Cash Flow Problem Set | Test Bank – 10e - Test Bank | Financial Accounting Information for Decisions 10e by John Wild by John Wild. DOCX document preview.
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Student name:__________
FILL IN THE BLANK. Write the word or phrase that best completes each statement or answers the question.
1) A main purpose of the statement of cash flows is to report cash ________ and cash _______________.
2) Investments that are readily convertible to a known amount of cash and are sufficiently close to their maturity so that the market value is unaffected by interest rate changes are ______________________________.
3) _____________ activities include transactions and events that affect net income.
4) ___________________ activities include those transactions and events that come from the purchase and sale of long-term assets.
5) ___________________ activities include those transactions and events that affect long-term liabilities and equity.
6) Noncash financing and investing activities are disclosed in a ____________ or in a separate ______________________________.
7) Cash receipts and cash payments are classified in one of three categories: _____________, _____________, and _______________ activities.
8) The section of the statement of cash flows used in analyzing the financial performance of a company's ongoing business is the ____________ section.
9) The cash flow on total assets ratio is computed by dividing _____________ by ____________.
10) Information to prepare the statement of cash flows usually comes from three sources: (1) _______________, (2) _______________________, and (3) ____________________.
11) All cash transactions eventually affect noncash ___________ accounts.
12) When preparing the operating section of the statement of cash flows using the indirect method, noncash expenses are _____________ net income.
13) The reporting of investing and financing activities is _________________ under the direct and indirect methods of preparing the statement of cash flows.
14) The use of a spreadsheet for analysis is especially useful when preparing the statement of cash flows using the _____________ method.
15) Computing operating cash flows by adjusting accrual-based income statement items to the cash basis is done when the ______________ method is used.
SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.
16) Explain the purpose and format of the statement of cash flows. Also describe its relevance to decision makers.
17) Define and discuss the differences between operating, investing, and financing activities.
18) Define and explain significant noncash investing and financing activities and the method of reporting them on the statement of cash flows.
19) Describe the format of the statement of cash flows, including the reporting of significant noncash investing and financing activities.
20) Explain the value of separating cash flows into operating activities, investing activities, and financing activities to financial statement users in analyzing cash flows and the company's financial performance and condition.
21) Define the cash flow on total assets ratio and explain how it is used to evaluate cash flows and to assess company performance.
22) What are the steps involved in the preparation of the statement of cash flows?
23) Explain how the cash flows from operating activities section of the statement of cash flows is prepared using the indirect method.
24) Explain how cash flows from investing and financing activities are determined.
25) Explain the use of a spreadsheet in the preparation of the statement of cash flows.
26) Explain how the cash flows from operating activities section of the statement of cash flows is prepared using the direct method.
27) Sega Company reported net cash provided by operating activities of $141.0 million and average total assets of $1,762.5 million at the end of the year. Calculate the cash flow on total assets ratio.
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
28) Use the following company information to prepare a schedule of significant noncash investing and financing activities:
(a) Sold a building with a book value of $300,000 for $225,000 cash and sold land with a book value of $40,000 for $65,000 cash.
(b) Issued 15,000 shares of $10 par value common stock in exchange for equipment with a market value of $175,000.
(c) Retired a $100,000, 8% bond by issuing another $100,000, 7% bond issue.
(d) Acquired land by issuing a twenty-year, 5%, $73,000 note payable.
29) Based on the following information provided about a company's operations, calculate its cost of goods purchased and its cash paid for merchandise.
Cost of goods sold | $ 522,000 |
Merchandise inventory, beginning year | 70,000 |
Accounts payable, beginning year | 53,000 |
Merchandise inventory, end-of-year | 57,000 |
Accounts payable, end-of-year | 48,000 |
30) Use the following income statement and information about selected current assets and current liabilities to calculate the net cash provided or used by operating activities using the indirect method.
PULLMAN COMPANY | ||
Income Statement | ||
For Year Ended December 31, Year 2 | ||
Sales | $ 180,000 | |
Cost of goods sold | 104,000 | |
Gross profit from sales | $ 76,000 | |
Operating expenses: | ||
Salaries and wages expense | $ 25,000 | |
Depreciation expense | 7,000 | |
Rent expense | 7,200 | |
Interest expense | 1,900 | 41,100 |
Income from operations | $ 34,900 | |
Loss on sale of land | 3,500 | |
Net income | $ 31,400 | |
Selected beginning and ending balances of current asset and current liability accounts, all of which relate to operating activities, are as follows:
Balance | ||
December 31, Year 2 | December 31, Year 1 | |
Accounts receivable | $ 27,600 | $ 24,000 |
Merchandise inventory | 22,300 | 20,000 |
Prepaid rent | 550 | 400 |
Accounts payable | 27,100 | 26,000 |
Salaries and wages payable | 10,400 | 9,000 |
Interest payable | 300 | 250 |
31) Use the following income statement and information about selected current assets and current liabilities for Kimberline Industries to calculate the net cash provided or used by operating activities using the indirect method.
KIMBERLINE INDUSTRIES | ||
Income Statement | ||
For Year Ended December 31 | ||
Sales | $ 280,000 | |
Cost of goods sold | 124,000 | |
Gross profit from sales | $ 156,000 | |
Operating expenses: | ||
Salaries and wages expense | $ 35,000 | |
Depreciation expense | 11,000 | |
Rent expense | 27,200 | |
Interest expense | 3,900 | 77,100 |
Income from operations | $ 78,900 | |
Loss on sale of land | 4,700 | |
Net income | $ 74,200 | |
Increases and decreases of current asset and current liability accounts, all of which relate to operating activities, are as follows:
Change | |
Accounts receivable increase | $ 3,600 |
Merchandise inventory decrease | 1,700 |
Accounts payable increase | 1,100 |
Salaries and wages payable decrease | 2,600 |
32) Based on the following income statement and balance sheet for Bankowski Corporation, determine the cash flows from operating activities using the indirect method.
Bankowski Corporation | ||
Income Statement | ||
For Year Ended December 31, Year 2 | ||
Sales | $ 504,000 | |
Cost of goods sold | $ 327,600 | |
Depreciation expense | 33,000 | |
Other operating expenses | 125,500 | (486,100) |
Other gains (losses): | ||
Gain on sale of equipment | 5,200 | |
Income before taxes | $ 23,100 | |
Income tax expense | (4,800) | |
Net income | $ 18,300 | |
Bankowski Corporation | ||
Balance Sheets | ||
At December 31 | ||
Year 2 | Year 1 | |
Assets | ||
Cash | $ 62,650 | $ 55,800 |
Accounts receivable | 21,000 | 29,000 |
Inventory | 58,000 | 52,100 |
Equipment | 240,000 | 222,000 |
Accumulated depreciation | (97,000) | (96,000) |
Total assets | $ 284,650 | $ 262,900 |
Liabilities: | ||
Accounts payable | $ 28,400 | $ 23,700 |
Income taxes payable | 1,050 | 1,200 |
Total liabilities | $ 29,450 | $ 24,900 |
Equity: | ||
Common stock | $ 106,000 | $ 106,000 |
Paid-in Capital in excess of par value | 18,000 | 18,000 |
Retained earnings | 131,200 | 114,000 |
Total equity | $ 255,200 | $ 238,000 |
Total liabilities and equity | $ 284,650 | $ 262,900 |
33) Rowan, Incorporated's, income statement is shown below. Based on this income statement and the other information provided, calculate the net cash provided by operating activities using the indirect method.
