www.freebookslide.com Chapter An Introduction to Managerial Accounting Solutions to Questions 1-1 Managerial accounting is concerned with providing information primarily to managers for their use internally in the organization for the purposes of strategy, planning, implementation and control Financial accounting is concerned with providing information primarily to investors, creditors, and others outside of the organization 1-2 Essentially, the manager carries out three major activities in an organization: planning, implementation, and control All three activities involve decision-making and use managerial accounting information This is depicted in Exhibit 1-1 1-3 The Planning, Implementation and Control Cycle involves the following steps: (1) formulating plans which often includes preparing budgets, (2) overseeing day-to-day activities which includes organizing, directing and motivating people, resource allocation and decision making, and (3) controlling which includes providing feedback via performance reports 1-4 In contrast to financial accounting, managerial accounting: (1) focuses on the needs of the manager; (2) places more emphasis on the future; (3) emphasizes relevance and timeliness, rather than verifiability and precision; (4) emphasizes the segments of an organization; (5) is not governed by IFRS or ASPE; and (6) is not mandatory 1-5 The lean business model focuses on continuous improvement by eliminating waste in the organization Companies that adopt the lean business model usually implement one or more of the following management practices Just-in-time (JIT): A production and inventory control system in which materials are purchased and units are produced only as needed to meet actual customer demand Total quality management (TQM): An approach to continuous improvement that focuses on serving customers and uses teams of front-line workers to systematically identify and solve problems Process re-engineering: An approach to improvement that involves completely redesigning business processes in order to eliminate unnecessary steps, reduce errors, and reduce costs Copyright © 2017 McGraw-Hill Education All rights reserved Solutions Manual, Chapter 1 www.freebookslide.com 1-6 Pros Theory of constraints (TOC): A management approach that emphasizes the importance of managing constraints Funds tied up in maintaining inventory can be used elsewhere Areas previously used to store inventories are made available for other more productive uses The time required to fill an order is reduced, resulting in quicker response to customers and consequentially greater potential sales Defect rates are reduced resulting in less waste and greater customer satisfaction More effective operations Cons Increased number of purchase orders to buy raw materials and/or other components used in manufacturing products There is little room for errors and defects in products because this could throw the production facility off schedule There is a high reliance and dependence on suppliers to meet delivery deadlines as well as supply products that have no defects and require minimal inspection 1-7 Agree Ethical behaviour is the foundation of a successful market economy If we cannot trust people to act ethically in their business dealings with us, we will be inclined to invest less, scrutinize more and waste money and time (scarce resources) trying to protect ourselves Ethical standards and Codes of Conduct aid the smooth running of the economy In addition, the lack of regulatory requirements (IFRS, ASPE) regarding managerial accounting makes ethical behaviour even more critical Copyright © 2017 McGraw-Hill Education All rights reserved Introduction to Managerial Accounting, Fifth Canadian Edition www.freebookslide.com Solutions to Exercises Exercise 1-1 (LO1 CC2) Item Financial Accounting Managerial Accounting a) Preparing a cash budget for the next quarter X b) Analyzing the profitability of a request from a potential customer X c) Accumulating the transactions for the previous six months to prepare an income statement X d) Preparing a weekly performance report for the branch manager X e) Preparing an announcement to be released to the financial analysts X Exercise 1-2 (LO1 CC1) Planning a) Doing a “cost-benefit” analysis of adding a new branch versus installing new ATMs X b) Estimating the