Chapter 16
Problem 16-3A (35 minutes)
Part 1
Cash dividends DECLARED: $59,300 (Profit of $129,860 less $70,560 change in retained
earnings)
But cash dividends PAID would be $59,300 minus increase in Dividends Payable, i.e.
59,300 – (2,400 – 1,400) = $58,300
Part 2
INSTANT BRAKE INC.
Statement of Cash Flows
For Year Ended December 31, 2023
Cash flows from operating activities:
Profit.......................................................................................................
$129,860
Adjustments to reconcile profit to net cash
inflows from operating activities:
Increase in accounts receivable......................................................... (57,280 )
Increase in inventory..........................................................................
(37,120 )
Decrease in accounts payable........................................................... (26,160 )
Loss on sale of equipment................................................................. 13,820
Gain on sale of investment.................................................................
(20,520 )
Depreciation expense.........................................................................
41,200
Net cash inflow from operating activities........................... $ 43,800
Cash flows from investing activities:
Proceeds from sale of investment..................................... $ 46,800
Proceeds from sale of equipment...................................... 7,620
Purchase of equipment...................................................... (21,000 )
Net cash inflow from investing activities............................ 33,420
Cash flows from financing activities:
Issuance of bonds payable................................................ $ 16,000
Payment of dividend.......................................................... (58,300 )
Net cash outflow from financing activities.......................... (42,300 )
Net increase in cash and cash equivalents.......................... $ 34,920
Cash and cash equivalents, January 1, 2023....................... 31,360
Cash and cash equivalents, December 31, 2023................. $ 66,280
Analysis component:
The net increase in cash and cash equivalents of $34,920 during 2023 for Instant Brake Inc.
was caused by a net cash inflow from operating activities of $43,800 plus a net cash inflow from
investing activities of $33,420 less a net cash outflow from financing activities of $42,300.
Problem 16-4A (35 minutes)
INSTANT BRAKE INC.
Statement of Cash Flows
For Year Ended December 31, 2023
Cash flows from operating activities:
Cash received from customers (1):..................................... $ 827,720
Cash paid for inventory (2)................................................. (631,280 )
Cash paid for operating expenses...................................... (132,640 )
Cash paid for income taxes................................................ (20,000 )
Cash inflow from operating activities.................................... $ 43,800
Cash flows from investing activities:
Proceeds from sale of investment..................................... $ 46,800
Proceeds from sale of equipment...................................... 7,620
Purchase of equipment...................................................... (21,000 )
Net cash inflow from investing activities............................ 33,420
Cash flows from financing activities:
Issuance of bonds payable................................................ $ 16,000
Payment of dividend.......................................................... (58,300 )
Net cash outflow from financing activities.......................... (42,300 )
Net increase in cash and cash equivalents.......................... $ 34,920
Cash and cash equivalents, January 1, 2023....................... 31,360
Cash and cash equivalents, December 31, 2023................. $ 66,280
1. $29,440 + $885,000 – $86,720 = $827,720
2. $112,640 + $568,000 – $75,520 = $605,120; $605,120 + $36,200 – $10,040 = $631,280
Problem 16-5A (40 minutes)
ICE DRILLING INC.
Statement of Cash Flows
For Year Ended December 31, 2023
Cash flows from operating activities:
Profit................................................................................................. $ 165,200
Adjustments to reconcile profit to net cash
inflows from operating activities:
Increase in accounts receivable1.................................................... (34,440)
Increase in merchandise inventory2................................................ (47,600)
Decrease in prepaid expenses3...................................................... 1,960
Decrease in accounts payable4 ..................................................... (63,840)
Depreciation expense..................................................................... 42,000
Loss on sale of equipment.............................................................. 11,480
Net cash inflow from operating activities.......................................... $ 74,760
Cash flows from investing activities:
Cash received from sale of equipment*............................................ $ 30,520
Cash paid for equipment (note A)..................................................... (56,000)
Net cash outflow from investing activities......................................... (25,480)
Cash flows from financing activities:
Cash borrowed on short-term note................................................... $ 8,400
Cash paid on long-term note............................................................ (70,280)
Cash received from issuing common shares5............................... 100,800
Cash paid for dividends.................................................................... (139,160)
Net cash outflow from financing activities......................................... (100,240)
Net decrease in cash.......................................................................... $ (50,960)
Cash balance at beginning of 2023.................................................... 171,640
Cash balance at end of 2023.............................................................. $120,680
1. 145,600 – 111,160 = 34,440
2. 613,200 – 565,600 = 47,600
3. 12,040 – 14,000 = 1,960
4. 197,400 – 261,240 = 63,840
5. 5,600 x $18 = 100,800
Note disclosure:
Note A: The company purchased equipment for $215,880 by signing a $159,880 long-term note
payable and paying $56,000 in cash.
*Calculation: $105,000 cost less $63,000 accumulated depreciation = $42,000 book value;
$42,000 book value less $11,480 loss on sale = $30,520 cash received.