Rowan, Incorporated | ||
Income Statement | ||
For Year Ended December 31 | ||
Sales | $ 248,000 | |
Cost of goods sold | 116,000 | |
Gross profit | $ 132,000 | |
Operating expenses: | ||
Wages and salaries expense | $ 44,000 | |
Rent expense | 16,000 | |
Depreciation expense | 30,000 | |
Other operating expenses | 18,000 | 108,000 |
Income from operations | $ 24,000 | |
Gain on sale of equipment | 26,000 | |
Income before income taxes | $ 50,000 | |
Income taxes expense | 17,500 | |
Net income | $ 32,500 | |
Additional information:
Increase in accounts receivable | $ 4,000 |
Increase in accounts | 16,000 |
Increase in income taxes payable | 300 |
Decrease in prepaid expenses | 10,000 |
Decrease in merchandise inventory | 14,000 |
Decrease in long-term notes payable | 20,000 |
34) The following information is available for the Aarons Corporation:
Aarons Corporation | ||
Balance Sheets | ||
At December 31 | ||
Year 2 | Year 1 | |
Assets: | ||
Cash | $ 24,640 | $ 23,040 |
Accounts receivable | 32,180 | 29,400 |
Merchandise inventory | 73,125 | 61,710 |
Long-term investments | 55,900 | 56,400 |
Equipment | 175,500 | 145,500 |
Accumulated depreciation | (33,550) | (31,200) |
Total assets | $ 327,795 | $ 284,850 |
Liabilities: | ||
Accounts payable | $ 65,000 | 40,380 |
Income taxes payable | 10,725 | 10,200 |
Bonds payable | 48,750 | 66,000 |
Total liabilities | $ 124,475 | $ 116,580 |
Equity: | ||
Common stock | 117,000 | 96,000 |
Paid-in capital in excess of par | 13,000 | 9,000 |
Retained earnings | 73,320 | 63,270 |
Total equity | $ 203,320 | $ 168,270 |
Total liabilities and equity | $ 327,795 | $ 284,850 |
Aarons Corporation | ||
Income Statement | ||
For Year Ended December 31, Year 2 | ||
Sales | $ 240,000 | |
Cost of goods sold | $ 80,900 | |
Depreciation expense | 29,400 | |
Other operating expenses | 48,000 | |
Interest expens | 2,000 | (160,300) |
Other gains (losses): | ||
Loss on sale of equipment | (8,400) | |
Income before taxes | 71,300 | |
Income taxes expense | 27,650 | |
Net income | $ 43,650 | |
Additional information:
(1) There was no gain or loss on the sales of the long-term investments, nor on the bonds retired.
(2) Old equipment with an original cost of $37,550 was sold for $2,100 cash.
(3) New equipment was purchased for $67,550 cash.
(4) Cash dividends of $33,600 were paid.
(5) Additional shares of stock were issued for cash.
Prepare a complete statement of cash flows for Year 2 using the indirect method.
35) The following information is available for the Brookstone Company:
Brookstone Company | ||
Balance Sheets | ||
At December 31 | ||
Year 2 | Year 1 | |
Assets: | ||
Cash | $ 29,568 | $ 27,648 |
Accounts receivable | 38,616 | 35,280 |
Merchandise inventory | 87,750 | 74,052 |
Long-term investments | 67,080 | 67,680 |
Machinery | 210,600 | 174,600 |
Accumulated depreciation | (40,260) | (37,440) |
Total assets | $ 393,354 | $ 341,820 |
Liabilities: | ||
Accounts payable | $ 78,000 | $ 48,456 |
Income taxes payable | 12,870 | 12,240 |
Bonds payable | 58,500 | 79,200 |
Total liabilities | $ 149,370 | $ 139,896 |
Equity: | ||
Common stock | 140,400 | 115,200 |
Paid-in capital in excess of par | 15,600 | 10,800 |
Retained earnings | 87,984 | 75,924 |
Total equity | $ 243,984 | $ 201,924 |
Total liabilities and equity | $ 393,354 | $ 341,820 |
Brookstone Company | ||
Income Statement | ||
For Year Ended December 31, Year 2 | ||
Sales | $ 288,000 | |
Cost of goods sold | $ 97,080 | |
Depreciation expense | 35,280 | |
Other operating expenses | 57,600 | |
Interest expense | 2,400 | (192,360) |
Other gains (losses): | ||
Loss on sale of equipment | (10,080) | |
Income before taxes | 85,560 | |
Income taxes expense | 33,180 | |
Net income | $ 52,380 | |
Additional information:
(1) There was no gain or loss on the sales of the long-term investments, nor on the bonds retired.
(2) Old machinery with an original cost of $45,060 was sold for $2,520 cash.
(3) New machinery was purchased for $81,060 cash.
(4) Cash dividends of $40,320 were paid.
(5) Additional shares of stock were issued for cash.
Prepare a complete statement of cash flows for Year 2 using the indirect method.
36) Use the following company information to calculate net cash provided or used by investing activities:
(a) Equipment with a book value of $175,000 and an original cost of $300,000 was sold at a loss of $17,000.
(b) Paid $62,000 cash for a new truck.
(c) Sold land costing $32,000 for $36,000 cash, realizing a $4,000 gain.
(d) Purchased treasury stock for $61,000 cash.
(e) Long-term investments in stock are sold for $41,000 cash, realizing a gain of $3,500.
37) Use the following information to calculate the net cash provided or used by financing activities for the Hulu Corporation:
(a) Net income, $10,000
(b) Sold common stock for $40,000 cash
(c) Paid cash dividend of $13,000
(d) Paid bond payable, $28,000
(e) Purchased equipment for $12,000 cash
38) Based on the information provided below for Krackle Corporation, complete the following worksheet to be used to prepare the statement of cash flows using the indirect method.
(a) Net income for the year was $30,000.
(b) Dividends of $10,000 were declared and paid.
(c) Krackle’s only noncash expense was depreciation which totaled $50,000.
(d) The company purchased plant assets for $70,000.
(e) Notes payable in the amount of $40,000 were issued during the year for cash.
Krackle Corporation | ||||
Spreadsheet for Statement of Cash Flows—Indirect Method | ||||
For Year Ended December 31, Year 2 | ||||
12/31/Year 1 | Analysis of Changes | 12/31/Year 2 | ||
Debit | Credit | |||
Balance Sheet—Debits | ||||
Cash | 70,000 | 60,000 | ||
Accounts receivable | 180,000 | 190,000 | ||
Merchandise inventory | 200,000 | 230,000 | ||
Plant assets | 500,000 | 570,000 | ||
950,000 | 1,050,000 | |||
Balance Sheet—Credits | ||||
Accumulated depreciation | 100,000 | 150,000 | ||
Accounts payable | 170,000 | 160,000 | ||
Notes payable | 350,000 | 390,000 | ||
Capital stock | 200,000 | 200,000 | ||
Retained earnings | 130,000 | 150,000 | ||
950,000 | 1,050,000 | |||
Statement of Cash Flows | ||||
Operating activities | ||||
Net income | ||||
Increase in accounts receivable | ||||
Increase in merchandise inventory | ||||
Decrease in accounts payable | ||||
Depreciation expense | ||||
Investing activities | ||||
Cash paid to purchase plant assets | ||||
Financing activities | ||||
Cash paid for dividends | ||||
Cash received from note payable | ||||
39) The following selected account balances are taken from a merchandising company's records:
December 31 Year 2 | December 31 Year 1 | For Year 2 | |
Merchandise inventory | $ 15,600 | $ 21,200 | |
Accounts receivable | 42,000 | 36,000 | |
Accounts payable | 32,400 | 27,400 | |
Salaries payable | 4,400 | 3,000 | |
Total assets | 234,000 | 286,000 | |
Sales | $ 312,000 | ||
Cost of goods sold | 165,600 | ||
Salaries expense | 48,000 |
(a) Calculate the cash payments made during Year 2 for merchandise. Assume all of the company's accounts payable balances result from merchandise purchases.
