Chapter 14 statement of cash flows solutions

JWCL165_c13_612-673.qxd 8/13/09 11:15 AM Page 612 13 Statement of Cash Flows Chapter STUDY OBJECTIVES After studying this chapter, you should be able to: 1 Indicate the usefulness of the statement of cash flows. 2 Distinguish among operating, investing, and financing activities. 3 Prepare a statement of cash flows using the indirect method. 4 Analyze the statement of cash flows. ✓ The Navigator ✓ The Navigator Scan Study Objectives ■ Read Feature Story ■ Read Preview ■ Read text and answer p. 617 ■ p. 625 ■ Work Comprehensive Do it! p. 628 Do it! ■ p. 632 p. 634 ■ ■ Review Summary of Study Objectives ■ Work Comprehensive ■ Do it! p. 648 Answer Self-Study Questions ■ Complete Assignments ■ Feature Story GOT CASH? In today’s environment, companies must be ready to respond to changes quickly in order to survive and thrive. They need to produce new products and expand into new markets continually. To do this takes cash—lots and lots of cash. Keeping lots of cash available is a real challenge for a young company. It requires careful cash management and attention to cash flow. One company that managed cash successfully in its early years was Microsoft (www.microsoft.com). During those years the company paid much of its payroll with stock options (rights to purchase company stock in the future at a given price) instead of cash. This strategy conserved cash, and turned more than a thousand of its employees into millionaires during the company’s first 20 years of business. 612 In recent years Microsoft has had a different kind of cash problem. Now that it has reached a more “mature” stage in life, it generates so much cash— roughly $1 billion per month—that it cannot always figure out what to do with it. By 2004 Microsoft had accumulated $60 billion. JWCL165_c13_612-673.qxd 8/13/09 11:15 AM Page 613 The company said it was accumulating cash to invest in new opportunities, buy other companies, and pay off pending lawsuits. But for years, the federal government has blocked attempts by Microsoft to buy anything other than small firms because it feared that purchase of a large firm would only increase Microsoft’s monopolistic position. In addition, even the largest estimates of Microsoft’s legal obligations related to pending lawsuits would use up only about $6 billion in cash. Microsoft’s