cost of raw materials to be purchased during the next quarter X c) Analyzing market demand X Implementation Control Copyright © 2017 McGraw-Hill Education All rights reserved Solutions Manual, Chapter www.freebookslide.com to assist in the preparation of the sales budget d) Compiling the labour report for the past week e) Outlining the changes to a process based on a process reengineering team report f) Documenting the savings from reductions in raw materials inventory resulting from the adoption of a just-in-time inventory system X X X Copyright © 2017 McGraw-Hill Education All rights reserved Introduction to Managerial Accounting, Fifth Canadian Edition www.freebookslide.com Solutions to Problems Problem 1-1 (LO3 CC5) a) This has ethical implications because the code of ethics mandates that all professional accountants will abide by the fundamental principles There are two possible issues here – confidentiality and integrity By sending the reports to the analyst Cleo will be violating the principle of confidentiality, she cannot “…disclose any such information to third parties without proper and specific authority, unless there is a legal or professional right or duty to disclose, nor use the information for the personal advantage of the professional accountant or third parties.” One might argue that there is also an issue of personal integrity here; as a professional accountant she is required “to be straightforward and honest in all professional and business relationships.” b) The main ethical implication here is the issue of confidentiality of client data The code mandates that a member will not disclose any confidential information concerning his/her employer unless acting in the course of his/her duties or when required to be disclosed in a lawsuit As such informing ones parents of the folly of their investment choice would be unethical Problem 1-2 (LO3 CC5) There is an ethical dilemma associated with the student’s request There is the need for fairness among all the students who wrote the exam, and ignoring the mid-semester exam result for one student is unfair to the other students As a student aiming to become a manager, it is important that the student does not engage in any activity considered as incompatible with the conduct of a manager A request for special treatment that would be unfair to other students could be considered a violation of the principles of Integrity (the dealings are not straightforward and honest), Objectivity (a bias is introduced to the relative grading in the course), and Professional Behaviour (special treatment for some, does not comply with school rules, and could discredit the reputation of the school’s standards) Copyright © 2017 McGraw-Hill Education All rights reserved Solutions Manual, Chapter www.freebookslide.com Bringing in a doctor’s note one month after writing an exam and using that as a reason to explain his/her poor performance would also not be considered ethical Presenting a note one month after an event, to address a matter that should have been dealt with contemporaneously, violates the principle of Integrity (the dealings are not straightforward), and Professional Competence and Due Care (the obligation to act diligently in accordance with standards) Copyright © 2017 McGraw-Hill Education All rights reserved Introduction to Managerial Accounting, Fifth Canadian Edition www.freebookslide.com Chapter Cost Concepts Solutions to Questions 2-1 Cost behaviour refers to how a cost will react or respond to changes in the level of business activity 2-2 No A variable cost is a cost that varies, in total, in direct proportion to changes in the level of activity A variable cost is constant per unit of the activity level (e.g., number of beds occupied) A fixed cost is fixed in total, but will vary inversely on a per-unit basis with changes in the level of activity 2-3 When fixed costs are involved, the cost per unit of activity will depend on the activity volume (or level) For example, as production increases, the cost per unit will fall because the fixed cost is spread over more units Conversely, as production declines, the cost per unit will rise since a constant fixed cost figure will be spread over fewer units 2-4 The cost of direct materials included in a product is a variable cost; similarly, sales commissions paid out