23 Statement of Cash Flows Financial Reporting Problem 23
Financial Reporting Problem
The Procter & Gamble Company (P&G)
The financial statements of P&G are presented in Appendix B. The company’s complete annual report, including the notes to the financial statements, is available online.
Instructions
Refer to P&G’s financial statements and the accompanying notes to answer the following questions.
(a) Which method of computing net cash provided by operating activities does P&G use? What were the amounts of net cash provided by operating activities for the years 2012, 2013, and 2014? Which two items were most responsible for the decrease in net cash provided by operating activities in 2014?
(b) What was the most significant item in the cash flows used for investing activities section in 2014?
What was the most significant item in the cash flows used for financing activities section in 2014?
(c) Where is “deferred income taxes” reported in P&G’s statement of cash flows? Why does it appear in that section of the statement of cash flows?
(d) Where is depreciation reported in P&G’s statement of cash flows? Why is depreciation added to net income in the statement of cash flows?
Comparative Analysis Case
The Coca-Cola Company and PepsiCo, Inc.
The financial statements of Coca-Cola and PepsiCo are presented in Appendices C and D, respectively. The companies’ complete annual reports, including the notes to the financial statements, are available online.
Instructions
Use the companies’ financial information to answer the following questions.
(a) What method of computing net cash provided by operating activities does Coca-Cola use? What method does PepsiCo use? What were the amounts of cash provided by operating activities reported by Coca-Cola and PepsiCo in 2014?
(b) What was the most significant item reported by Coca-Cola and PepsiCo in 2014 in their investing activities sections? What is the most significant item reported by Coca-Cola and PepsiCo in 2014 in their financing activities sections?
(c) What were these two companies’ trends in net cash provided by operating activities over the period 2012 to 2014?
(d) Where is “depreciation and amortization” reported by Coca-Cola and PepsiCo in their statements of cash flows? What is the amount and why does it appear in that section of the statement of cash flows?
(e) Based on the information contained in Coca-Cola’s and PepsiCo’s financial statements, compute the following 2014 ratios for each company. These ratios require the use of statement of cash flows data. (These ratios were covered in Chapter 5.)
(1) Current cash debt coverage.
(2) Cash debt coverage.
(f) What conclusions concerning the management of cash can be drawn from the ratios computed in (e)?
Financial Statement Analysis Case
Vermont Teddy Bear Co.
Founded in the early 1980s, the Vermont Teddy Bear Co. designs and manufactures American-made teddy bears and markets them primarily as gifts called Bear-Grams or Teddy Bear-Grams. Bear-Grams are personalized teddy bears delivered directly to the recipient for special occasions such as birthdays and anniversaries. The Shelburne, Vermont, company’s primary markets are New York, Boston, and Chicago. Sales have jumped dramatically in recent years. Such dramatic growth has significant implications for cash flows. Provided below are the cash flow statements for two recent years for the company...
Instructions
(a) Note that net income in the current year was only $17,523 compared to prior-year income of $838,955, but net cash flow from operating activities was $236,480 in the current year and a negative $700,957 in the prior year. Explain the causes of this apparent paradox.
(b) Evaluate Vermont Teddy Bear’s liquidity, solvency, and profitability for the current year using cash flow-based ratios.
Accounting, Analysis, and Principles
The income statement for the year ended December 31, 2017, for Laskowski Manufacturing Company contains the following condensed information…
Accounting
Prepare the statement of cash flows using the indirect method.
Analysis
Laskowski has an aggressive growth plan, which will require significant investments in plant and equipment over the next several years. Preliminary plans call for an investment of over $500,000 in the next year. Compute Laskowski’s free cash flow (from
Chapter 5) and use it to evaluate the investment plans with the use of only internally generated funds.
Principles
How does the statement of cash flows contribute to achieving the objective of financial reporting?
