Financial Accounting
15th Edition
ISBN: 9781337272124
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Textbook Question
Chapter 8, Problem 25E
Mattel, Inc., designs, manufactures, and markets toy products worldwide. Mattel’s toys include Barbie® fashion dolls and accessories, Hot Wheels®, and Fisher-Price brands. For a recent year, Mattel reported the following net
Explain why Mattel reported negative net cash flows from operating activities during the first and second quarters and a large positive cash flow for the fourth quarter, with overall net positive cash flow for the year.
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At one time, the Coca-Cola Company reported a number called” economic profit” that is very similar to residual operating income. It also reported free cash flow in its annual summary of selected financial data. The respective numbers for 1992-1999 are given below (in millions of dollars), along with what Coke calls total capital (similar to net operating assets) and return on total capital (similar to return on net operating assets):
1992
1993
1994
1995
1996
1997
1998
1999
Economic Profit
1300
1549
1896
2291
2718
3325
2480
1128
Free Cash Flow
873
1623
2146
2102
2413
3533
1876
2332
Total Capital
7095
7684
8744
9456
10669
11186
13552
15740
Return on Capital
29.40%
31.20%
32.70%
34.90%
36.70%
39.40%
30.20%
18.20%
a. Economic profit and free cash flow are similar, in most years, and their growth patterns are similar. Why?
b. Based on this past history, would you be indifferent in valuing Coke using discounted cash flow methods or residual operating income methods?
The management of ABC Company felt proud of their accomplishments concerning cash flow for the end of the year because overall cash increased by $1,500,000. In the operating section, the company showed an increase in cash of $250,000 because of net income. However, because of increases in accounts receivable and inventory, the overall cash outflow from operating activities was $100,000.
In the investing section, purchases of long-term assets outweighed the sale of long-term assets which resulted in a cash outflow from investing activities of $500,000.
The company has a line-of-credit with the bank. During the year, the company drew on the line which resulted in cash inflow from financing activities of $2,100,000. The cash inflow from financing activities of $2,100,000 less the cash outflow from operating activities of $100,000 and less the cash out flow from investing activities resulted in the overall cash increase of $1,500,000.
Analyze the cash flows of ABC Company. What conclusions…
TSW Inc. had the following data for last year: Net income = $850; Net operating profit after taxes (NOPAT) = $700; Total assets = $2,800; and Total operating capital = $2,100. Information for the just-completed year is as follows: Net income = $1,200; Net operating profit after taxes (NOPAT) = $950; Total assets = $2,450; and Total operating capital = $2,350. How much free cash flow did the firm generate during the just-completed year?
Group of answer choices
$595
$770
$700
$630
$735
Chapter 8 Solutions
Financial Accounting
Ch. 8 - Prob. 1DQCh. 8 - Why should the employee who handles cash receipts...Ch. 8 - Prob. 3DQCh. 8 - Why should the responsibility for maintaining the...Ch. 8 - Assume that Brooke Miles, accounts payable clerk...Ch. 8 - Prob. 6DQCh. 8 - Prob. 7DQCh. 8 - Prob. 8DQCh. 8 - Prob. 9DQCh. 8 - Prob. 10DQ
Ch. 8 - Prob. 1PEACh. 8 - Prob. 1PEBCh. 8 - Prob. 2PEACh. 8 - Prob. 2PEBCh. 8 - Prob. 3PEACh. 8 - Prob. 3PEBCh. 8 - Prob. 4PEACh. 8 - Prob. 4PEBCh. 8 - Financial data for Otto Company follow: a....Ch. 8 - Prob. 5PEBCh. 8 - Prob. 1ECh. 8 - Prob. 2ECh. 8 - Prob. 3ECh. 8 - Pacific Bank provides loans to businesses in the...Ch. 8 - Prob. 5ECh. 8 - An employee of JHT Holdings, Inc., a trucking...Ch. 8 - Prob. 7ECh. 8 - Prob. 8ECh. 8 - Prob. 9ECh. 8 - Prob. 10ECh. 8 - Prob. 11ECh. 8 - The actual cash received from cash sales was...Ch. 8 - The actual cash received from cash sales was...Ch. 8 - Abbe Co. is a small merchandising company with a...Ch. 8 - Prob. 15ECh. 8 - Prob. 16ECh. 8 - Prob. 17ECh. 8 - Prob. 18ECh. 8 - Prob. 19ECh. 8 - Prob. 20ECh. 8 - Prob. 21ECh. 8 - Prob. 22ECh. 8 - Prob. 23ECh. 8 - Prob. 24ECh. 8 - Mattel, Inc., designs, manufactures, and markets...Ch. 8 - El Dorado Inc. has monthly cash expenses of...Ch. 8 - Prob. 27ECh. 8 - Amicus Therapeutics, Inc., is a biopharmaceutical...Ch. 8 - Prob. 1PACh. 8 - Prob. 2PACh. 8 - Prob. 3PACh. 8 - Prob. 4PACh. 8 - Prob. 5PACh. 8 - Prob. 1PBCh. 8 - Prob. 2PBCh. 8 - Prob. 3PBCh. 8 - Prob. 4PBCh. 8 - Prob. 5PBCh. 8 - Tehra Dactyl is an accountant for Skeds, Inc., a...Ch. 8 - During the preparation of the bank reconciliation...Ch. 8 - Prob. 5CPCh. 8 - Prob. 6CPCh. 8 - Prob. 7CPCh. 8 - Prob. 8CPCh. 8 - Prob. 9CP
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Mattel, Inc., designs, manufactures, and markets toy products worldwide. Mattels toys include Barbie fashion dolls and accessories, Hot Wheels, and Fisher-Price brands. For a recent year, Mattel reported the following net cash flows from operating activities (in thousands): Explain why Mattel reported negative net cash flows from operating activities during the second and third quarters and a large positive cash flow for the fourth quarter, with overall net positive cash flow for the year.