(b) Calculate the cash receipts from customer sales during Year 2.
(c) Calculate the cash payments for salaries during Year 2.
40) Use the following calendar-year information to prepare Adam Company's statement of cash flows using the direct method.
Cash paid to purchase machinery | $ 124,000 |
Cash paid for merchandise inventory | 220,000 |
Cash paid for operating expenses | 280,000 |
Cash paid for interest | 4,000 |
Cash received for interest | 10,000 |
Cash proceeds from sale of land | 100,000 |
Cash balance at beginning of year | 15,000 |
Cash balance at end of year | 77,000 |
Cash borrowed on a short-term note | 25,000 |
Cash dividends paid | 24,000 |
Cash received from stock issuance | 57,000 |
Cash collections from customers | 522,000 |
41) For each of the following separate cases, use the information provided to calculate the missing cash inflow or cash outflow using the direct method.
(a) | Accounts receivable balances: | |
Beginning of year | $ 60,000 | |
End of year | 57,000 | |
Sales revenue (all on credit) | 375,000 | |
Cash received from customers | $ | |
(b) | Accounts payable balances: | |
Beginning of year | $ 42,000 | |
End of year | 45,000 | |
Merchandise inventory balances: | ||
Beginning of year | 50,000 | |
End of year | 47,500 | |
Cost of goods sold | 250,000 | |
Cash paid for merchandise inventory | $ | |
(c) | Interest payable balances: | |
Beginning of year | $ 7,500 | |
End of year | 9,200 | |
Interest expense | 35,000 | |
Cash paid for interest | $ |
42) For each of the following separate cases, use the information provided to calculate the missing cash inflow or cash outflow using the direct method.
(a) | Accounts receivable balances: | |
Beginning of year | $ 60,000 | |
End of year | 63,000 | |
Sales revenue (all on credit) | 395,000 | |
Cash received from customers | $ | |
(b) | Accounts payable balances: | |
Beginning of year | $ 42,000 | |
End of year | 31,000 | |
Merchandise inventory balances: | ||
Beginning of year | 50,000 | |
End of year | 52,500 | |
Cost of goods sold | 250,000 | |
Cash paid for merchandise inventory | $ | |
(c) | Interest payable balances: | |
Beginning of year | $ 7,500 | |
End of year | 8,200 | |
Interest expense | 31,000 | |
Cash paid for interest | $ |
43) Use the following information about the calendar-year cash flows of Park Company to prepare a statement of cash flows (direct method) and a schedule of noncash investing and financing activities.
Cash and cash equivalents, beginning-year balance | $ 18,000 |
Cash and cash equivalents, year-end balance | 78,750 |
Cash payments for merchandise inventory | 75,750 |
Cash paid for store equipment | 15,750 |
Cash borrowed on three-month note payable | 22,500 |
Cash dividends paid | 12,000 |
Cash paid for salaries | 39,000 |
Cash payments for other operating expenses | 48,000 |
Building purchased and financed by long-term note payable | 78,000 |
Cash received from customers | 220,500 |
Cash interest received | 8,250 |
44) For each of the following independent cases, use the information provided to calculate the missing cash inflow or cash outflow using the direct method.
(a.) | Interest payable, beginning-year | $ 4,200 |
Interest expense | 26,700 | |
Interest payable, year-end | 3,000 | |
Cash paid for interest | $ | |
(b.) | Prepaid insurance, beginning-year | $ 7,000 |
Insurance expense | 16,800 | |
Prepaid insurance, year-end | 3,400 | |
Cash paid for insurance | $ | |
(c.) | Interest receivable, beginning-year | $ 800 |
Interest revenue | 12,600 | |
Interest receivable, year-end | 1,200 | |
Cash received for interest | $ | |
(d.) | Accounts payable, beginning-year | $ 60,000 |
Cost of goods sold | 244,000 | |
Merchandise inventory, beginning-year | 35,000 | |
Merchandise inventory, year-end | 40,500 | |
Accounts payable, year-end | 64,800 | |
Cash paid for merchandise | $ |
45) Use the information provided below to calculate the cash paid for interest for the period.
Interest payable, beginning-year | $ 4,200 |
Interest expense | 26,700 |
Interest payable, year-end | 3,000 |
Cash paid for interest | $ |
46) Use the information provided to calculate the cash paid for insurance for the period
Prepaid insurance, beginning-year | $ 7,000 |
Insurance expense | 16,800 |
Prepaid insurance, year-end | 3,400 |
Cash paid for insurance | $ |
47) Use the information provided to calculate the missing cash received for interest for the period.
Interest receivable, beginning-year | $ 800 |
Interest revenue | 12,600 |
Interest receivable, year-end | 1,200 |
Cash received for interest | $ |
48) Use the information provided to calculate the missing cash paid for merchandise for the period.
Accounts payable, beginning-year | $ 60,000 |
Cost of goods sold | 244,000 |
Merchandise inventory, beginning-year | 35,000 |
Merchandise inventory, year-end | 40,500 |
Accounts payable, year-end | 64,800 |
Cash paid for merchandise | $ |
49) Tate Company’s current year income statement and changes in selected balance sheet accounts are given below. Calculate the company's net cash provided or used by operating activities using the direct method.
Tate Company | ||
Income Statement | ||
For Year Ended December 31 | ||
Sales | $ 248,000 | |
Cost of goods sold | 116,000 | |
Gross profit | $ 132,000 | |
Operating expenses: | ||
Wages and salaries expense | $ 44,000 | |
Rent expense | 16,000 | |
Depreciation expense | 30,000 | |
Amortization expense | 12,000 | |
Other expenses | 18,000 | 120,000 |
Income from operations | $ 12,000 | |
Gain on sale of equipment | 26,000 | |
Income before taxes | $ 38,000 | |
Income tax expense | 13,300 | |
Net Income | $ 24,700 | |
The company also experienced the following during the current year:
Increase in accounts receivable | $ 4,000 |
Increase in accounts payable (all accounts payable transactions are for inventory) | 16,000 |
Increase in income taxes payable | 300 |
Decrease in prepaid expenses | 10,000 |
Decrease in merchandise inventory | 14,000 |
Decrease in long-term notes payable | 20,000 |
50) Based on the information in the following income statement and balance sheet for Monterey Corporation, determine the cash flows from operating activities using the direct method.
