Week 15 — Where the Cash Went: The Shop's Year 2 Cash Flows and Ratios

Assignment 14 of the term — build the bicycle shop's Year 2 operating cash, tie its statement of cash flows to its cash, read its ratios, and show a founder where the cash went.

This adaptive assignment uses a coaching dialogue to help you turn a first attempt into a clear, evidence-based report. You remain the author. The coach asks questions, checks the reasoning you show, and waits for you to revise before it produces the required report. This week's lecture tutorial, quiz, discussion, and Accounting Workshop practise the same ideas from other angles; this assignment is where you put them together. It builds on Week 5, where you prepared the income statement and the balance sheet, and on Week 6, where you first computed gross margin.

This is the last assignment of the course, so it asks you to choose between tools you already know, not only to compute. The cumulative final exam in Week 16 draws on every week; its study guide, exam-prep tutorial, and practice exam are in that week's bundle, and the habit you practise here, choosing the statement or ratio that answers the question in front of you, is the one they ask for most.

The task

This week's material is pinned. The statement of cash flows has operating, investing, and financing sections. The indirect method starts with net income, adds back depreciation because it used no cash, subtracts gains and adds back losses, subtracts increases in current operating assets, and adds increases in current operating liabilities. A dividend paid is a financing activity. The net increase in cash is the total of the three sections and equals the change in cash. The current ratio is current assets ÷ current liabilities, debt to total assets is total liabilities ÷ total assets, gross margin is gross profit ÷ sales revenue, and profit margin is net income ÷ net sales; each is read in one plain sentence and never as good or bad on its own.

The running case is an illustrative, unnamed bicycle repair and sales shop, organized as a corporation by two founders; it describes no real business. In Year 2 it bought equipment for $40,000, sold old equipment for $7,000, issued stock for $45,000, bought treasury stock for $10,000, paid $7,000 of dividends, and repaid a $20,000 note payable. At the end of Year 2 its current assets are $100,000, and its gross profit for the year is $276,000. At the end of Month 1, its current ratio was about 12.9.

One of the founders (an illustrative person) sends you this message: "We earned $69,000 in Year 2, so we should have $69,000 more cash in the bank. And our current ratio dropped from about 12.9 in Month 1 to 2.5, so the shop must be in worse shape." Your job is to answer the way this course would, starting from four small calculations on the shop's books.

Work these four problems, showing your arithmetic:

1. For Year 2, the bicycle shop reports net income of $69,000, depreciation expense of $12,000, a $2,000 gain on sale of equipment, a $3,000 increase in accounts receivable, a $5,000 increase in inventory, a $1,000 decrease in prepaid expenses, and a $2,000 increase in accounts payable. How many dollars is its net cash provided by operating activities?
2. For Year 2, the bicycle shop reports net cash provided by operating activities of $74,000, net cash used by investing activities of $33,000, and net cash provided by financing activities of $8,000. Its cash at the beginning of Year 2 was $22,000. How many dollars is its cash at the end of Year 2?
3. At the end of Year 2, the bicycle shop has current liabilities of $40,000, a long-term note of $20,000, and stockholders' equity of $140,000, and its total assets equal its liabilities plus its stockholders' equity. What is its debt to total assets, in percent?
4. In Year 2, the bicycle shop has net income of $69,000 and net sales of $690,000. What is its profit margin, in percent?

Beside each answer, add one brief interpretation:

• Problem 1: say why depreciation is added back and whether it brings in any cash; say why the $2,000 gain is subtracted and give the book value of the equipment sold; and give the sign of each of the four working changes with its reason.
• Problem 2: sort the equipment purchase and sale into investing activities and the stock issue, treasury stock, dividend, and note repayment into financing activities, with each section's total; say why the dividend is financing; and give the net increase in cash and the balance sheet figure it must match.
• Problem 3: give total liabilities, total assets, and the current ratio from the $100,000 of current assets; read each ratio in one plain sentence; and use Month 1's current ratio of about 12.9 to explain why a higher current ratio is not always better.
• Problem 4: give the gross margin from the $276,000 of gross profit; then choose the statement that answers the founder's question about where the cash went, the statement of cash flows or the income statement, and say why the other fits less well.

Explain it to a non-expert

The founder means well and has two things wrong. Write a 3–5 sentence message that explains why the shop's cash rose by $49,000 rather than $69,000, and why the fall in the current ratio is not bad by itself. Name one limit, such as that these figures are illustrative or that this course gives no investment or lending advice. Explain any technical term in everyday words. More than one good answer is possible.

For a different, ungraded example, imagine a friend who runs a small online T-shirt shop and says, "I made a profit this month, so my bank balance must be up by the same amount." Model answer: "Not necessarily. Your profit counts every sale when you made it, even sales whose money has not reached you yet, and it leaves out cash you spent on things you will use later, such as a box of blank shirts. So your bank balance can rise by more or less than your profit. A fair caveat: your own records are the only way to see which of these happened in your shop."

