Operating Section of Statement of Cash Flows (Indirect Method) Assume following

ID: 2430872 • Letter: O

Question

Operating Section of Statement of Cash Flows (Indirect Method)
Assume following are the income statement and balance sheet for Nike for the year ended May 31, 2012, and a forecasted income statement and balance sheet for 2013.

* Gross property, plant and equipment and accumulated depreciation are inserted in the balance sheet; both are taken from footnotes to the financial statements.

Prepare the net cash flows from operating activities section of a forecasted statement of cash flows for 2013 using the indirect method. Treat current and noncurrent deferred tax assets and liabilities as operating. Operating expenses (such as Cost of sales and Selling and administrative expense) for 2013 include estimated depreciation expense of $309 million and amortization expense of $39 million. Estimated 2013 retained earnings includes dividends of $467 million.

Enter answers using one decimal place as shown in the above financial statements.

Use negative signs with answers to show a decrease in cash.

Income Statement ($ millions) 2012 actual 2013 Est. Revenues $ 18,627.0 $ 21,253.0 Cost of sales 10,239.6 11,689.0 Gross margin 8,387.4 9,564.0 Selling and administrative expense 5,953.7 6,801.0 Operating profit 2,433.7 2,763.0 Interest income, net 77.1 77.1 Other (expense) income, net (7.9) (7.9) Income before income taxes 2,502.9 2,832.2 Income taxes 619.5 684.0 Net income $ 1,883.4 $ 2,148.2

Explanation / Answer

Answers

>Decrease in Current Assets OR Increase in Current Liabilities IS ADDED TO NET INCOME, and

>Increase in Current Assets OR Decrease in Current Liabilities is DEDUCTED FROM NET INCOME.

Nike, Inc.

STATEMENT OF CASH FLOWS ($ MILLIONS)

Forecasted FOR YEAR ENDED May 31, 2013

Net income

$ 2,148.20

Add (Deduct) Items to Convert Net Income to Cash Basis

Depreciation

$ 309.00

Amortization

$ 39.00

Accounts receivable

$ (428.70)

Inventories

$ (301.60)

Deferred Income taxes

$ (31.80)

Prepaid expenses and other current assets

$ (70.70)

Deferred income taxes and other assets

$ (73.60)

Accounts payable

$ 200.40

Accrued liabilities

$ 265.10

Income taxes payable

$ 52.00

Deferred income taxes and other liabilities

$ 121.50

Net cash flow from operating activities

$ 2,228.80