on a per unit basis or as a percentage of sales dollars is a variable cost On the other hand, costs such as building rent and the salary of a general manager are fixed costs 2-5 Fixed costs in total not vary with volume within a relevant range However, fixed costs per unit of volume decrease as volume increases and increases as volume decreases Therefore, an inverse relationship exists between volume and fixed costs per unit of volume 2-6 Manufacturing overhead is an indirect cost since these costs cannot be easily and conveniently traced to individual products 2-7 A differential cost is a cost that differs between alternatives in a decision An opportunity cost is the potential benefit that is given up when one alternative is selected over another A sunk cost is a cost that has already been incurred and cannot be altered by any decision taken now or in the future 2-8 No; differential costs can be either variable or fixed For example, the alternatives might consist of purchasing one computer software program over another to simplify the accounts receivable process The difference in the fixed costs of purchasing the two programs would be a differential cost 2-9 The three major elements of product costs in a manufacturing company are direct materials, direct labour, and manufacturing overhead 2-10 a Direct materials: Direct materials are an integral part of a finished product and can be conveniently traced into it b Indirect materials: Indirect materials are generally small items of material such as glue and nails They may become an integral part of a finished product but are traceable into the product only at great cost or inconvenience Indirect materials are ordinarily classified as part of manufacturing overhead c Direct labour: Direct labour includes those labour costs that can be easily traced to particular products Direct labour is also called “touch labour.” d Indirect labour: Indirect labour includes the labour costs of workers who not directly work on products but provide a support function Examples of such labour include janitors, supervisors, materials handlers, and other factory workers that cannot be Copyright © 2017 McGraw-Hill Education All rights reserved Solutions Manual, Chapter www.freebookslide.com conveniently traced directly to particular products e Manufacturing overhead: Manufacturing overhead includes all manufacturing costs except direct materials and direct labour 2-11 PC = DM + DL CC = DL + MOH PC = DM + CC - MOH 2-12 A product cost is any cost incurred for the purchase or the manufacture of goods In the case of manufactured goods, these costs consist of direct materials, direct labour, and manufacturing overhead A period cost is a cost that is taken directly to the income statement as an expense in the period in which it is incurred Examples include selling (marketing) and administrative expenses 2-13 The income statement of a manufacturing firm differs from the income statement of a merchandising firm in the cost of goods sold section The merchandising firm sells finished goods that it has purchased from a supplier These goods are listed as “Purchases” in the cost of goods sold section Since the manufacturing firm produces its goods rather than buying them from a supplier, it lists “Cost of Goods Manufactured” in place of “Purchases.” Also, the manufacturing firm identifies its inventory in this section as “Finished Goods Inventory,” rather than as “Merchandise Inventory.” 2-14 The schedule of cost of goods manufactured is used to list and organize the manufacturing costs that have been incurred These costs are organized under the three major headingsof direct materials, direct labour, and manufacturing overhead The total costs incurred are adjusted for any change in the Work in Process inventory to determine the cost of goods manufactured (i.e., finished) during the period The schedule of cost of goods manufactured ties into the income statement through the Cost of Goods Sold section The cost of goods manufactured is added to the beginning Finished Goods inventory to determine the goods available for sale In effect, the cost of goods manufactured takes the place of the “Purchases” account in a merchandising firm 2-15 A manufacturing firm has three inventory accounts: Raw Materials, Work in Process, and Finished Goods The merchandising firm