Problem 7-5 (75 minutes)

a.

Cash
Beginning 640

Operations
Net income (1) 160 310 * (4) Increase in accounts receivable
Amortization (2) 10 145 (5) Increase in inventories
Depreciation (3) 95 25 (6) Increase in prepaid expenses
Increase in accounts payable (7) 30
Increase in deferred income tax (8) 12
Increase in other current liabs (9) 7

Investing
140 (10) Purchase of patents
700 (11) Addition to plant and equipment
25 (12) Addition to other assets

Financing
Addition to long-term debt (13) 800 109 (15) Cash dividends
Issuance of common stock (14) 200

Ending 500

* Because we are preparing the CFO using the indirect format, the noncash charge for bad debt
expense has no effect on the presentation. Using the direct format, cash inflows would be
decreased by $40,000 and so would cash outflows for expenses.
 Patents Other Assets

Beg 0 10 (2) Beg 175

(10) 140 (12) 25

End 130 End 200

Prepaid Expenses Plant and Equipment

Beg 0 Beg 1,950

(6) 25 (11) 700

End 25 End 2,650

Accumulated Depreciation Accounts Receivable

535 Beg Beg 550

95 (3) (4) 310

630 End End 860

Inventories Retained Earnings

Beg 790 (15) 109 197 Beg

(5) 145 160 (1)
End 935 248 End

Long-term Debt Other Current Liabilities

850 Beg 78 Beg

800 (13) 7 (9)
1,650 End 85 End

Common Stock Accounts Payable

1,800Beg 600 Beg

200 (14) 30 (7)
2,000End 630 End

Deferred Income Tax

45 Beg
12 (8)
 57 End
Problem 7-5continued

Dax Corporation
Statement of Cash Flows
For the Year Ended December 31, Year 2
($ thousands)
Cash provided from (used for) operations:
Net Income ...................................................................... $160
Add (deduct) items to convert to cash basis:
Amortization .............................................................. 10
Depreciation .............................................................. 95
Inc. in accounts payable .......................................... 30
Inc. in deferred income tax ...................................... 12
Inc. in other current liabilities .................................. 7
Inc. in accounts receivable ...................................... (310)
Inc. in inventories ..................................................... (145)
Inc. in prepaid expenses .......................................... (25)
Net cash used for operations ........................................ $(166)

Cash provided from (used for) investing activities:

Purchase of patents ....................................................... (140)
Addition to plant and equipment .................................. (700)
Addition to other assets ................................................ (25)
Net cash used for investing activities .......................... (865)

Cash provided from (used for) financing activities:

Addition to long-term debt ............................................ 800
Issuance of common stock ........................................... 200
Dividends paid .............................................................. (109)
Net cash provided from financing activities ................ 891
Net decrease in cash...................................................... $(140)

Supplemental disclosure of cash flow information:

Cash paid during year for:
Interest ................................................. $28,000
Income taxes ....................................... $70,000
Problem 7-5continued

b. Alasan utama untuk perbedaan antara laba bersih sebesar $ 160 dan arus kas keluar untuk
operasi $ 166 adalah investasi berat dalam persediaan sebesar $ 145 dan meningkat tingkat
pembiayaan pelanggan dibuktikan dengan saldo piutang $ 310 lebih tinggi. Dibandingkan
dengan investasi ini berat dalam aktiva operasi, hutang telah meningkat sangat sederhana.
Dengan meningkatnya penjualan dan keuntungan, perusahaan ini mengalami meremas
kemakmuran.

c. Situasi ini harus ditangani sebelum masalah likuiditas menjadi lebih serius. Tindakan berikut
ini rekomendasi yang wajar:

1. Semakin besar volume pembelian membenarkan peningkatan kredit perdagangan. Hasil

ekspansi hutang akan meningkatkan kas dari operasi.

2. Perusahaan ini membutuhkan basis modal yang lebih besar. Dengan meningkatnya
keuntungan dan dengan perusahaan berada dalam industri yang pertumbuhan ini mungkin
menjadi saat yang tepat untuk menjual saham tanpa menipiskan laba per saham.

3. Penerbitan ekuitas akan membentuk dasar yang baik untuk pinjaman lebih lanjut harus
bisnis terus berkembang pesat.

4. Setelah penambahan modal telah diperoleh perusahaan harus mempertimbangkan

menurunkan pembayaran dividen. Untuk perusahaan yang berkembang dan menguntungkan
cepat seperti Dax, rasio pembayaran dividen sebesar 68% ($ 109 / $ 160) cukup tinggi.
Mengingat peluang keuntungan saat ini, pendapatan yang lebih harus dipertahankan dalam
bisnis.

Problem 7-12 (75 minutes)

a. Sebagai langkah awal, efek dari akuisisi Kraft pertama harus dihapus dari Morris (PM)
rekening Philip. Mengakibatkan perubahan neraca adalah:

Philip Morris Unadjusted PM Adj.

