Monday December 5th Chapter 13 ANSWERS TO QUESTIONS E13 1 F F O F O NA F O I O 1 Dividends paid 2 Repayments of long term debt 3 Depreciation and amortization 4 Proceeds from issuance of common stock to employees 5 Change in Accounts payable and accrued expenses 6 Cash collections from customers 7 Net repayments of notes payable to banks 8 Net income 9 Payments to acquire property and equipment 10 Change in Inventory E13 3 1 NE Salaries expense Accrued salaries payable 2 NCFI Plant and equipment Cash 3 NCFO Cash Accounts receivable 4 NCFO Interest expense Cash 5 NCFF Retained earnings Cash 6 NCFI Cash Accumulated depreciation Plant and equipment 7 NCFO Prepaid expenses rent Cash 8 NCFF Short term debt Cash 9 NE 10 NCFO Inventory Accounts payable Accounts payable Cash E13 9 Req 1 Cash flows from operating activities indirect method Net loss Depreciation amortization and impairments Decrease in receivables Increase in inventories Decrease in accounts payable Cash flows from operating activities 13 402 34 790 1 245 5 766 445 16 422 Note The additions to equipment do not affect cash flows from operating activities Req 2 The primary reason for the net loss was the depreciation amortization and impairments expense These represent non cash expenses Large depreciation amortization and impairments expense offset partially by increased working capital requirements turned Time Warner s net loss into positive operating cash flow The reasons for the difference between net income and cash flow from operations are important because they help the financial analyst determine if the trends are sustainable or whether they represent onetime events Wednesday December 7th E13 10 Account Receivables Inventories Other current assets Payables Change Increase Increase Increase Increase E13 14 Req 1 Cash flows from operating activities indirect method Net income Depreciation and amortization Increase in accounts receivable Increase in inventory Increase in prepaid expense Increase in accounts payable Decrease in taxes payable Increase in other current liabilities Cash flows from operating activities 5 142 1 543 549 345 68 718 180 738 6 999 Note The cash dividends paid and treasury stock purchased are not related to operating activities and do not affect cash flows from operating activities Req 2 Quality of income ratio Cash flow from operations Net income 6 999 5 142 1 36 Req 3 The reason the quality of income ratio was greater than one was primarily because of large non cash depreciation charges E13 15 The investing and financing sections of the statement of cash flows for Oering s Furniture Cash flows from investing activities Purchase of property plant equipment Sale of marketable securities Proceeds from sale of property plant equipment Net cash flows from investing activities 1 071 219 6 894 6 042 Cash flows from financing activities Borrowings under line of credit Proceeds from issuance of stock Payments on long term debt Payment of dividends Purchase of treasury stock Net cash flows from financing activities 1 117 11 46 277 2 583 1 778 ANSWERS TO MULTIPLE CHOICE 1 d 6 b 2 d 7 d 3 a 8 a 4 a 9 d 5 a 10 c