generally identifies its inventory account simply as Merchandise Inventory 2-16 Since product costs follow units of product into inventory, they are sometimes called inventoriable costs The flow is from direct materials, direct labour, and manufacturing overhead into Work in Process As goods are completed, their cost is removed from Work in Process and transferred into Finished Goods As goods are sold, their cost is removed from Finished Goods and transferred into Cost of Goods Sold Cost of Goods Sold is an expense on the income statement 2-17 Yes, costs such as salaries anddepreciationcan end up as assets on the balance sheet if these are manufacturing costs Manufacturing costs are inventoried until the associated finished goods are sold Thus, such costs may be part of either Work in Process inventory or Finished Goods inventory at the end of a period if there are unsold units Copyright © 2017 McGraw-Hill Education All rights reserved Introduction to Managerial Accounting,Fifth Canadian Edition www.freebookslide.com Solutions to Foundational 15 The Foundational 15 (LO1 – CC1; LO2 – CC2; LO3 – CC3; LO4 – CC4, 5, 6, 7) Direct materials $ 6.00 Direct labour 3.50 Variable manufacturing overhead 1.50 Variable manufacturing cost per unit $11.00 Variable manufacturing cost per unit (a) $11.00 Number of units produced (b) 10,000 Total variable manufacturing cost (a) × (b) Fixed manufacturing overhead per unit (c) $4.00 Number of units produced (d) 10,000 Total fixed manufacturing cost (c) × (d) Total product (manufacturing) cost $110,000 40,000 $150,000 $1.00 Sales commissions Variable administrative expense .0.50 Variable selling and administrative per unit $1.50 Variable selling and admin per unit (a) $1.50 Number of units sold (b) 10,000 Total variable selling and admin expense (a) × (b) Fixed selling and administrative expense per unit ($3 fixed selling + $2 fixed admin.) (c) $5.00 Number of units sold (d) 10,000 Total fixed selling and administrative expense (c) × (d) Total period (nonmanufacturing) cost $15,000 50,000 $65,000 Direct materials $ 6.00 Direct labour 3.50 Variable manufacturing overhead 1.50 Sales commissions 1.00 Variable administrative expense .0.50 Variable cost per unit sold $12.50 Copyright © 2017 McGraw-Hill Education All rights reserved Solutions Manual, Chapter www.freebookslide.com The Foundational 15 (continued) Direct materials $ 6.00 Direct labour 3.50 Variable manufacturing overhead 1.50 Sales commissions 1.00 Variable administrative expense 0.50 Variable cost per unit sold $12.50 Variable cost per unit sold (a) $12.50 Number of units sold (b) 8,000 Total variable costs (a) × (b) $100,000 Variable cost per unit sold (a) $12.50 Number of units sold (b) 12,500 Total variable costs (a) × (b) $156,250 Total fixed manufacturing cost (see requirement 1) (a) $40,000 Number of units produced (b) 8,000 Average fixed manufacturing cost per unit produced (a) ÷ (b) $5.00 Total fixed manufacturing cost (see requirement 1) (a) $40,000 Number of units produced (b) 12,500 Average fixed manufacturing cost per unit produced (a) ÷ (b) $3.20 Total fixed manufacturing cost (see requirement 1) $40,000 10 Total fixed manufacturing cost (see requirement 1) $40,000 Copyright © 2017 McGraw-Hill Education All rights reserved Introduction to Managerial Accounting,Fifth Canadian Edition www.freebookslide.com Ethics Challenge (30 minutes) (LO1 – CC2) There are several issues here: Control over the results The Director of Operations does not have any control over two items that are now going to be included in computing the cash flow from operations Yet he is accountable for the final number This can lead to unintended behavioural problems Earnings management This is ‘real’ earnings management (as compared to earnings management through accruals) because by reducing portions of any of the expenses listed in the question he can increase short-term operating income as well as operating cash flows However, doing this can have serious long-term effects and this is something that the Director has to think about (perhaps a potential trade-off of the short versus the long term?) Ethics The suggested action of ‘real’ earnings management may speak to the fundamental principles of integrity, objectivity and professional competence as outlined in the in the International Federation of