Year 7 Year 8 Change Kraft Change
Accts. Recble. $2,065 $ 2,222 $ 157 $ 758 $ (601)
Inventories ... 4,154 5,384 1,230 1,232 (2)
PP&E ............ 6,582 8,648 2,066 1,740 326
Goodwill ....... 4,052 15,071 11,019 10,361 658
S-T Debt ............ 1,440 1,259 (181) 700 (881)

Accts. Pay. ... 791 1,777 986 578 408

Accrued liab. 2,277 3,848 1,571 530 1,041
L-T Debt ........ 6,293 17,122 10,829 900 9,929
Problem 7-12 continued
This permits one to derive the statement of cash flowsindirect format:
PHILIP MORRIS COMPANIES, INC.
Statement of Cash Flows
For the Year Ended December 31, Year 8 ($ millions)
Cash flows from operating activities:
Net income .................................................................... $ 2,337
Add (deduct) adjustments to cash basis:
Depreciation expense ............................................. 654
Amortization of goodwill ........................................ 125
Decrease in accounts receivable........................... 601
Decrease in inventories .......................................... 2
Decrease in deferred taxes .................................... (325)
Increase in accounts payable ................................ 408
Increase in accrued liabilities ................................ 1,041
Increase in income taxes payable ......................... 362
Net cash flow from operating activities..................... $ 5,205
Cash flows from investing activities:
Increase in property, plant & equipment
(before depreciation)................................................. (980)
Increase in goodwill (before amortization) ............... (783)
Decrease in investments ............................................ 405
Acquisition of subsidiaryKraft * ............................. (11,383)
Net cash used by investing activities ........................ (12,741)
Cash flows from financing activities:
Decrease in short-term debt ....................................... (881)
Increase in long-term debt ......................................... 9,929
Decrease in equity (repurchase) ** ............................ (540)
Dividends declared ..................................................... (941)
Increase in dividends payable ................................... 47
Net cash provided by financing activities ................. 7,614
Net increase in cash.................................................... $ 78
Supplemental disclosure of cash flow information:
Interest paid during year ......................................................................... $ 670
Income taxes paid during the year .......................................................... $1,353
Notes:
* Total of Kraft assets and liabilities removed from year to year changes and shown as cash
outlay for investing activity.
** The net issuance or repurchase of equity is computed by reconciling the stockholders' equity
account as follows:
12/31/Year 7 balance .............................................................................................. $6,823
Year 8 net income ................................................................................................... 2,337
Dividend declared ................................................................................................... (941)
Total ......................................................................................................................... 8,219
12/31/Year 8 balance .............................................................................................. (7,679)
Decrease in equity (repurchase) ........................................................................... $ 540
Problem 7-12 continued

b. Note: For the complete statement of cash flows, the following presentation (direct
format) of the cash flows from operating activities section should replace the cash
flows from operating activities section (using the indirect format) for the statement of
cash flows in part a.

PHILIP MORRIS COMPANIES, INC.

Cash Flow From Operations
For Year Ended December 31, Year 8 ($ Millions)
Cash flows from operating activities:

Cash receipts from operations:

Sales [a] ................................................................... $32,343

Cash payments for operations:

Purchases of inventory [b] ..................................... (11,746)
Selling and administrative expenses [c] ............... (13,369)
Interest expense [d] ................................................ (670)
Income tax expense [e] .......................................... (1,353)

Cash flows from operations ........................................ $5,205

Notes:
[a]: Sales .................................................................................... $31,742
Decrease in accounts receivable ..................................... 601
Cash collections ................................................................. $32,343

[b]: Cost of goods sold ............................................................. (12,156)

Decrease in inventories ..................................................... 2
Increase in accounts payable ........................................... 408 (11,746)

[c]: Selling and administrative expense ................................. (14,410)

Increase in accrued liabilities ........................................... 1,041 (13,369)

[d]: Interest expense (as given) ............................................... (670)

[e]: Income tax expense ........................................................... (1,390)

Increase in income taxes payable .................................... 362
Decrease in deferred income taxes .................................. (325) (1,353)
Problem 7-12 continued

c. Arus kas bebas dapat didefinisikan dalam berbagai cara . Titik awal adalah arus kas dari
aktivitas operasi sebesar $ 5,205 juta . Siswa mungkin ingin menghapus beban bunga dari arus
kas operasi , jika mereka melakukannya , itu harus atas dasar setelah pajak . Dari arus kas operasi
, belanja modal harus dikurangi . Ini akan menjadi tepat untuk membedakan belanja modal yang
diperlukan untuk mempertahankan bisnis yang ada dari mereka yang menghasilkan pertumbuhan
. Perhitungan sederhana akan arus kas operasi yang kurang belanja modal : $ 5,205 $ 980 = $
4,225 juta . Variasi lainnya adalah mungkin . Siswa juga harus mengurangi dividen yang
dibayarkan dari $ 894 . Ini menghasilkan arus kas bebas sebesar $ 3331 .

Implikasi dari aliran kas bebas untuk laba masa depan perusahaan dan kondisi keuangan dapat
mencakup :
1 . Pembayaran utang sehingga biaya bunga yang lebih rendah dan pendapatan yang lebih tinggi
. Ini juga akan mengurangi rasio hutang dan interest coverage membaik, mungkin menyebabkan
peringkat utang yang lebih tinggi .
2 . Pembelian kembali saham . Hal ini dapat meningkatkan laba per saham dan (jika dibeli
kembali di bawah nilai buku per saham dinyatakan ) akan meningkatkan nilai buku ini .
3 . Peningkatan kemampuan untuk melakukan akuisisi ( seperti Kraft ) , yang dapat memberikan
pertumbuhan di masa depan , diversifikasi yang lebih baik , dan risiko yang lebih rendah .
4 . Peningkatan pendanaan pertumbuhan internal melalui belanja modal , penelitian dan
pengembangan , biaya pengenalan produk baru, dan sebagainya .
5 . Kenaikan dividen , memberikan pembayaran yang lebih besar dari pendapatan kepada
investor ekuitas .
6 . Peningkatan likuiditas ( fleksibilitas keuangan ) , yang memungkinkan perusahaan untuk
merespon kebutuhan yang tak terduga dan peluang .
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