• Articulation of the Statement of Cash Flows with Other Financial Statements. Describe how the statement of cash flows is linked to each of the other financial statements (income statement and balance sheet). Also review how the other financial statements are linked with each other.
• Computing Cash Payments for Income Taxes. Visa Inc., a credit card company, reported income tax expense of $1,648 million for Year 1, comprising $1,346 mil- lion of current taxes and $302 million of deferred taxes. The balance sheet showed income taxes payable of $122 million at the beginning of Year 1 and $327 million at the end of Year 1. Compute the amount of income taxes paid in cash during Year 1.
• Interpreting Relations among Cash Flows from Operating, Investing, and Financing Activities. Three years of combined data for two firms follows (in millions).
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Firm A
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Firm B
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Cash flow from operations
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$ 2,639
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$ 2,759
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Cash flow from investing
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(3,491)
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(1,281)
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Cash flow from financing
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1,657
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(1,654)
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One of these firms is eBay, an online retailer with a three-year growth in sales of 337.3%, and the other is TJX Companies, Inc., a specialty retail store with a three-year growth in sales of 39.3%. Identify each firm and explain your reasoning.
• Interpreting the Statement of Cash Flows. The Coca-Cola Company (Coca-Cola), like PepsiCo, manufactures and markets a variety of beverages. Exhibit 3.18 presents a statement of cash flows for Coca-Cola for three years.
REQUIRED:
Discuss the relations between net income and cash flow from operations and among cash flows from operating, investing, and financing activities for the firm over the three-year period. Identify characteristics of Coca-Cola's cash flows that you would expect for a mature company.
• Interpreting the Statement of Cash Flows. Tesla Motors manufactures high performance electric vehicles that are extremely slick looking. Exhibit 3.20 presents the statement of cash flows for Tesla Motors for 2010-2012.
REQUIRED:
Discuss the relations among net income, cash flows from operations, cash flows from investing activities, and cash flows from financing activities for the firm over the three-year period.
Describe what stage of life cycle these relations suggest for Tesla Motors. Why are negative operating cash flows less than the net losses? Where is Tesla obtaining cash, and what are they doing with it? What do you think will happen with cash flows in 2013?
• Working Capital. Identify the working capital accounts related to (a) revenues recognized and deferred, (b) cost of goods sold, (c) employee salary and wages, and (d) income tax expense. For each account, indicate whether an increase in the working capital asset or liability would be an addition or subtraction when reconciling from net income to cash flows from operations.
• Accounts Receivable. Using the following key, identify the effects of the following transactions or conditions on the various financial statement elements: I 1/4 increases; D 1/4 decreases; NE 1/4 no effect.
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Assets
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Liabilities
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Shareholder's Equity
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Net Income
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a. A credit sale
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b. Collection of a portion of accounts receivable
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c. Estimate of bad debts
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d. Write-off a specific uncollectible account
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• Income Recognition for Various Types of Businesses. Discuss when each of the following types of businesses is likely to recognize revenues and expenses.
a. A bank lends money for home mortgages.
b. A travel agency books hotels, transportation, and similar services for customers and earns a commission from the providers of these services.
c. A major league baseball team sells season tickets before the season begins and signs its players to multiyear contracts. These contracts typically defer the payment of a significant portion of the compensation provided by the contract until the player retires.
d. A producer of fine whiskey ages the whiskey 12 years before sale.
e. A timber-growing firm contracts to sell all timber in a particular tract when it reaches 20 years of age. Each year it harvests another tract. The price per board foot of timber equals the market price when the customer signs the purchase contract plus 10% for each year until harvest.
f. An airline provides transportation services to customers. Each flight grants frequent-flier miles to customers. Customers earn a free flight when they accumulate sufficient frequent-flier miles.