Use Apple Inc.’s consolidated statement of cash flows along with the company’s other consolidated financial statements, all in Appendix A and online in the filings section of www.sec.gov, to answer the following questions.

Requirements

1. Which method does Apple use to report cash flows from operating activities? How can you tell?

2. What type of activity (operating, financing, or investing) generated the most cash flows for Apple in 2016? Which activity type(s) used cash in 2016? Judging by the statement of cash flows only, is Apple a healthy company? Explain your answer.

3. Suppose Apple reported net cash flows from operating activities using the direct method. Calculate the following amounts for the year ended September 24, 2016. (Ignore the statement of cash flows, and use only Apple’s income statement and balance sheet.)

a. Calculate collections from customers and others. Prepare a T-account for Gross Accounts Receivable. Prepare another T-account for Allowance for Doubtful Accounts. Calculate the beginning and ending gross amounts of Gross Accounts Receivable by adding the beginning and ending balances of Allowance for Doubtful Accounts ($63 million and $53 million, respectively) to the net accounts receivable at both the beginning and end of the year. Assume that all sales are on account. Also assume that the company uses the percentage of net sales method for estimating doubtful accounts expense and that the company estimates this amount at 0.5%. Determine write-offs by analyzing the Allowance for Uncollectible Accounts.

b. Calculate payments to suppliers. Apple calls its cost of goods sold “Cost of Sales.” Assume all inventory is purchased on account and that all cash payments to suppliers are made from accounts payable.

4. Calculate the change from 2015 to 2016 for Apple in terms of net income, total assets, stockholders’ equity, cash flows from operating activities, and overall results. Be specific. (Challenge)