Exam Questions Statement of Cash Flows Ch22

CHAPTER 22

STATEMENT OF CASH FLOWS

CHAPTER STUDY OBJECTIVES

1. Understand cash and cash equivalents as well as the business importance of cash flows, and describe the purpose and uses of the statement of cash flows. One sign of a healthy company is positive cash flow from operations. Companies can use these funds to finance expansion, to issue dividends, or to ensure that they remain solvent during economic downturns. Many consider the statement of cash flows to be less susceptible to earnings management than the statement of comprehensive income.

The primary purpose of this statement is to provide information about an entity’s cash receipts and cash payments during a period. A secondary objective is to report the entity’s operating, investing, and financing activities during the period.

Cash and cash equivalents include cash on hand, demand deposits, and short-term, highly liquid non-equity investments that are convertible to known amounts of cash with insignificant risk of changes in value. These amounts are reduced by bank overdrafts that fluctuate from positive to negative balances and that are repayable on demand. IFRS allows preferred shares acquired within a short period of their maturity to be included as a cash equivalent.

2. Identify the major classifications of cash flows and explain the significance of each classification. Cash flows are classified into those resulting from operating, investing, and financing activities. A company’s ability to generate operating cash flows affects its capacity to pay dividends to shareholders, to take advantage of investment opportunities, to provide internal financing for growth, and to meet obligations when they fall due. The amount of cash spent on investing activities affects an organization’s potential for future cash flows. Cash invested in increased levels of productive assets forms the basis for increased future operating cash inflows. Financing cash activities affect the firm’s capital structure and, therefore, the requirements for future cash outflows.

3. Prepare the operating activities section of a statement of cash flows using the direct versus the indirect method. The direct method presents operating cash flows in a manner similar to a condensed cash basis income statement. The accrual amounts are listed and adjusted whenever the cash received or paid out differs from the revenues, gains, expenses, and losses reported in net income, and for non-operating gains and losses.

4. Understand the basic steps in the manual preparation of a statement of cash flows.

The statement of cash flows (SCF) is usually based on an analysis of the changes in the accounts on the statement of financial position over the accounting period. The basic steps in preparing the SCF are to 1) determine the change in cash; 2) record information from the income statement onto the work sheet for the SCF; 3) analyze the change in each SFP account, identify all cash flows associated with changes in the SFP account balance, and record the effect on the SCF; and 4) complete the SCF.

5. Prepare a statement of cash flows using the direct method. The direct method involves determining the change in cash and cash equivalents during the period, inserting line items from the income statement as the starting point within the statement’s operating activities section, and analyzing the changes in all accounts on the statement of financial position to identify all transactions that have an impact on cash. Those with a cash impact are recorded on the statement of cash flows. To ensure that all cash flows have been identified, the results recorded on the statement are compared with the change in cash during the period. The statement is then prepared with required disclosures.

6. Prepare a statement of cash flows using the indirect method. The steps using the indirect method are the same as in Objective 5 above, with one exception. Rather than starting with line items from the income statement in the operating activities section, the net income amount is the beginning point. All the same adjustments are then made to adjust net income to a cash basis, but the style and format of the operating activities sections differ.

7. Prepare a complex statement of cash flows using both methods.

When preparing a more complex statement of cash flows under either the direct or indirect method, the same four step process can be followed: (1) Determine the change in cash; (2) Record information from the income statement to the statement of cash flows; (3) Analyze the change in each SFP account and identify/record the effect on the statement of cash flows; and (4) Complete the statement of cash flows.

8. Identify the financial presentation and disclosure requirements for the statement of cash flows. Under IFRS, disclosure is required of cash flows associated with interest and dividends received and paid, the definition and components of cash and cash equivalents reconciled to the amounts reported on the statement of financial position, and the amount of and explanation for cash and cash equivalents not available for use. All income tax cash flows are reported as operating flows unless they can be linked directly to investing or financing flows. Choices are available under IFRS for the reporting of interest and dividends received (operating or investing) and interest and dividends paid (operating or financing). Gross amounts should be reported except in specifically permitted circumstances, and non-cash investing and financing transactions are excluded from the statement of cash flows, but details about these are reported elsewhere on the financial statements. Disclosures regarding changes in liabilities arising from financing activities are now also required. ASPE presentation requirements are very similar, but required disclosures are limited to interest and dividends paid and charged to retained earnings and the amount of any restricted cash. In addition, interest and dividends received are both operating flows, and interest and dividends paid are operating flows unless they were charged directly to retained earnings.

9. Read and interpret a statement of cash flows. The first step in reading and interpreting a statement of cash flows is to look at the subtotals for the three classifications of activities and the overall change in cash. This provides a high-level summary of the period’s cash flows. Next, analyze the items within each section for additional insights, keeping alert for accounting policies that affect the type of cash flow reported. Familiarity with the company’s business and strategic direction is very useful in interpreting the statement.

10. Identify differences in IFRS and ASPE, and explain what changes are expected to standards for the statement of cash flows. There are no significant differences between IFRS and ASPE related to the statement of cash flows except for the definition of cash equivalents and the presentation and disclosure requirements identified in Learning Objective 8. Proposed updates to IAS 7 are discussed in the Looking Ahead section.

