most powerful trademarks. Some of the items included in its recent annual consolidated statement of cash flows presented using the indirect method are listed here. Indicate whether each item is disclosed in the Operating Activities (O), Investing Activities (I), or Financing Activities (F) section of the statement or use (NA) if the item does not appear on the statement. ( Note: This is the exact wording used on the actual statement.)

_______ 1. Purchase of stock. [This involves repurchase of the company’s own stock.]

_______ 2. Principal payment on long-term debt.

_______ 3. Proceeds from sale of properties.

_______ 4. Inventories (decrease).

_______ 5. Accounts payable (decrease).

_______ 6. Depreciation, depletion, and amortization.