Monterey Corporation | ||
Income Statement | ||
For Year Ended December 31, Year 2 | ||
Sales | $ 504,000 | |
Cost of goods sold | 327,600 | |
Depreciation | 42,000 | |
Other operating expenses | 125,500 | (495,100) |
Other gains (losses): | ||
Gain on sale of equipment | 7,200 | |
Income before taxes | 16,100 | |
Income tax expense | (4,800) | |
Net income | $ 11,300 | |
Monterey Corporation | ||
Balance Sheets | ||
At December 31 | ||
Year 2 | Year 1 | |
Cash | $ 64,650 | $ 55,800 |
Accounts receivable | 21,000 | 29,000 |
Inventory | 58,000 | 52,100 |
Equipment | 240,000 | 222,000 |
Accumulated depreciation | (106,000) | (96,000) |
Total assets | $ 277,650 | $ 262,900 |
Liabilities: | ||
Accounts payable | $ 28,400 | $ 23,700 |
Income taxes payable | 1,050 | 1,200 |
Total liabilities | $ 29,450 | $ 24,900 |
Equity: | ||
Common stock | $ 106,000 | $ 106,000 |
Paid-in Capital in Excess of Par | 18,000 | 18,000 |
Retained earnings | 124,200 | 114,000 |
Total equity | $ 248,200 | $ 238,000 |
Total liabilities and equity | $ 277,650 | $ 262,900 |
51) A company reported net income of $132,000, operating cash flows of $87,150, total cash flows of $112,000, and average total assets of $1,050,000. Calculate its cash flow on total assets ratio.
52) Netflix Co. reported net income of $213.4 million, net cash provided by operating activities of $150.8 million, total cash flows of $187.7 million, and average total assets of $2,320.0 million at the end of the year. Calculate the cash flow on total assets ratio.
53) Victoria reported assets of $14,600 million at January 1 and $13,400 million as of December 31 of the current year. Net cash flows from operations were $2,310 million. Calculate the cash flow on total assets ratio.
54) A company reported operating cash flows in Year 1 of $33,012 and $26,292 in Year 2. Its average total assets in Year 1 were $262,000 and $313,000 in Year 2. Calculate the cash flow on total assets ratio for both years. Comment on the results.
55) A corporation reported average total assets in Year 1 of $397,000 and $440,000 in Year 2. Its net operating cash flow for Year 1 was $35,730 and $36,080 for Year 2. Calculate the cash flow on total assets ratio for both years. Comment on the results.
56) A company reported average total assets of $501,000 in Year 1 and $611,000 in Year 2. Its net operating cash flow in Year 1 was $41,583 and $54,990 in Year 2. Calculate its cash flow on total assets ratio for both years. Comment on the results.
57) A company reported net income of $318,000, operating cash flows of $218,700, total cash flows of $184,000, and average total assets of $900,000. Calculate its cash flow on total assets ratio.
58) Use the following income statement and information about changes in noncash current assets and liabilities to (1) prepare only the cash flows from operating activities section of the statement of cash flows using the indirect method and (2) compute the company’s cash flow on total assets ratio for the year assuming that average total assets are $548,800.
Davey Company | ||
Income Statement | ||
For Year Ended December 31 | ||
Sales | $ 880,000 | |
Cost of goods sold | 487,000 | |
Gross profit | $ 393,000 | |
Operating expenses: | ||
Salaries expense | $ 144,000 | |
Rent expense | 76,000 | |
Depreciation expense | 45,000 | |
Amortization expense | 22,000 | |
Utilities expenses | 12,000 | 299,000 |
Income from operations | $ 94,000 | |
Loss on sale of equipment | 14,000 | |
Income before taxes | $ 80,000 | |
Income tax expense | 28,500 | |
Net Income | $ 51,500 | |
Changes in current asset and current liability accounts for the year that relate to operations follow.
Increase in accounts receivable | $ 32,000 |
Increase in accounts payable (all accounts payable transactions are for inventory) | 13,500 |
Decrease in prepaid expenses | 9,200 |
Decrease in merchandise inventory | 14,000 |
Decrease in long-term notes payable | 20,000 |
59) Use the following financial statements and additional information to (1) prepare a statement of cash flows for the year ended December 31, Year 2 using the indirect method, and (2) compute the company’s cash flow on total assets ratio for Year 2.
Derby Company | ||
Balance Sheets | ||
At December 31 | ||
Year 2 | Year 1 | |
Assets: | ||
Cash | $ 85,600 | $ 65,200 |
Accounts receivable, net | 72,850 | 56,750 |
Merchandise inventory | 157,750 | 144,850 |
Prepaid expenses | 6,080 | 12,680 |
Equipment | 280,600 | 245,600 |
Accumulated depreciation-Equipment | (80,600) | (97,600) |
Total assets | $ 522,280 | $ 427,480 |
Liabilities: | ||
Accounts payable | $ 52,850 | $ 45,450 |
Income taxes payable | 15,240 | 12,240 |
Notes payable (long term) | 59,200 | 79,200 |
Total liabilities | $ 127,290 | $ 136,890 |
Equity: | ||
Common stock | 200,000 | 150,000 |
Paid-in capital in excess of par | 53,000 | 40,000 |
Retained earnings | 141,990 | 100,590 |
Total equity | $ 394,990 | $ 290,590 |
Total liabilities and equity | $ 522,280 | $ 427,480 |
Derby Company | ||
Income Statement | ||
For Year Ended December 31, Year 2 | ||
Sales | $ 488,000 | |
Cost of goods sold | $ 212,540 | |
Depreciation expense | 43,000 | |
Other operating expenses | 106,260 | |
Interest expense | 6,400 | (368,200) |
Other gains (losses): | ||
Gain on sale of equipment | 4,700 | |
Income before taxes | 124,500 | |
Income taxes expense | 41,100 | |
Net income | $ 83,400 | |
Additional Information
a. A $20,000 note payable is retired at its carrying value in exchange for cash.
b. The only changes affecting retained earnings are net income and cash dividends paid.
c. New equipment is acquired for $120,000 cash.
d. Received cash for the sale of equipment that had cost $85,000, yielding a gain of $4,700.
e. Prepaid expenses relate to Other Expenses on the income statement.
f. All purchases and sales of merchandise inventory are on credit.
60) Use the following financial statements and additional information to (1) prepare a complete statement of cash flows for the year ended December 31, Year 2. The cash provided or used by operating activities should be reported using the direct method, and (2) compute the company’s cash flow on total assets ratio for Year 2.
Derby Company | ||
Balance Sheets | ||
At December 31 | ||
Year 2 | Year 1 | |
Assets: | ||
Cash | $ 85,600 | $ 65,200 |
Accounts receivable, net | 72,850 | 56,750 |
Merchandise inventory | 157,750 | 144,850 |
Prepaid expenses | 6,080 | 12,680 |
Equipment | 280,600 | 245,600 |
Accumulated depreciation-Equipment | (80,600) | (97,600) |
Total assets | $ 522,280 | $ 427,480 |
Liabilities: | ||
Accounts payable | $ 52,850 | $ 45,450 |
Income taxes payable | 15,240 | 12,240 |
Notes payable (long term) | 59,200 | 79,200 |
Total liabilities | $ 127,290 | $ 136,890 |
Equity: | ||
Common stock | 200,000 | 150,000 |
Paid-in capital in excess of par | 53,000 | 40,000 |
Retained earnings | 141,990 | 100,590 |
Total equity | $ 394,990 | $ 290,590 |
Total liabilities and equity | $ 522,280 | $ 427,480 |
Derby Company | ||
Income Statement | ||
For Year Ended December 31, Year 2 | ||
Sales | $ 488,000 | |
Cost of goods sold | $ 212,540 | |
Depreciation expense | 43,000 | |
Other operating expenses | 106,260 | |
Interest expense | 6,400 | (368,200) |
Other gains (losses): | ||
Gain on sale of equipment | 4,700 | |
Income before taxes | 124,500 | |
Income taxes expense | 41,100 | |
Net income | $ 83,400 | |
Additional Information
a. A $20,000 note payable is retired at its carrying value in exchange for cash.
b. The only changes affecting retained earnings are net income and cash dividends paid.
c. New equipment is acquired for $120,000 cash.
d. Received cash for the sale of equipment that had cost $85,000, yielding a gain of $4,700.
e. Prepaid expenses relate to Other Expenses on the income statement.
f. All purchases and sales of merchandise inventory are on credit.