Accountant’s (IFAC) code of ethics Internal controls Management may have to put more checks in place to identify the above-mentioned types of behaviour to ensure that potential long-term negative consequences are minimized Copyright © 2017 McGraw-Hill Education All rights reserved 38 Introduction to Managerial Accounting, Fifth Canadian Edition www.freebookslide.com Communicating in Practice (LO2 – CC3, 4A) Date: Current Date To: Instructor’s Name From: Student’s Name Subject: Preparing and interpreting the cash flow statement Even though not specifically required, the student’s memorandum should include the name, title and job affiliation of the individual interviewed Also, in addition to summarizing general information about the company (that was obtained from the company’s website), each student’s memorandum should address the following: Whether the company uses the direct method or the indirect method to determine the cash flows from operating activities and why that method is used A summary of how the information reported on the cash flow statement is used for decision-making purposes Copyright © 2017 McGraw-Hill Education All rights reserved Solutions Manual, Chapter 14 39 www.freebookslide.com Teamwork in Action (??? minutes) (LO2 – CC3) The choice of what to with the growing pool of cash should depend on the risk and returns involved in each of the alternatives Management should compare the risk and return from investing the cash in the business to the returns shareholders could earn by investing the cash themselves and to the interest rate on the company’s own debt If shareholders can make better use of the cash (in a risk and return sense) than the company, then the cash should be returned to shareholders by buying back shares The advantage of repurchasing shares is that fewer dividends must be paid in the future (assuming that the dividend per share remains constant) and the earnings per share and share price may increase due to the smaller number of shares outstanding However, buying back shares also tends to decrease future earnings since the cash is not available for investment in the company Paying down debt reduces interest expense and reduces the risk of default when business conditions deteriorate However, paying down debt reduces the amount of cash that is available for investment If the return on investment exceeds the interest rate on the debt, then profits will be adversely affected Copyright © 2017 McGraw-Hill Education All rights reserved 40 Introduction to Managerial Accounting, Fifth Canadian Edition www.freebookslide.com SOLUTIONS TO QUESTIONS, BRIEF EXERCISES, EXERCISES AND PROBLEMS IN APPENDIX 14A Solutions to Questions 14A-1 If the Accounts Payable account decreases during a period, the decrease must be added to cost of goods sold under the direct method In other words, the cost of goods sold is increased by the amount of the decrease in accounts payable Since the cost of goods sold is increased, the net cash flow provided by operating activities is decreased Note that this is how a change in a liability should be handled according to Exhibit 14-2 The effect of a decrease in a liability is a decrease in cash 14A-2 $250,000 Cost of goods sold –15,000 Decrease in inventory Decrease in accounts +10,000 payable Cost of goods sold $245,000 adjusted to a cash basis Copyright © 2017 McGraw-Hill Education All rights reserved Solutions Manual, Chapter 14 41 www.freebookslide.com Brief Exercise 14A-1 (15 minutes) (LO2 – CC4A) $350,000 Sales Adjustments to a cash basis: Less increase in accounts receivable (19,000) $331,000 Cost of goods sold 140,000 Adjustments to a cash basis: Plus increase in inventory 33,000 Less increase in accounts payable (15,000) 158,000 Operating expenses 160,000 Adjustments to a cash basis: Less decrease in prepaid expenses (1,000) Plus decrease in accrued liabilities 2,000 Less depreciation charges (20,000) 141,000 Income taxes 15,000 Adjustments to a cash basis: Less increase in deferred income taxes (4,000) 11,000 Net cash provided by operating activities $ 21,000 Note that the $21,000 above agrees with the amount provided by operating activities under the indirect method in Brief Exercise 14-3 Copyright © 2017 McGraw-Hill Education All rights reserved 42 Introduction to Managerial Accounting, Fifth Canadian Edition