EXERCISE 18­3 BLUES TRAVELER CO. Partial Statement of Cash Flows For the Year Ended December 31, 2005                                                                                                                Cash flows from operating activities Net income......................................................... $163,000 Adjustments to reconcile net income to net   cash provided by operating activities Depreciation expense................................ Increase in accounts receivable............... Decrease in inventory............................... Decrease in prepaid expenses................. Increase in accrued expenses payable....

Decrease in accounts payable.................. 31,000 Net cash provided by operating   activities.................................................. $194,000

$30,000) (25,000)  15,000)   5,000)  10,000)       (4,000  )

EXERCISE 18­5 (a) WILL SMITH COMPANY Statement of Cash Flows For the Year Ended December 31, 2005                                                                                                         Cash flows from operating activities Net income................................................. $125,000 ) Adjustments to reconcile net income   to net cash provided by operating

  activities Depreciation expense........................ Increase in accounts receivable....... Decrease in inventories..................... Decrease in accounts payable.......... 11,000 ) Net cash provided by operating   activities.......................................... 136,000 ) Cash flows from investing activities Sale of land................................................. Purchase of equipment............................. Net cash used by investing   activities.......................................... (40,000 ) Cash flows from financing activities Payment of cash dividends....................... Redemption of bonds................................ Issuance of common stock....................... Net cash used by financing   activities..........................................               (60,000                                                         .....................................................  )   Net increase in cash.......................................... 36,000 ) Cash at beginning of period.............................   22,000   )       Cash at end of period........................................   58,000   )       (b)

$24,000)  (9,000)   9,000)   (13,000  )    20,000)   (60,000  )   (40,000) (50,000)   30,000)

     $ 

Free cash flow: Cash from operations – capital expenditures – cash  dividends $136,000 – $60,000 – $40,000 = $36,000

PROBLEM 18­5B (a) JAMES LYMAN COMPANY Statement of Cash Flows For the Year Ended December 31, 2005                                                                                                         Cash flows from operating activities Net income............................................................. $18,000 Adjustments to reconcile net income   to net cash provided by operating   activities Depreciation expense............................ Increase in accounts receivable........... Increase in inventory............................. Decrease in accounts payable.............. Decrease in income taxes payable.......             (17,000  ............................................................) Net cash provided by operating   activities..............................................   1,000 Cash flows from investing activities Sale of equipment.......................................... Purchase of equipment................................. Net cash provided by investing   activities..............................................   4,000 Cash flows from financing activities Issuance of bonds......................................... Payment of cash dividends.......................... Net cash provided by financing   activities..............................................                 3,000  ............................................................ Net increase in cash............................................. 8,000

$10,000  (9,000)  (3,000)  (10,000)    (5,000)

 11,000      (7,000  )

 10,000      (7,000  )

Cash at beginning of period................................. 16,000 Cash at end of period............................................ $24,000 (b) $1,000 – $7,000 – $7,000 = ($13,000)