61) The following transactions and events occurred during the year. Assuming that this company uses the indirect method to report cash provided by operating activities, indicate where each item would appear on its statement of cash flows by placing an x in the appropriate column.
Statement of Cash Flows (Indirect Method) | ||||
Operating Activities | Investing Activities | Financing Activities | Noncash Investing & Financing | |
Paid cash for operating expenses | ||||
Issued common stock for land | ||||
Accounts receivable decreased in the year | ||||
Recorded depreciation expense | ||||
Income taxes payable increased during the year | ||||
Sold equipment for cash, yielding a gain | ||||
Paid cash for interest expense | ||||
Purchased land by for cash | ||||
Purchased long-term investment in bonds | ||||
Paid cash for retirement of note payable | ||||
Answer Key
Test name: John Wild Ch12 Problem Material
1) [receipts (or inflows), payments (or outflows)]
2) cash equivalents
3) Operating
4) Investing
5) Financing
6) [note, schedule included with the statement of cash flows]
7) [operating, investing, financing]
8) operating activities
9) [cash flows from operations, average total assets]
10) [comparative balance sheets, current income statement, additional information]
11) balance sheet
12) added back to (or added to)
13) identical
14) indirect
15) indirect
16) The purpose of the statement of cash flows is to report the cash inflows and cash outflows for an accounting period. The cash flows are classified as operating, financing or investing activities. Decisions using the evaluation of cash flows include those by both internal and external decision makers. Information about cash flows influences decisions. Cash flows help users decide whether a company has enough cash to pay its debts. They also help evaluate a company’s ability to pursue opportunities. Mangers use cash flow information to plan day-to-day operations and make long-term investment decisions.
17) Operating activities involve the day-to-day business activities that generate operating income. Examples are production and purchase of merchandise, the sale of goods to customers, and the expenditures to administer the business. Investing activities generally include those transactions that affect long-term assets. They also include the purchase and sale of short-term investments, and lending and collecting from notes receivable. Financing activities include those transactions and events that affect long-term liabilities and equity. They also include borrowing and repaying principle amounts of both long- and short-term notes.
18) Noncash investing and financing activities involve the purchase or sale of assets which are financed via noncash sources, such as borrowing funds or exchanging stock for assets. They can also include the retirement of debt by issuing equity stock, the conversion of preferred stock to common stock, and the exchange of noncash assets for other noncash assets. These activities are disclosed in either a note to the statement of cash flows or in a separate schedule reported with the statement of cash flows.
19) The statement of cash flows involves reporting cash receipts (inflows) and cash payments (outflows) organized into three categories: operating, financing, and investing. The statement reconciles the beginning and ending cash and cash equivalents balances and explains the amount of net increase or decrease in this balance. Noncash financing and investing items are reported in a note or in a separate schedule with the statement.
20) By separating cash flows into three categories, the statement of cash flows allows users to focus their analysis on specific areas of importance. The operating section of the statement reveals the net effect of cash inflows and cash outflows from the core activities of a business which directly affect its operating income. Operating cash flows indicate the health of a business. A business with a declining or negative amount of cash from operating activities may be in financial difficulty. Analysis of the financing section reveals to financial statement users how a business raises funds from the outside. Analysis of the investing activity section reveals whether or not a firm is acquiring new assets and disposing of existing assets and thus investing in the future of the company.
21) The cash flow on total assets ratio is defined as cash flows from operations divided by average total assets. Cash flow information can help measure a company’s ability to meet its obligations, pay dividends, expand operations, and obtain financing. The cash flow on total assets ratio, specifically, can be used to help estimate the amount and timing of cash flows from operating activities.
22) The steps involved in the preparation of the statement of cash flows include: (1) compute the net increase or decrease in cash; (2) compute the net cash used or provided by operating activities; (3) compute the net cash provided or used by investing activities (4) compute net cash provided or used by financing activities; (5) compute the net cash flow from all sources and then prove it by adding it to beginning cash to get ending cash.
23) The indirect method for preparing the operating section of the statement of cash flows is the most widely used method. The indirect method starts with net income and then adjusts net income for (1) changes in non-cash current assets and current liabilities, (2) operating items not providing or using cash, (3) nonoperating gains and losses.
24) Cash flows from investing activities are determined by identifying changes in all noncurrent asset accounts and the current accounts for both notes receivable and investments in securities. Cash flows from financing activities are determined by identifying changes in all noncurrent liability accounts and the equity accounts. Once the changes in the accounts have been identified, the changes are explained by reconstruction analysis, and then the effects on cash flow are reported.
25) A spreadsheet, also called work sheet, can help organize the information needed to prepare a statement of cash flows, and it can make it easier to check the accuracy of the work. The upper portion of the spreadsheet is used to analyze the changes in balance sheet accounts for the accounting period. The lower portion of the spreadsheet is organized into the statement of cash flows activities of operating, financing, investing, and noncash. Changes in the balances analyzed in the top section are then entered into the appropriate section of the cash flows in the lower section of the spreadsheet.
26) The direct method for reporting cash flows provided or used by operations involves listing separately the major items of operating cash inflows and cash outflows. The accrual basis accounts in the income statement are adjusted to cash by combining the income statement accounts with the changes in their related balance sheet accounts. The operating cash outflows are then subtracted from operating cash inflows to obtain the net inflow or net outflow of cash. A separate schedule reporting the reconciliation between net income and net cash provided or used by operating activities is required.
