Posted: April 19th, 2016

If O’Hare developed a cash flow statement for 2012 using the indirect method, what amount would appear in the category titled Cash Flow from Operating Activities?

1. Develop an income statement for O’Hare Company for 2012.
2. Determine the amount of net cash flow for 2012.
3. Why does the net income not equal net cash flow?
4. If O’Hare developed a cash flow statement for 2012 using the indirect method, what amount would appear in the category titled Cash Flow from Operating Activities?

EXERCISE 9-5: Current Liabilities and Ratios

Several accounts that appeared on Kruse’s 2012 balance sheet are as follows:
Accounts Payable $55,000
Marketable Securities 40,000
Accounts Receivable 180,000
Notes Payable, 12%, due in 60 days 20,000
Capital Stock 1,150,000
Salaries Payable 10,000
Cash 15,000
Equipment 950,000
Taxes Payable 15,000
Retained Earnings 250,000
Inventory 85,000
Allowance for Doubtful Accounts 20,000
Land 600,000
1. Prepare the Current Liabilities section of Kruse’s 2012 balance sheet.
2. Compute Kruse’s working capital.
3. Compute Kruse’s current ratio.

What does this ratio indicate about Kruse’s condition?

EXERCISE 10-11: Impact of Transactions Involving Capital Leases on Statement of Cash Flows

Assume that Garnett Corporation signs a lease agreement with Duncan Company to lease a piece of equipment and determines that the lease should be treated as a capital lease. Garnett records a leased asset in the amount of $53,400 and a lease obligation in the same amount on its balance sheet.

1. Indicate how this transaction would be reported on Garnett’s statement of cash flows.
2. In the following list of transactions relating to this lease, identify each item as operating (O), investing (I), financing (F), or not separately reported on the statement of cash flows (N).

Reduction of lease obligating (principal portion of lease payment)
Interest expense
Increase in deferred taxes

PROBLEM 10-9: Partial Classified Balance Sheet for Walgreens

The following items, listed alphabetically, appear on Walgreen’s consolidated balance sheet at August 31, 2010 (in millions).

Accrued expenses and other liabilities 2,763
Deferred income tax (long-term) 318
Long-term debt 2,389
Other noncurrent liabilities 1735
Short-term borrowing 12
Trade accounts payable 4585
Income Taxes 73

1. Prepare the Current Liabilities and Long-Term Liabilities sections of Walgreens’s classified balance sheet at August 31, 2010.

2. Walgreens had total liabilities of $10,766 and total shareholders’ equity of $14,376 at August 31, 2009. Total shareholders’ equity at August 31, 2010, amounted to $14,400. (All amounts are in millions.) Compute Walgreens’s debt-to-equity ratio at August 31, 2010 and 2009.

As an investor, how would you react to the changes in the ratio?

3. What other related ratios would the company’s lenders use to assess the company? What do these ratios measure? List as many as you determine needed.

PROBLEM 11-7: Wal-mart’s Comprehensive Income

Following is the consolidated statement of shareholders’ equity of Wal-Mart Stores, Inc., for the year ended January 31, 2010:
1. Which items were included in comprehensive income? If these items had been included on the income statement as part of net income, what would have been the effect?

2. Would the concept of comprehensive income help to explain to Wal-Mart’s stockholders the impact of all events that took place in 2010? Why or why not?

Peeler Company was incorporated as a new business on January 1, 2012. The corporate charter approved on that date authorized the issuance of 1,000 shares of $100 par, 7% cumulative, non-participating preferred stock and 10,000 shares of $5 par common stock. On January 10, Peeler issued for cash 500 shares of preferred stock at $120 per share and 4,000 shares of common stock at $80 per share. On January 20, it issued 1,000 shares of common stock to acquire a building site at a time when the stock was selling for $70 per share.

During 2012, Peeler established an employee benefit plan and acquired 500 shares of common stock at $60 per share as treasury stock for that purpose. Later in 2012, it resold 100 shares of the stock at $65 per share.

On December 31, 2012, Peeler determined its net income for the year to be $40,000. The firm declared the annual cash dividend to preferred stockholders and a cash dividend of $5 per share to the common stockholders. The dividends will be paid in 2013.

Indicate how each transaction affects the cash flow of Peeler Company by preparing the Financing Activities section of the 2012 statement of cash flows. Provide an explanation for the exclusion of any of these transactions from the Financing Activities section of the statement.

Cash flows from financing activities:
Transaction # Stock x Cost

The following transactions would not appear in the Financing Activities section of the statement of cash flows:

XERCISE 12-19: Cash Flow Adequacy

On its most recent statement of cash flows, a company reported net cash provided by operating activities of $12 million. Its capital expenditures for the same year were $2 million. A note to the financial statements indicated that the total amount of debt that would mature over the next five years was $20 million.

1. Compute the company’s cash flow adequacy ratio.
2. If you were a banker considering loaning money to this company, why would you be interested in knowing its cash flow adequacy ratio? Would you feel comfortable making a loan based on the ratio you comp