Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281



Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem

Operating, Investing, and Financing Activities The following is information about three different companies.

  1. 1. Noon Wakeup Company is a software game development company that creates titles for the Android operating system. The company recently launched its first software title. The company is expanding its operations by hiring additional developers and administrative staff. Noon Wakeup is not yet profitable, but it expects to show a profit within 2 years. Investors view the company as being on the cutting edge with its technology and have continued to invest in the company. Noon Wakeup has not yet borrowed money, but is considering doing so in the future.
  2. 2. Steel Grid Company is a textile company located in Waynesboro, NC. The company is experiencing its 20th year of profitability. Management is concerned by the recent economic downturn in the textile business, which has hurt sales in the 3 most recent fiscal years. Next year the company expects to just break even. For this reason, the company is not expanding and is only replacing fully depreciated equipment in its machine intensive manufacturing business. Steel Grid- pridcs itself in paying dividends and having no debt on its balance sheet.
  3. 3. Device Driver Company is a technology manufacturing company located in Bloomington, IN. The company has just introduced its 10th new product and is the leader in market share for its industry. The company continues to invest in new equipment and property and to expand by purchasing its competitors. The company has yet to pay dividends, but it is considering doing so in the future. The company’s largest current asset is cash, as a result of its high profit margin; because of this, the company has no need for external sources of cash.


For each company, prepare a report examining whether you think the company’s current cash flows from each activity (operating, investing, and financing) will be positive (the activity provides cash) or negative (the activity uses cash). Provide support for your answers.

To determine

Prepare a report regarding company’s current cash flow for various activities.


1. N Company’s current cash flows for various activities.

Operating Activities: Under operating activities section N Company starts with a net loss. Since computer software companies do not use a lot of equipment and plant. So the company does not have much depreciation expenses to add back to the net loss. Therefore these items suggest that N Company’s cash flow from operating activities will be negative.

Investing Activities: Since the N Company is adding more employees, the purchase of computers and office equipment increases. So it shows negative cash flows from investing activities.

Financing Activities: N Company is still receiving capital investments from its investors. It hasn’t borrowed any money. So it does not have any cash inflows or outflows from debt. Since the company has negative cash flows from operating and investing activities, it probably has positive cash flows from financing activities.

2. S Company’s current cash flows for various activities.

Operating Activities: Since S Company relies on machinery in manufacturing process it shows profit. Therefore, it will have positive cash flows from operating activities by adding net income to depreciation expense...

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

Use a production possibilities frontier to describe the idea of efficiency.

Principles of Microeconomics (MindTap Course List)

BETA COEFFICIENTS Suppose Chance Chemical Companys management conducted a study and concluded that if it expand...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

What are transferred-in costs?

Cornerstones of Cost Management (Cornerstones Series)