27) Cash Flow on Total Assets = Operating Cash Flow/Average Total Assets<br> Cash Flow on Total Assets = $141.0/$1,762.5 = 8.0%
28)
Schedule of noncash investing and financing activities: | |
Issued 15,000 shares of common stock in exchange for equipment | $ 175,000 |
Retired 8% bond payable by issuing 7% bond payable | $ 1 00,000 |
Acquired land by issuing a 20-year, 5% note payable | $ 73,000 |
29)
Cost of goods sold | $ 522,000 |
Less decrease in inventory ($57,000 − $70,000) | (13,000) |
Cost of goods purchased | $ 509,000 |
Plus decrease in accounts payable ($53,000 − $48,000) | 5,000 |
Cash paid for purchases | $ 514,000 |
30)
Cash flows from operating activities | |
Net Income | $ 31,400 |
Adjustments to reconcile net income to net cash provided by operating activities | |
Increase in accounts receivable | (3,600) |
Increase in merchandise inventory | (2,300) |
Increase in prepaid rent | (150) |
Increase in accounts payable | 1,100 |
Increase in salaries and wages payable | 1,400 |
Increase in interest payable | 50 |
Depreciation expense | 7,000 |
Loss on sale of land | 3,500 |
Net cash provided by operating activities | $ 38,400 |
31)
Cash flows from operating activities | |
Net Income | $ 74,200 |
Adjustments to reconcile net income to net cash provided by operating activities | |
Depreciation expense | 11,000 |
Loss on sale of land | 4,700 |
Increase in accounts receivable | (3,600) |
Decrease in merchandise inventory | 1,700 |
Increase in accounts payable | 1,100 |
Decrease in salaries and wages payable | (2,600) |
Net cash provided by operating activities | $ 86,500 |
32)
Bankowski Corporation | ||
Cash flows from operating activities (indirect method) | ||
For Year Ended December 31, Year 2 | ||
Net income | $ 18,300 | |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Decrease in accounts receivable | $ 8,000 | |
Increase in inventory | (5,900) | |
Increase in accounts payable | 4,700 | |
Decrease in taxes payable | (150) | |
Depreciation expense | 33,000 | |
Gain on sale of equipment | (5,200) | |
Total adjustments | 34,450 | |
Net cash provided by operations | $ 52,750 | |
33)
Rowan, Incorporated | ||
Cash flows provided by operating activities | ||
For Year Ended December 31 | ||
Net income | $ 32,500 | |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Increase in accounts receivable | $ (4,000) | |
Decrease in inventory | 14,000 | |
Decrease in prepaid expenses | 10,000 | |
Increase in accounts payable | 16,000 | |
Increase in taxes payable | 300 | |
Depreciation expense | 30,000 | |
Gain on sale of equipment | (26,000) | |
Total adjustments | 40,300 | |
Net cash provided by operations | $ 72,800 | |
34)
Aarons Corporation | |||
Statement of Cash Flows | |||
For Year Ended December 31, Year 2 | |||
Cash flows from operating activities: | |||
Net income | $ 43,650 | ||
Adjustments to reconcile net income to net cash provided by operating activities: | |||
Increase in accounts receivable | (2,780) | ||
Increase in inventories | (11,415) | ||
Increase in accounts payable | 24,620 | ||
Increase in income taxes payable | 525 | ||
Depreciation expense | 29,400 | ||
Loss on sale of equipment | 8,400 | ||
Net cash provided by operations | 92,400 | ||
Cash flows from investing activities: | |||
Cash received from sales of long-term investments | $ 500 | (a) | |
Cash received from sale of equipment | 2,100 | Given | |
Cash paid for purchase of equipment | (67,550) | Given | |
Net cash used by investing activities | (64,950) | ||
Cash flows from financing activities: | |||
Cash received from stock issuance | $ 25,000 | (b) | |
Cash paid for retirement of bonds | (17,250) | (c) | |
Cash paid for cash dividends | (33,600) | Given | |
Net cash used by financing activities | (25,850) | ||
Net increase in cash | $ 1,600 | ||
Cash balance at beginning of year | 23,040 | ||
Cash balance at end of year | $ 24,640 | ||
(a) Received from sales of long-term investments: $56,400 − $55,900 = $600
(b) Received from stock issuance:
Increase in common stock | $ 21,000 |
Increase in additional paid in capital | 4,000 |
Total received from stock issuance | $ 25,000 |
(c) Paid to retire bonds: $66,000 − $48,750 = $17,250
35)
Brookstone Company | |||
Statement of Cash Flows | |||
For Year Ended December 31, Year 2 | |||
Cash flows from operating activities | |||
Net Income | $ 52,380 | ||
Adjustments to reconcile net income to net cash provided by operating activities | |||
Increase in accounts receivable | (3,336) | ||
Increase in merchandise inventory | (13,698) | ||
Increase in accounts payable | 29,544 | ||
Increase in income taxes payable | 630 | ||
Depreciation expense | 35,280 | ||
Loss on sale of plant assets | 10,080 | ||
Net cash provided by operating activities | $ 110,880 | ||
Cash flows from investing activities | |||
Cash received from sale of plant assets | 2,520 | Given | |
Cash received from sale of long-term investment | 600 | (a) | |
Cash paid for purchase of plant assets | (81,060) | Given | |
Net cash used in investing activities | (77,940) | ||
Cash flows from financing activities | |||
Cash received from issuing stock | 30,000 | (b) | |
Cash paid for dividends | (40,320) | Given | |
Cash paid to retire bonds | (20,700) | (c) | |
Net cash used in financing activities | (31,020) | ||
Net increase in cash | $1,920 | ||
Cash balance at prior year-end | 27,648 | ||
Cash balance at current year-end | $ 29,568 | ||
(a) Received from sales of long-term investments: $67,680 − $67,080 = $600
(b) Received from stock issuance
Increase in common stock ($140,400 − $115,200) | $ 25,200 |
Increase in additional paid in capital ($15,600 − $10,800) | 4,800 |
Total received from stock issuance | $ 30,000 |
(c) Paid to retire bonds: $79,200 − $58,500 = $20,700
36)
Cash flows from investing activities: | |
Cash received from sale of equipment | $ 158,000 (a) |
Cash paid for purchase of truck | (62,000) |
Cash received from sale of land | 36,000 |
Cash received from sale of long-term investments | 41,000 |
Net cash provided by investing activities | $ 173,000 |
(a)
Book value of equipment | $ 175,000 |
Loss realized on sale | 17,000 |
Cash received on sale | $ 158,000 |
37)
Cash flows from financing activities | |
Cash received from sale of common stock | $ 40,000 |
Cash paid for dividends | (13,000) |
Cash paid on bonds payable | (28,000) |
Net cash used by financing activities | $ (1,000) |
38)
Krackle Corporation | ||||||
Spreadsheet for Statement of Cash Flows—Indirect Method | ||||||
For Year Ended December 31, Year 2 | ||||||
12/31/Year 1 | Analysis of Changes | 12/31/Year 2 | ||||
Debit | Credit | |||||
Balance Sheet—Debits | ||||||
Cash | 70,000 | 60,000 | ||||
Accounts receivable | 180,000 | f | 10,000 | 190,000 | ||
Merchandise inventory | 200,000 | g | 30,000 | 230,000 | ||
Plant assets | 500,000 | d | 70,000 | 570,000 | ||
950,000 | 1,050,000 | |||||
Balance Sheet—Credits | ||||||
Accumulated depreciation | 100,000 | c | 50,000 | 150,000 | ||
Accounts payable | 170,000 | h | 10,000 | 160,000 | ||
Notes payable | 350,000 | e | 40,000 | 390,000 | ||
Capital stock | 200,000 | 200,000 | ||||
Retained earnings | 130,000 | b | 10,000 | a | 30,000 | 150,000 |
950,000 | 1,050,000 | |||||
Statement of Cash Flows | ||||||
Operating activities | ||||||
Net income | a | 30,000 | ||||
Increase in accounts receivable | f | 10,000 | ||||
Increase in merchandise inventory | g | 30,000 | ||||
Decrease in accounts payable | h | 10,000 | ||||
Depreciation expense | c | 50,000 | ||||
Investing activities | ||||||
Cash paid to purchase plant assets | d | 70,000 | ||||
Financing activities | ||||||