www.freebookslide.com Exercise 14A-1 (15 minutes) (LO2 – CC4A) $275 Sales Adjustments to a cash basis: Decrease in accounts receivable $277 Cost of goods sold 150 Adjustments to a cash basis: Increase in inventory 10 Increase in accounts payable (4) 156 Operating expenses 90 Adjustments to a cash basis: Depreciation charges (15) 75 Net cash provided by operating activities $ 46 Note that the $46 “net cash provided” figure agrees with the indirect method in Exercise 14-2 (above) Copyright © 2017 McGraw-Hill Education All rights reserved Solutions Manual, Chapter 14 43 www.freebookslide.com Exercise 14A-2 (15 minutes) (LO2 – CC4) $700 Sales revenue Adjustments to a cash basis: Increase in accounts receivable (110) $590 Cost of goods sold 400 Adjustments to a cash basis: Decrease in inventory (70) Increase in accounts payable (35) 295 Operating expenses 184 Adjustments to a cash basis: Increase in prepaid expenses Decrease in accrued liabilities Depreciation charges (60) 137 Income tax expense 36 Adjustments to a cash basis: Increase in deferred income taxes (8) Net cash provided by operating activities 28 $130 Note that the $130 “net cash provided” figure agrees with the indirect method Copyright © 2017 McGraw-Hill Education All rights reserved 44 Introduction to Managerial Accounting, Fifth Canadian Edition www.freebookslide.com Problem 14A-1 (60 minutes) (LO2 – CC4A) $900,000 Sales Adjustments to a cash basis: Increase in accounts receivable (80,000) $820,000 Cost of goods sold 500,000 Adjustments to a cash basis: Increase in inventory 50,000 Increase in accounts payable (60,000) 490,000 Operating expenses 328,000 Adjustments to a cash basis: Decrease in prepaid expenses (7,000) Decrease in accrued liabilities 10,000 Depreciation charges (42,000) 289,000 Income taxes 24,000 Adjustments to a cash basis: Increase in deferred income taxes (3,000) 21,000 Net cash provided by operating activities $ 20,000 Copyright © 2017 McGraw-Hill Education All rights reserved Solutions Manual, Chapter 14 45 www.freebookslide.com Problem 14A-1 (continued) JOYNER COMPANY Cash Flow Statement For Year Operating activities: Cash received from customers Less cash disbursements for: Cost of merchandise purchased $490,000 Operating expenses 289,000 Income taxes 21,000 Total cash disbursements Net cash provided by operating activities $820,000 800,000 20,000 Investing activities: Proceeds from sale of equipment 18,000 Loan to Hymas Company (40,000) Additions to plant and equipment (150,000) Net cash used for investing activities (172,000) Financing activities: Increase in bonds payable 120,000 Increase in common shares 30,000 Cash dividends (15,000) Net cash provided by financing activities Net decrease in cash Cash balance, beginning of year Cash balance, end of year 135,000 (17,000) 21,000 $ 4,000 IFRS allows management to classify dividends and interest as either a financing activity or an operating activity Copyright © 2017 McGraw-Hill Education All rights reserved 46 Introduction to Managerial Accounting, Fifth Canadian Edition www.freebookslide.com Problem 14A-2 (45 minutes) (LO2 – CC4A) $800 Sales Adjustments to a cash basis: Increase in accounts receivable (100) $700 Cost of goods sold 500 Adjustments to a cash basis: Decrease in inventory (50) Increase in accounts payable (80) 370 Operating expenses 213 Adjustments to a cash basis: Increase in prepaid expenses Decrease in accrued liabilities 12 Depreciation charges (24) 205 Income taxes .27 Adjustments to a cash basis: Increase in deferred income taxes (6) 21 Net cash provided by operating activities $104 Copyright © 2017 McGraw-Hill Education All rights reserved Solutions Manual, Chapter 14 47 www.freebookslide.com Problem 14A-2 (continued) WEAVER COMPANY Cash Flow Statement For Year Operating activities: Cash received from customers Less cash disbursements for: Cost of merchandise sold Operating expenses Income taxes Total cash disbursements Net cash provided by operating activities $700 $370 205 21 596 104 Investing activities: Proceeds from sale of long-term investments Proceeds from sale of equipment Additions to plant and equipment Net cash used for investing activities 10 20 (180) (150) Financing activities: Increase in bonds payable Decrease in common shares Cash dividends1 Net cash provided by financing activities 110 (40) (30) Net