ACC1002X Financial Accounting

Semester 2 of Academic Year 2015-2016

SOLUTIONS to Optional Questions
CHAPTER 5: 5-47, 5-57, 5-61, 5-66

5-47
BRITISH AIRWAYS PLC
Statement of Cash Flows from Investing Activities
For the 2009 Fiscal Year
(In Millions)
Cash from Interest received*
Cash from Dividends received*
Purchase of property, plant and equipment
Purchase of subsidiary (net of cash received)
Proceeds from sale of property, plant, and equipment
Purchase of intangible assets
Proceeds from sale of other investments
Proceeds from other investing activities
Net cash used for investing activities

105
17
(547)
(34)
5
(24)
7
214
(257)

* British Airways classifies dividends and interest received as investing activities for the net cash
used for investing activities to total (257). This is allowed under IFRS but not under U.S.
GAAP. Under U.S. GAAP, interest and dividends received would be omitted from the investing
activities section, and classified in the operating activities section instead.
5-57
CLOROX COMPANY
Statement of Cash Flows from Operating Activities
For the Nine Months Ended March 31, 2009
Net Earnings
Add expenses not requiring cash:
Depreciation and amortization
Other noncash revenue and expense, net
Adjust for changes in operating current
assets and current liabilities:
Decrease in accounts receivable
Increase in inventories
Increase in other current assets
Decrease in accounts payable and
accrued liabilities
Decrease in income taxes payable
Net cash provided by operating activities

$ 367
$ 142
65

207

$ 21
(42)
(20)
(101)
(9)

(151)
$ 423

Page 1 of 4

5-61
CHAVEZ COMPANY
Statement of Cash Flows
For the Year Ended December 31, 20X1
(In Millions)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation
Increase in receivables
Increase in inventories
Increase in current liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of fixed assets
Cash flows from financing activities:
Issue of long-term debt
Dividends paid
Cash provided by financing activities
Net decrease in cash
Cash balance, December 31, 20X0
Cash balance, December 31, 20X1
2.

$ 60

40
(38)
(44)
75
$ 93
(240)
$150
(12)
138
(9)
21
$ 12

Dear Mr. Chavez:

Severe shortages of cash often accompany rapid corporate growth. Profitable
operations usually produce heavy supplies of cash. But the insatiable demand for cash
to expand receivables, inventories, and fixed assets may deplete the cash on hand
despite profitable operations. In your case, the substantial increase in the fixed asset
levels above the amount financed by debt was perhaps the dominant factor in
consuming cash generated by operations.

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5-66 This problem includes the complication of gains and losses on asset sales and debt
retirement.
ANCHORAGE TOYS, INC.
Statement of Cash Flows
For the Year Ended December 31, 20X1
(In Thousands)
Cash flows from operating activities:
Cash collections from customers ($9,839 $31)
Dividends received
Cash payments:
To suppliers and employees
For interest ($144 $15)
For taxes
Cash disbursed for operating activities
Net cash provided by operating activities
Cash flows from investing activities:
Purchase property, plant, and equipment
Purchase stock in Missoula Toy Co.
Proceeds from sale of property
Net cash used by investing activities
Cash flows from financing activities:
Issue common stock
Cash received on exercise of stock options
Issue long-term debt
Retire long-term debt
Buy treasury stock
Cash dividends paid
Net cash provided by financing activities
Net increase in cash and cash equivalents

$ 9,808
152

$ 9,960

$ (8,074)
(129)
(390)
(8,593)
$ 1,367
$ (1,986)
(3,848)
500
(5,334)
$ 3,300
170
1,906
(850)
(249)
(240)
4,037
$ 70

Note that (h) regarding the money market fund is irrelevant; it merely rearranges the composition
of the total cash holdings.
The noncash purchase of new equipment in (d) would be shown in an accompanying schedule,
similarly for transactions (f) and (j).

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Reconciliation of Net Income to Net Cash Provided by Operating Activities

Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Add:
Depreciation and amortization
Deduct:
Increase in inventories
Deduct:
Increase in accounts receivable
Add:
Increase in accounts and wages payable
Add:
Increase in interest payable
Add:
Increase in taxes payable
Net cash provided by operating activities

$ 798

615
(72)
(31)
7
15
35
$1,367

Schedule of Noncash Investment and Financing Activities

Issue note payable for purchase of equipment

516

Issue common stock for conversion of long-term debt

960

Issue common stock to acquire Bellingham Musical Instruments Co.

305

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