Cash paid for dividends | b | 10,000 | ||||
Cash received from note payable | e | 40,000 | ||||
250,000 | 250,000 | |||||
39) (a)
Decrease in inventory = 15,600 − 21,200 = $5,600
Cost of purchases = $165,600 − $5,600 = $160,000
Increase in accounts payable = 27,400 − 32,400 = $5,000
Cash paid for purchases of merchandise = $160,000 − $5,000 = $155,000
(b)
Increase in accounts receivable = 36,000 − 42,000 = $ 6,000
Cash received from customer sales = $312,000 − $6,000 = $306,000
(c)
Increase in salaries payable $3,000 − $4,400 = 1,400
Cash paid for salaries = $48,000 − $1,400 = $46,600
40)
Adam Company | ||
Statement of Cash Flows (Direct Method) | ||
For the year ended December 31 | ||
Cash flows from operating activities: | ||
Cash received from customers | $ 522,000 | |
Cash received for interest | 10,000 | |
Cash paid for merchandise inventory | (220,000) | |
Cash paid for operating expenses | (280,000) | |
Cash paid for interest | (4,000) | |
Net cash provided by operating activities | $ 28,000 | |
Cash flows from investing activities: | ||
Cash received from sale of land | $ 100,000 | |
Cash paid to acquire machinery | (124,000) | |
Net cash used by investing activities | (24,000) | |
Cash flows from financing activities: | ||
Cash received on a short-term loan | $ 25,000 | |
Cash received from stock issuance | 57,000 | |
Cash dividends paid | (24,000) | |
Net cash provided by financing activities | 58,000 | |
Net increase in cash | $ 62,000 | |
Cash balance at beginning of year | 15,000 | |
Cash balance at end of year | $ 77,000 | |
41)
(a) | Sales Revenue | $ 375,000 |
Decrease in accounts receivable ($60,000 − $57,000) | 3,000 | |
Cash received from customers | $ 378,000 | |
(b) | Cost of goods sold | $ 250,000 |
Decrease in merchandise inventory ($50,000 − $47,500) | (2,500) | |
Merchandise purchases | 247,500 | |
Increase in accounts payable ($45,000 − $42,000) | (3,000) | |
Cash paid for merchandise inventory | $ 244,500 | |
(c) | Interest expense | $ 35,000 |
Increase in interest payable ($9,200 − $7,500) | (1,700) | |
Cash paid for interest | $ 33,300 |
42)
(a) | Sales Revenue | $ 395,000 |
Increase in accounts receivable ($63,000 − $60,000) | (3,000) | |
Cash received from customers | $ 392,000 | |
(b) | Cost of goods sold | $ 250,000 |
Increase in merchandise inventory ($52,500 − $50,000) | 2,500 | |
Merchandise purchases | 252,500 | |
Decrease in accounts payable ($42,000 − $31,000) | 11,000 | |
Cash paid for merchandise inventory | $ 263,500 | |
(c) | Interest expense | 31,000 |
Increase in interest payable ($8,200 − $7,500) | (700) | |
Cash paid for interest | $ 30,300 |
43)
Park Company | ||
Statement of Cash Flows (Direct Method) | ||
For Year Ended December 31 | ||
Cash flows from operating activities: | ||
Cash received from customers | $ 220,500 | |
Cash received for interes | 8,250 | |
Cash paid for merchandise inventory | (75,750) | |
Cash paid for salaries | (39,000) | |
Cash paid for other operating expenses | (48,000) | |
Net cash provided by operating activities | $ 66,000 | |
Cash flows from investing activities: | ||
Cash paid for store equipment | $ (15,750) | |
Net cash used by investing activities | (15,750) | |
Cash flows from financing activities: | ||
Cash received from borrowing on 3-month note payable | $ 22,500 | |
Cash paid for dividends | (12,000) | |
Net cash provided by financing activities | 10,500 | |
Net increase in cash and cash equivalents | $ 60,750 | |
Cash and cash equivalents at beginning of year | 18,000 | |
Cash and cash equivalents at end of year | $ 78,750 | |
Schedule of noncash investing and financing activities: | ||
Purchased building financed by long-term note payable | $ 78,000 | |
44)
(a.) | Interest expense | $ 2 6,700 |
Decrease in interest payable ($4,200 − $3,000) | 1,200 | |
Cash paid for interest | $ 27,900 | |
(b.) | Insurance expense | $ 16,800 |
Decrease in prepaid insurance ($7,000 − $3,400) | (3,600) | |
Cash paid for insurance | $ 13,200 | |
(c.) | Interest revenue | $ 12,600 |
Increase in interest receivable ($1,200 − $800) | (400) | |
Cash received for interest | $ 12,200 | |
(d.) | Cost of goods sold | $ 244,000 |
Increase in merchandise inventory ($40,500 − $35,000) | 5,500 | |
Merchandise purchases | 249,500 | |
Increase in accounts payable ($64,800 − $60,000) | (4,800) | |
Cash paid for merchandise | $ 244,700 |
45)
Interest expense | $ 26,700 |
Decrease in interest payable ($4,200 − $3,000) | 1,200 |
Cash paid for interest | $ 27,900 |
46)
Insurance expense | $ 16,800 |
Decrease in prepaid insurance($7,000 − $3,400) | (3,600) |
Cash paid for insurance | $ 13,200 |
47)
Interest revenue | $ 12,600 |
Increase in interest receivable ($1,200 − $800) | (400) |
Cash received for interest | $ 12,200 |
48) (d.)
Cost of goods sold | $ 244,000 |
Increase in merchandise inventory ($40,500 − $35,000) | 5,500 |
Merchandise purchases | 249,500 |
Increase in accounts payable ($64,800 − $60,000) | (4,800) |
Cash paid for merchandise | $ 244,700 |
49)
Tate Company | ||
Cash flows from operating activities | ||
For Year Ended December 31 | ||
Cash flows from operations: | ||
Cash received from customers | $ 244,000 | (a) |
Cash paid for merchandise | (86,000) | (b) |
Cash paid for operating expenses | (68,000) | (c) |
Cash paid for income taxes | (13,000) | (d) |
Cash provided by operations | $ 77,000 | |
(a) | Sales | $ 248,000 |
Increase in accounts receivable | (4,000) | |
Cash collected from customers | $ 244,000 | |
(b) | Cost of goods sold | $ 116,000 |
Decrease in merchandise inventory | (14,000) | |
Purchases of merchandise | 102,000 | |
Increase in accounts payable | (16,000) | |
Cash paid for merchandise | $ 86,000 | |
(c) | Wages and salaries expense | $ 44,000 |
Rent expense | 16,000 | |
Other operating expenses | 18,000 | |
Total operating expenses | $ 78,000 | |
Decrease in prepaid expenses | (10,000) | |
Cash paid for operating expenses | $ 68,000 | |
(d) | Income tax expense | $ 13,300 |
Increase in income taxes payable | (300) | |
Cash paid for income taxes | $ 13,000 |
50)
Monterey Corporation | ||
Cash flows from operating activities (direct method) | ||
For Year Ended December 31, Year 2 | ||
Cash flows from operations: | ||
Cash received from customers | $ 512,000 | (a) |
Cash paid for merchandise | (328,800) | (b) |
Cash paid for operating expenses | (125,500) | Given |
Cash paid for income taxes | (4,950) | (c) |
Net Cash provided by operations | $ 52,750 | |
(a) | Sales | $ 504,000 |
Decrease in accounts receivable | 8,000 | |
Cash collected from customers | $ 512,000 | |
(b) | Cost of goods sold | $ 327,600 |
Increase in merchandise inventory | 5,900 | |
Purchases of merchandise | 333,500 | |
Increase in accounts payable | (4,700) | |
Cash paid for merchandise | $ 328,800 | |
(c) | Income taxes expense | $ 4,800 |
Decrease in income taxes payable | 150 | |
Cash paid for income taxes | $ 4,950 |
51) Cash Flow on Total Assets = Operating Cash Flow/Average Total Assets<br> Cash Flow on Total Assets = $87,150/$1,050,000 = 8.3%
52) Cash Flow on Total Assets = Operating Cash Flow/Average Total Assets<br> Cash Flow on Total Assets = $150.8/$2,320.0 = 6.5%
53) Cash Flow on Total Assets = Cash Flows from Operations/Average Total Assets<br> Cash Flow on Total Assets = $2,310/[($14,600 + $13,400)/2] = 16.5%
54) Year 1 = $33,012 / $262,000 = 12.6%
Year 2 = $26,292 / $313,000 = 8.4%
Comment: The company had a decrease in net operating cash flow and an increase in average total assets over the two-year time period. Its efficiency in the use of its assets to generate operating cash flow decreased in Year 2 compared to Year 1 .
