Question

Operating Section of Statement of Cash Flows (Indirect Method)
Following are the income statement and balance sheet for Nike Inc. for the year ended May 31, 2019, and a forecasted income statement and balance sheet for 2020.

Nike Inc. Income Statement For Year Ended May 31
$ millions	2019 actual	2020 Est.
Revenues	$ 39,117	$ 42,246
Cost of sales	21,643	23,362
Gross profit	17,474	18,884
Demand creation expense	3,753	4,056
Operating overhead expense	8,949	9,674
Total selling and administrative expense	12,702	13,730
Interest expense (income), net	49	49
Other (income) expense, net	(78)	(78)
Income before income taxes	4,801	5,183
Income tax expense	772	1,037
Net income	$ 4,029	$ 4,146

NIKE INC. Balance Sheet May 31
$ millions	2019 Actual	2020 Est.
Current Assets
Cash and equivalents	$ 4,466	$ 6,881
Short-term investments	197	197
Accounts receivable, net	4,272	4,605
Inventories	5,622	6,083
Prepaid expenses and other current assets	1,968	2,112
Total current assets	16,525	$19,878
Property, plant and equipment, net	4,744	5,259
Identifiable intangible assets, net	283	281
Goodwill	154	154
Deferred income taxes and other assets	2,011	2,155
Total Assets	$ 23,717	$ 27,727
Current liabilities
Current portion of long-term debt	$ 6	$ 3
Notes payable	9	0
Accounts payable	2,612	2,830
Accrued liabilities	5,010	5,407
Income taxes payable	229	253
Total current liabilities	7,866	8,493
Long-term debt	3,464	3,461
Deferred income taxes and other liabilities	3,347	3,633
Total liabilities	14,677	15,587
Shareholders’ equity:
Common stock at stated value	3	3
Capital in excess of stated value	7,163	7,488
Accumulated other comprehensive income	231	231
Retained earnings	1,643	4,418
Total shareholders’ equity	9,040	12,140
Total liabilities and shareholders’ equity	$23,717	$27,727

Prepare the net cash flows from operating activities section of a forecasted statement of cash flows for 2020 using the indirect method. Treat deferred tax assets and liabilities as operating. Operating expenses (cost of sales) for 2020 include estimated depreciation expense of $751 million and amortization expense of $2 million, and stock-based compensation of $325 million. (Hint: Stock-based compensation is a noncash expense like depreciation and must be added back in the operating section. The amount expensed is also added to Nike’s “Capital in excess of stated value” account in the balance sheet.)

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

Nike, Inc. STATEMENT OF CASH FLOWS Forecasted For Year Ended May 31, 2020 ($ millions)
Net income	Answer
Depreciation	Answer
Amortization	Answer
Stock-based compensation	Answer
Accounts receivable	Answer
Inventories	Answer
Prepaid expenses and other current assets	Answer
Deferred income taxes and other assets	Answer
Accounts payable	Answer
Accrued liabilities	Answer
Income taxes payable	Answer
Deferred income taxes and other liabilities	Answer
Net cash from operating activities	Answer

Answer 1

Answer:

Nike, Inc. STATEMENT OF CASH FLOWS Forecasted For Year Ended May 31, 2020 ($ millions)
Net income	4,146
Add: Non-cash expenses:
Depreciation	751
Amortization	2
Stock-based compensation	325
Accounts receivable (4,272-4,605)	-333
Inventories (5,622-6,083)	-461
Prepaid expenses and other current assets (1,968-2,112)	-144
Deferred income taxes and other assets (2,011-2,155)	-144
Accounts payable (2,612-2,830)	218
Accrued liabilities (5,010-5,407)	397
Income taxes payable (229-253)	24
Deferred income taxes and other liabilities (3,347-3,633)	286
Net cash from operating activities	5,067

Increase in current asset is subtracted (cash is blocked in asset /cash outflow) and decrease in current asset (Cash inflow) is added while making adjustment for working capital

Increase in current liability is added (no cash outflow ) and decrease in current liability is subtracted (cash outflow) while making adjustment for working capital.

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