Problem 16-5A (concluded)
Analysis component:
Merchandise inventory:
— increases caused by the purchase of merchandise
— decreases caused by the sale of merchandise
Prepaid expenses:
— increases caused by the purchase of prepaid items, i.e., such as the payment of rent or
insurance in advance
— decreases caused by the use of prepaid expenses
Notes payable:
— increases caused by the issuance of debt (borrowing)
— decreases caused by principal payments
Common shares:
— increases caused by the issuance of shares and/or share dividends
— decreases caused by the repurchase and/or cancellation of shares
Problem 16-6A (50 minutes)
ICE DRILLING INC.
Statement of Cash Flows
For Year Ended December 31, 2023
Cash flows from operating activities:
Cash received from customers (1)................................ $1,077,160
Cash paid for merchandise inventory (2)...................... (671,440)
Cash paid for other expenses (3)................................. (303,800)
Cash paid for income taxes.......................................... (27,160)
Net cash inflow from operating activities...................... $ 74,760
Cash flows from investing activities:
Cash received from sale of equipment......................... $ 30,520
Cash paid for equipment (note A)................................. (56,000)
Net cash outflow from investing activities..................... (25,480)
Cash flows from financing activities:
Cash borrowed on short-term note............................... $ 8,400
Cash paid on long-term note......................................... (70,280)
Cash received from issuing common
shares (5,600 × $18)................................................... 100,800
Cash paid for dividends................................................ (139,160)
Net cash outflow from financing activities..................... (100,240)
Net decrease in cash...................................................... $ (50,960)
Cash balance at beginning of 2023................................ 171,640
Cash balance at end of 2023.......................................... $120,680
Note disclosure:
Note A:
The company purchased equipment for $215,880 by signing a $159,880 long-term note
payable and paying $56,000 in cash.
Supporting calculations:
(1) Sales – Increase in receivables
$1,111,600 – ($145,600 – $111,160) = $1,077,160
(2) Cost of + Increase in + Decrease in
goods sold inventory payables
$560,000 + ($613,200 – $565,600) + ($261,240 – $197,400) = $671,440
(3) Other expenses – Decrease in prepaid expenses
$305,760 – ($14,000 – $12,040) = $303,800
Problem 16-7A (30 minutes)
PADDLEBOARD INC.
Statement of Cash Flows
For Year Ended December 31, 2023
(000s)
Cash flows from operating activities:
Profit $1,000
Adjustments to reconcile profit to net cash
inflows from operating activities:
Increase in receivables1.......................................................... (720)
Decrease in merchandise inventory2...................................... 480
Increase in accounts payable3................................................ 480
Decrease in accrued liabilities4............................................... (160)
Depreciation expense............................................................. 80
Net cash inflow from operating activities.................................... $1,160
Cash flows from investing activities:
Receipt from sale of long-term investment................................. $ 160
Payment for purchase of property, plant and equipment............ (320)
Net cash outflow from investing activities................................... (160)
Cash flows from financing activities:
Payment to retire bonds payable................................................ $ (160)
Receipt from issuing common shares........................................ 320
Payment of cash dividends5........................................................ (120)
Net cash inflow from financing activities..................................... 40
Net increase in cash..................................................................... $1,040
Cash at beginning of year............................................................. 1,840
Cash at end of year...................................................................... $2,880
Calculations:
1. 2,080 – 2,800 = 720
2. 3,040 – 2,560 = 480
3. 1,440 – 1,920 = 480
4. 480 – 320 = 160
5. 3,040 beginning retained earnings + 1,000 profit – dividends = 3,920;
dividends = 120
a. An increase in cash may not necessarily be favourable because the sale of non-current
assets (property, plant and equipment or long-term investments) will increase cash but
then these assets will no longer be generating revenue for the business. Also, an
increase in cash could be the result of borrowing which increases risk for the company
(risk increases because the debt along with interest must be repaid). When shares are
issued cash is generated but increasing the number of common shares dilutes the
ownership of existing shareholders.
b. Paddleboard’s cash increased by $1,040 thousand during 2023 as a result of a net cash
inflow from operating activities of $1,160 thousand less a net cash outflow from investing
activities of $160 thousand plus a net cash inflow from financing activities of $40
thousand.
Problem 16-7A (concluded)
Analysis component:
Problem 16-8A (30 minutes)
PADDLEBOARD INC.
Statement of Cash Flows
For Year Ended December 31, 2023
(000s)
Cash flows from operating activities:
Receipts from customers1 $3,064
Payments for merchandise2 (576)
Payments for income tax expense (288)
Payments for other expenses3 (1,040)
Net cash inflow from operating activities $1,160
Cash flows from investing activities:
Receipt from sale of long-term investment $ 160
Payment for purchase of property, plant and equipment (320)
Net cash outflow from investing activities (160)
Cash flows from financing activities:
Payment to retire bonds payable $ (160)
Receipt from issuing common shares 320
Payment of cash dividends4 (120)
Net cash inflow from financing activities 40
Net increase in cash $1,040
Cash at beginning of year 1,840
Cash at end of year $2,880
1. $2,080 + $3,784 – $2,800 = $3,064
2. $1,536 + $2,560 – $3,040 = $1,056; $1,440 + $1,056 – $1,920 = $576
3. $480 + $880 – $320 = $1,040
4. $3,040 beginning retained earnings + $1,000 profit – dividends = $3,920; dividends =
$120