55) Year 1 = $35,730 / $397,000 = 9.0%
Year 2 = $36,080 / $440,000 = 8.2%
Comment: Despite the increase in net operating cash flow in Year 2 over Year 1, the company's efficiency in the use of its assets declined by nearly a whole percentage point.
56) Year 1 = $41,583 / $501,000 = 8.3%
Year 2 = $54,990 / $611,000 = 9.0%
Comment: The company had an increase in net operating cash flow and a corresponding increase in average total assets over the two-year time period. Its efficiency in the use of its assets to generate operating cash flow increased over the past year.
57) Cash Flow on Total Assets = Operating Cash Flows/Average Total Assets<br> Cash Flow on Total Assets = $218,700/$900,000 = 24.3%
58) (1)<br>
Davey Company | ||
Cash flows from operating activities: | ||
Net income | $ 51,500 | |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Increase in accounts receivable | (32,000) | |
Decrease in merchandise inventory | 14,000 | |
Decrease in prepaid expenses | 9,200 | |
Increase in accounts payable | 13,500 | |
Depreciation expense | 45,000 | |
Amortization expense | 22,000 | |
Loss on sale of equipment | 14,000 | |
Net cash provided by operating activities | $ 137,200 |
<br>(2) $137,200/$548,800 = 25.0%
59) (1)<br>
Derby Company | ||
Statement of Cash Flows (Indirect Method) | ||
For Year Ended December 31, Year 2 | ||
Cash flows from operating activities: | ||
Net income | $ 83,400 | |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Increase in accounts receivable | (16,100) | |
Increase in merchandise inventory | (12,900) | |
Decrease in prepaid expenses | 6,600 | |
Increase in accounts payable | 7,400 | |
Increase in income taxes payable | 3,000 | |
Depreciation expense | 43,000 | |
Gain on sale of equipment | ( 4,700) | |
Net cash provided by operations | $ 109,700 | |
Cash flows from investing activities: | ||
Cash received from sale of equipment* | 29,700 | |
Cash paid for purchase of equipment | (120,000) | |
Net cash used by investing activities | (90,300) | |
Cash flows from financing activities: | ||
Cash received from stock issuance | $ 63,000 | |
Cash paid for retirement of note payable | (20,000) | |
Cash paid for cash dividends** | (42,000) | |
Net cash used by financing activities | 1,000 | |
Net increase in cash | $ 20,400 | |
Cash balance at beginning of year | 65,200 | |
Cash balance at end of year | $ 85,600 | |
* Accumulated depreciation of equipment sold − beginning accumulated depreciation $97,600 + depreciation expense $43,000 − ending accumulated depreciation $80,600 = $60,000
Book value of equipment sold $85,000 cost (given) − $60,000 accumulated depreciation = $25,000
Cash from equipment sold $25,000 book value + $4,700 gain = $29,700
** Dividends paid − Beginning retained earnings $100,590 + $83,400 net income − $141,990 ending retained earnings = $42,000
(2) $109,700/[(522,280 + 427,480)/2] = 23.1%
60) (1)<br>
Derby Company | ||
Statement of Cash Flows (Direct Method) | ||
For Year Ended December 31, Year 2 | ||
Cash flows from operating activities: | ||
Cash received from customers a | $ 471,900 | |
Cash paid for merchandise inventory b | (218,040) | |
Cash paid for operating expenses c | (99,660) | |
Cash paid for interest expense d | (6,400) | |
Cash paid for income taxes e | (38,100) | |
Net cash provided by operations | $ 109,700 | |
Cash flows from investing activities: | ||
Cash received from sale of equipment f | 29,700 | |
Cash paid for purchase of equipment | (120,000) | |
Net cash used by investing activities | (90,300) | |
Cash flows from financing activities: | ||
Cash received from stock issuance | $ 63,000 | |
Cash paid for retirement of note payable | (20,000) | |
Cash paid for cash dividends g | (42,000) | |
Net cash used by financing activities | 1,000 | |
Net increase in cash | $ 20,400 | |
Cash balance at beginning of year | 65,200 | |
Cash balance at end of year | $ 85,600 | |
<br>(2) $109,700/[(522,280+427,480)/2] = 23.1%<br>
(a) | Sales | $ 488,000 |
Increase in accounts receivable | (16,100) | |
Cash collected from customers | $ 471,900 | |
(b) | Cost of goods sold | $ 212,540 |
Increase in merchandise inventory | 12,900 | |
Purchases of merchandise | 225,440 | |
Increase in accounts payable | (7,400) | |
Cash paid for merchandise | $ 218,040 | |
(c) | Other operating expenses | $ 106,260 |
Decrease in prepaid expenses | (6,600) | |
Cash paid for operating expenses | $ 99,660 | |
(d) | Interest expense | $ 6,400 |
(e) | Income tax expense | $ 41,100 |
Increase in income taxes payable | (3,000) | |
Cash paid for income taxes | $ 38,100 |
(f) − Accumulated depreciation of equipment sold − beginning accumulated depreciation $97,600 + depreciation expense $43,000 − ending accumulated depreciation $80,600 = $60,000
Book value of equipment sold − $85,000 cost (given) − $60,000 accumulated depreciation = $25,000
Cash from equipment sold − $25,000 book value + $4,700 gain = $29,700
(g) − Dividends paid − Beginning retained earnings $100,590 + $83,400 net income − $141,990 ending retained earnings = $42,000
61)
Statement of Cash Flows (Indirect Method) | ||||
Operating Activities | Investing Activities | Financing Activities | Noncash Investing & Financing | |
Paid cash for operating expenses | x | |||
Issued common stock for land | x | |||
Accounts receivable decreased in the year | x | |||
Recorded depreciation expense | x | |||
Income taxes payable increased during the year | x | |||
Sold equipment for cash | x | |||
Paid cash for interest expense | x | |||
Purchased land for cash | x | |||
Purchased long-term investment in bonds | x | |||
Paid cash for retirement of note payable | x | |||
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