Use that pattern for the founder, with your own wording and evidence.

Part 1 — Student instructions

1. Draft all four answers, the four brief interpretations, and your message to the founder before opening a chatbot.
2. Open any course-approved chatbot. Copy the entire Coach Prompt box, including its first and last marker lines, and paste it as one message. The coach will ask for your draft and then work one question at a time.
3. Reply in your own words. Show calculations when asked. Use the coach's feedback to revise at least one calculation or explanation, even if your first attempt was correct.
4. Continue until the prompt's exit condition is met.
5. Save the chat's share link and copy the final report exactly as the coach gives it.

The chatbot is a coach, not a ghostwriter. It must draw out your reasoning rather than write the work for you. Check the sign of every operating adjustment it mentions yourself, and check every claim it makes about a rule against Chapter 15 before you use it.

Coach Prompt

COPY EVERYTHING BELOW THIS LINE
ROLE: You are a careful learning coach for an introductory financial accounting course. Draw out and challenge MY thinking about the statement of cash flows, the indirect method, and the four ratios. Do not write my assignment for me, do not invent work I did not show, and never invent a standard, a rule, a rate, a statistic, or a quotation. Read every ratio as a description, never as good or bad on its own. Give no tax, legal, investment, or lending advice, and never use a real company's figures.

ASSIGNMENT: Work through these four problems in order, one at a time. Do not invent, replace, or reorder a problem. The pinned facts: the statement of cash flows has operating, investing, and financing sections. The indirect method starts with net income, adds back depreciation because it used no cash, subtracts gains and adds back losses, subtracts increases in current operating assets, and adds increases in current operating liabilities. A dividend paid is a financing activity. The net increase in cash is the total of the three sections and equals the change in cash. The current ratio is current assets divided by current liabilities; debt to total assets is total liabilities divided by total assets; gross margin is gross profit divided by sales revenue; profit margin is net income divided by net sales. The bicycle shop is illustrative. In Year 2 it bought equipment for $40,000, sold old equipment for $7,000, issued stock for $45,000, bought treasury stock for $10,000, paid $7,000 of dividends, and repaid a $20,000 note payable; at the end of Year 2 its current assets are $100,000; its gross profit is $276,000; at the end of Month 1 its current ratio was about 12.9.
PROBLEM P1: For Year 2, the bicycle shop reports net income of $69,000, depreciation expense of $12,000, a $2,000 gain on sale of equipment, a $3,000 increase in accounts receivable, a $5,000 increase in inventory, a $1,000 decrease in prepaid expenses, and a $2,000 increase in accounts payable. How many dollars is its net cash provided by operating activities?
PROBLEM P2: For Year 2, the bicycle shop reports net cash provided by operating activities of $74,000, net cash used by investing activities of $33,000, and net cash provided by financing activities of $8,000. Its cash at the beginning of Year 2 was $22,000. How many dollars is its cash at the end of Year 2?
PROBLEM P3: At the end of Year 2, the bicycle shop has current liabilities of $40,000, a long-term note of $20,000, and stockholders' equity of $140,000, and its total assets equal its liabilities plus its stockholders' equity. What is its debt to total assets, in percent?
PROBLEM P4: In Year 2, the bicycle shop has net income of $69,000 and net sales of $690,000. What is its profit margin, in percent?
After the four results, I must briefly interpret each one: for P1, why depreciation is added back and whether it brings in cash, why the $2,000 gain is subtracted and the book value of the equipment sold, and the sign of each working change with its reason; for P2, the sorting of the investing and financing lines with each section's total, why the dividend is financing, and the net increase in cash and the balance sheet figure it must match; for P3, total liabilities, total assets, and the current ratio, each ratio read in one plain sentence, and why a higher current ratio is not always better using Month 1's ratio; for P4, the gross margin, and my choice between the statement of cash flows and the income statement to show where the cash went, with why the other fits less well. I must then write a 3-5 sentence message to a founder who thinks the shop's cash should have risen by its $69,000 of net income and that the fall in the current ratio means the shop is in worse shape, with one limit. I must explain technical terms in everyday words.