decrease in cash Cash balance, beginning of year Cash balance, end of year 40 (6) 15 $ IFRS allows management to classify dividends and interest as either a financing activity or an operating activity Copyright © 2017 McGraw-Hill Education All rights reserved 48 Introduction to Managerial Accounting, Fifth Canadian Edition www.freebookslide.com Problem 14A-3 (30 minutes) (LO2 – CC4A) The income statement adjusted to a cash basis: Sales $500,000 Adjustments to a cash basis: Increase in accounts receivable (40,000) $460,000 Cost of goods sold 300,000 Adjustments to a cash basis: Increase in inventory 50,000 Increase in accounts payable (63,000) 287,000 Operating expenses 158,000 Adjustments to a cash basis: Decrease in prepaid expenses (4,000) Decrease in accrued liabilities 9,000 Depreciation charges (20,000) 143,000 Income taxes 20,000 Adjustments to a cash basis: Increase in deferred income taxes (8,000) Net cash provided by operating activities 12,000 $ 18,000 Copyright © 2017 McGraw-Hill Education All rights reserved Solutions Manual, Chapter 14 49 www.freebookslide.com Problem 14A-3 (continued) RUSCO PRODUCTS Cash Flow Statement For Year Operating activities: Cash received from customers Less cash disbursements for: Cost of merchandise purchased $287,000 Operating expenses 143,000 Income taxes 12,000 Total cash disbursements Net cash provided by operating activities $460,000 442,000 18,000 Investing activities: Proceeds from sale of investments 30,000 Proceeds from sale of equipment 8,000 Additions to plant and equipment (150,000) Net cash used for investing activities (112,000) Financing activities: Increase in bonds payable 70,000 Increase in common shares 20,000 Cash dividends (9,000) Net cash provided by financing activities Net decrease in cash Cash balance, beginning of year Cash balance, end of year Schedule of noncash investing and financing activities: Preferred shares converted into common shares 81,000 (13,000) 21,000 $ 8,000 $ 16,000 IFRS allows management to classify dividends and interest as either a financing activity or an operating activity Copyright © 2017 McGraw-Hill Education All rights reserved 50 Introduction to Managerial Accounting, Fifth Canadian Edition www.freebookslide.com Problem 14A-4 (30 minutes) (LO2 CC4A) $2,000,000 Sales Adjustments to a cash basis: Less increase in accounts receivable (180,000) $1,820,000 Cost of goods sold 1,300,000 Adjustments to a cash basis: Decrease in inventory (12,000) Increase in accounts payable (300,000) 988,000 Operating expenses 490,000 Adjustments to a cash basis: Increase in prepaid expenses 5,000 Decrease in accrued liabilities 17,000 Depreciation charges (95,000) Decrease in goodwill (6,000) 411,000 Income tax expense 80,000 Adjustments to a cash basis: Increase in deferred income taxes (15,000) 65,000 Net cash provided by operating activities $ 356,000 Copyright © 2017 McGraw-Hill Education All rights reserved Solutions Manual, Chapter 14 51 www.freebookslide.com SOLUTIONS TO QUESTIONS, BRIEF EXERCISES, EXERCISES AND PROBLEMS IN APPENDIX 14B Brief Exercise 14B-1 (30 minutes) (LO2 – CC5B) (Amounts shown in thousands) Cash Provided Used Net income Decrease in prepaid expenses Increase in accounts payable Increase in deferred income taxes (given) Depreciation expense (given) Net cash provided by operating activities Bal (2) Bal Bal Bal (6) (1) 35 (2) (4) (3) (5) 15 (6) Accrued Liabilities Increase in accounts receivable 33 Increase in inventory Decrease in accrued liabilities 20 21 Accounts Receivable 106 19 125 Prepaid Expenses 19 Bal (3) Bal (4) Inventory 180 33 213 Accounts Payable 195 15 210 Bal (5) Bal Bal Bal Copyright © 2017 McGraw-Hill Education All rights reserved 52 Introduction to Managerial Accounting, Fifth Canadian Edition ... Manufactured Direct materials: Beginning raw materials inventory $170,000 Add: Purchases of raw materials 870,000 Raw materials available for use $1,040,000 Deduct: Ending raw materials inventory... Manufactured Direct materials: Raw materials inventory, beginning $18,000 Add: Purchases of raw materials 120,000 Raw materials available for use 138,000 Deduct: Raw materials inventory,... August 31 Direct materials: Raw materials inventory, August $ 31,000 Add: Purchases of raw materials 226,000 Raw materials available for use 257,000 Deduct: Raw materials inventory,