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ABC Inc. had the following data for last year: Net income = $1000; Net operating profit after taxes (NOPAT) = $900; Total assets = $3,200; and Total operating capital = $2,200. Information for the just-completed year is as follows: Net income = $1,300; Net operating profit after taxes (NOPAT) = $1225; Total assets = $2,900; and Total operating capital = $2,800. How much free cash flow did the firm generate during the just-completed year?
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Summit Manufacturing’s most recent statements of cash flows indicate that the firm has paid large dividends to its stockholders in each of the past three years. Upon noting this information,
A :
potential investors would be more likely to invest in Summit, but potential lenders may be less likely to grant the company a loan.
B :
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C :
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D :
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During the year, Broozer’s increased its accounts receivable by $240, increased its inventory by $195, decreased its accounts payable by $80, increased its short-term notes payable by $100 and increased its LTD by $600.. How did these accounts affect the firm’s cash flows from operating activities for the year?
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TSW Inc. had the following data for last year: Net income = $800; Net operating profit after taxes (NOPAT) = $700; Total assets = $3,000; and Total operating capital = $2,000. Information for the just-completed year is as follows: Net income = $1,000; Net operating profit after taxes (NOPAT) = $750; Total assets = $2,600; and Total operating capital = $2,500. How much free cash flow did the firm generate during the just-completed year?
Select the correct answer.
a. $240
b. $260
c. $255
d. $245
e. $250
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At the beginning of the year, National Corporation had P100,000 in cash. The company undertook a major expansion during this same year. Looking at its statement of cash flows, you see that the net cash provided by its operations was P350,000 and the company’s investing activities required cash expenditures of P800,000. The company’s cash position at the end of the year was P70,000. What was the net cash provided by the company’s financing activities?
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The Emerald Corporation had $55,000 in cash at year-end 2010 and $25,000 in cash at year end 2011.
The firm invested $250,000 in property, plant and equipment.
Cash flow from financing activities totaled $170,000.
What was the cash flow from operating activities?
If accruals increased by $25,000, receivables and inventories increased by $100,000, and depreciation and amortization totaled $10,000, what was the firm’s net income?
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EMC Corporation manufactures large-scale, high-performance computer systems. In a recent annual report, the balance sheet included the following information ($ in millions):
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2014
Current assets:
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$
3,977
$
4,413
In addition, the income statement reported sales revenue of $24,704 ($ in millions) for the current year. All sales are made on a credit basis. The statement of cash flows indicates that cash collected from customers during the current year was $25,737 ($ in millions). Note that there could have been significant recoveries of accounts receivable previously written off. Required:1. Compute the following ($ in millions):
The net amount of bad debts written off or reinstated by EMC during 2015.
The amount of bad debt expense or reduction of bad debt expense that EMC included in its income statement for 2015.
2. Suppose that EMC had used the direct write-off method to account for bad…
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MC Corporation manufactures large-scale, high-performance computer systems. In a recent annual report, the balance sheet included the following information ($ in millions):
2015
2014
Current assets:
Receivables, less allowances of $90 in 2015 and $72 in 2014
$
3,977
$
4,413
In addition, the income statement reported sales revenue of $24,704 ($ in millions) for the current year. All sales are made on a credit basis. The statement of cash flows indicates that cash collected from customers during the current year was $25,737 ($ in millions). Note that there could have been significant recoveries of accounts receivable previously written off. Required:1. Compute the following ($ in millions):
The net amount of bad debts written off or reinstated by EMC during 2015.
The amount of bad debt expense or reduction of bad debt expense that EMC included in its income statement for 2015.
2. Suppose that EMC had used the direct write-off method to account for bad…
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Olympic, Inc. had the following positive and negative cash flows during the current year:
Positive cash flows:
Received from customers $240,000
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Sale of plant assets 330,000
Negative cash flows:
Paid to suppliers and employees $127,000
Purchase of investments 45,000
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Determine the amount of cash provided by or used for operating activities by the direct method.
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Mary Walker, president of Rusco Company, considers $14,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $8,000 in cash was available at the end of this year. Since the company reported a large net income for the year, and also issued both bonds and common stock, the sharp decline in cash is puzzling to Ms. Walker.
Mary Walker, president of Rusco Company, considers $14,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $8,000 in cash was available at the end of this year. Since the company reported a large net income for the year, and also issued both bonds and common stock, the sharp decline in cash is puzzling to Ms. Walker.
Rusco CompanyComparative Balance Sheetat July 31
This Year
Last Year
Assets
Current assets:
Cash
$ 8,000
$ 21,000
Accounts receivable
120,000
80,000
Inventory
140,000
90,000
Prepaid expenses
5,000
9,000
Total…
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Mary Walker, president of Rusco Company, considers $14,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $8,000 in cash was available at the end of this year. Since the company reported a large net income for the year, and also issued both bonds and common stock, the sharp decline in cash is puzzling to Ms. Walker.
Mary Walker, president of Rusco Company, considers $14,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $8,000 in cash was available at the end of this year. Since the company reported a large net income for the year, and also issued both bonds and common stock, the sharp decline in cash is puzzling to Ms. Walker.
Rusco CompanyComparative Balance Sheetat July 31
This Year
Last Year
Assets
Current assets:
Cash
$ 8,000
$ 21,000
Accounts receivable
120,000
80,000
Inventory
140,000
90,000
Prepaid expenses
5,000
9,000
Total…
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