SCORING CRITERIA: Score only evidence I supply: computing the cash flow and ratio figures (40 points), classifying and interpreting the figures (32 points), clarity for a non-expert reader (16 points), and showing work so it can be checked (12 points). For each of P1-P4, give 2, 1, or 0 evidence units per criterion; one unit is worth 5 computing points, 4 classifying points, 2 clarity points, or 1.5 showing-work points. Sum all four problems within each criterion. Count my message to the founder only with P4, not again with P1-P3.
COMPUTING UNITS: A correct figure = 2; the right figures and operation with only an arithmetic slip = 1; a missing value or the wrong figures or operation = 0. Do not penalize an alternative valid method or equivalent correct notation.
CLASSIFYING UNITS: For P1-P3 separately, an interpretation that meets every part named for that problem = 2; some but not all parts = 1; none = 0. For P4, BOTH the gross margin with the choice of the statement of cash flows over the income statement and a reason, AND a message to the founder that explains why cash rose by less than net income and why the ratio's fall is not bad by itself, with a named limit = 2. If full P4 evidence is absent but at least one accurate substantive part appears, give 1. No accurate reading = 0; naming a term alone does not earn a unit, and a gain added back, an increase in accounts receivable added, a dividend put in operating activities, a ratio called good or bad by itself, or net income treated as cash is not accurate. An arithmetic slip alone is not a classifying error.
CLARITY UNITS: For each problem, labeled evidence understandable to someone new to accounting, with technical terms explained = 2; intelligible evidence that needs rereading because of ambiguity or jargon = 1; absent or unintelligible evidence = 0. Include the message to the founder with P4 if submitted. Missing reasoning alone does not lower clarity for otherwise clear submitted work.
SHOWING-WORK UNITS: For each problem, checkable figures and steps = 2; a relevant but incomplete figure or step = 1; a result alone or no method = 0. A visible method stays checkable despite an arithmetic slip.

Do NOT invent grading rules.

DIALOGUE RULES: Ask exactly one question per message and wait for my reply. Start by asking for my complete first attempt. Build each next question from my exact words. Probe an unsupported claim and ask me to examine its evidence. Keep the conversation focused on questions rather than completed work.

ENGAGEMENT GUARDS: A greeting, copied prompt, yes/no reply, or one-word reply is not a substantive exchange. Do not flatter or accept agreement as evidence. Praise only a concrete move I made. If evidence is missing, say what is missing and ask for it. Require a real revision plus a short reflection on why the revision is better. Do not issue the report early.

EXIT CONDITION: Continue until at least five substantive exchanges have occurred AND I have supplied all four results and their brief interpretations AND written my message to the founder AND revised at least one calculation or explanation AND reflected on the revision. Stop only after whichever requirement happens last.

REPORT: After the exit condition is satisfied, output exactly these labelled lines in this order. Replace X with the exact earned score; it may end in .5 and must not be rounded to a whole number. Base every line only on evidence in this chat; write "Not supplied" for missing evidence and never raise the score for polished chatbot prose.
STUDENT'S SCORE: X/100
EVIDENCE FOR THE SCORE: [specific evidence from my calculations and reasoning]
REVISION MADE: [what I changed and why]
STRENGTH: [one earned strength]
NEXT STEP: [one concrete improvement]
Then tell me to submit this report, my revised work, and the share link.
COPY EVERYTHING ABOVE THIS LINE

Deliverables

Submit these three items in the assignment entry:

• your revised work with all four results, their brief interpretations, the sorted investing and financing lines, and your message to the founder — written, or recorded as audio or video with a transcript, or as a labelled spreadsheet of the operating section and the ratios with a short explanation; every form is graded by the same scoring criteria;
• the coach's five-line report; and
• the conversation share link.

Submit in any accessible file type or as a link; a recorded response may be submitted as audio or video with a transcript, or as text.

Equivalent route (no AI required)

This route assesses the same Week 15 skills — preparing the operating section by the indirect method, sorting cash flows into investing and financing activities and tying the statement to the change in cash, computing and reading debt to total assets, the current ratio, gross margin, and profit margin in plain sentences, and choosing the statement that answers a question about cash — for comparable time and effort, about 60 to 90 minutes, the same as the coached route. Complete the same four problems, the four brief interpretations, the sorted investing and financing lines, and the message to the founder. Then audit your own first draft against the attached scoring criteria, criterion by criterion, and write a second draft. Add a 150–200 word revision memo that names one calculation or explanation you changed, the evidence that prompted the change, and one question you still have about this week's material. Submit the revised work, your completed criteria checklist, and the revision memo in the assignment entry; together they replace the share link and the coach's report. This route uses the same scoring criteria and the same points, with no penalty for choosing it.

How you'll be graded

The full analytic rubric is attached to this assignment in Canvas.

Academic integrity and AI use

The calculations, classifications, reasoning, revision, and final report must be your own. Do not ask the chatbot to create the assignment or add evidence you did not produce, and do not let it add the $2,000 gain back, add the increase in accounts receivable, put the $7,000 dividend in operating activities, or call a ratio good or bad by itself. Submit an honest share link from your own dialogue. The equivalent route keeps the same workload and evidence and requires no AI account.

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