11. Use a work sheet to prepare a statement of cash flows. A work sheet can be used to organize the analysis and cash flow information needed to prepare a statement of cash flows. This method accounts for all changes in the balances of non-cash statement of financial position accounts from the period’s beginning to the end, identifying all operating, investing, and financing cash flows in the process. The statement of cash flows is prepared from the cash flow information accumulated at the bottom of the work sheet.

Multiple Choice

Answer No. Description

c 1. Primary purpose of the statement of cash flows

b 2. Assessment of information in the statement of cash flows

c 3. IFRS and ASPE requirements

d 4. Cash equivalent elements

d 5. Significant non-cash transactions

a 6. Major source of cash for a successful company

d 7. Cash flow effects of a stock dividend

c 8. Cash flow effects of operating activities

d 9. Cash flow effects of operating activities

c 10. Item(s) to include in investing activities

c 11. Additional cash invested by a sole proprietor

a 12. Calculate cash provided by investing activities

c 13. Calculate cash provided by financing activities

b 14. Calculate cash provided by (used in) investing activities

c 15. Calculate cash provided by financing activities

a 16. Calculate cash provided by investing activities

d 17. Calculate cash provided by (used in) financing activities

b 18. Calculate cash provided by (used in) investing activities

c 19. Calculate cash provided by (used in) financing activities

b 20. Calculate cash provided by (used in) investing activities

c 21. Calculate cash provided by (used in) financing activities

c 22. Calculate cash used in investing activities

b 23. Calculate cash provided by (used in) financing activities

b 24. Calculate cash provided by investing activities

b 25. Calculate cash provided by financing activities

a 26. Calculate cash used in investing activities

d 27. Calculate cash provided by financing activities

c 28. Classification on the statement of cash flows

c 29. Adjustments under the direct method and indirect method

c 30. Effect of decrease in accounts payable

c 31. Adjustment for an increase in accounts payable

c 32. Adjustment for a decrease in prepaid insurance

a 33. Adjustment to wages expense under direct method

c 34. Adjustment to revenues under direct method

d 35. Net loss under direct method

a 36. Calculate cash provided by operating activities using direct method

d 37. Calculate cash received from customers.

a 38. Calculate cash paid for income taxes

b 39. Calculate cash paid for insurance (direct method)

d 40. Adjustments to net income (indirect method)

b 41. Reporting of inventory increase on the statement of cash flows

b 42. Adjustments to reconcile net income to cash from operating activities

d 43. Adjustment to net income for inventory increase

d 44. Adjustment for equity method investment income

b 45. Cash flow effects of depreciation expense and purchase of assets

c 46. Reporting insurance proceeds

Answer No. Description

a 47. Adjust net income for loss on impairment of accounts receivable

c 48. Cash flow effects of selling plant assets at a gain

a 49. Cash flow effects of selling equipment at a loss

b 50. Calculate cash provided by operating activities

c 51. Calculate cash provided by operating activities

d 52. Calculate cash provided by operating activities

a 53. Calculate cash provided by operating activities

c 54. Calculate depreciation expense for year

c 55. Calculate depreciation expense for year

d 56. Noncash investing and financing activities

d 57. Disclosures under IFRS and ASPE

b 58. Free cash flow

c 59. Benefit of cash expenditures

c 60. Gain from asset sale

a 61. Management borrowing policies

d *62. Reporting a stock dividend

b *63. Calculate net income for year

b *64. Calculate depreciation expense for year

a *65. Calculate equipment purchased during year

c *66. Calculate cost of equipment sold

a *67. Calculate book value of assets at end of year

b *68. Calculate ending balance of accounts payable

c *69. Calculate ending balance of retained earnings

d *70. Calculate ending balance of common shares account

b *71. Calculate amount of a cash dividend

*This topic is dealt with in an Appendix to the chapter.

Exercises

Item Description

E22-72 Classification of cash flows and transactions

E22-73 Effects of transactions on the statement of cash flows (indirect method)

E22-74 Effects of transactions on the statement of cash flows (indirect method)

E22-75 Effects of transactions on the statement of cash flows (indirect method)

E22-76 Preparation of statement of cash flows (indirect method)

E22-77 Preparation of statement of cash flows

E22-78 Classification of cash flows (indirect method)

E22-79 Calculations for statement of cash flows (direct method)

E22-80 Calculation of operating activities (direct method)

E22-81 Use of the statement of cash flows use and the impact of using the direct versus the indirect method

E22-82 Calculations for statement of cash flows (indirect method)

E22-83 Calculations for statement of cash flows (indirect method)

E22-84 Cash flows from operating activities (indirect and direct methods)

E22-85 Cash flows from operating activities (indirect and direct methods)

E22-86 Calculating and using free cash flow

E22-87 Choices of statement of cash flow categories under IFRS

PROBLEMS

Item Description

P22-88 Preparation of statement of cash flows (direct method)

P22-89 Preparation of statement of cash flows (direct method)

P22-90 Preparation of statement of cash flows (direct method)

P22-91 Preparation of statement of cash flows (indirect method)

P22-92 Preparation of statement of cash flows (indirect method)

P22-93 Preparation of statement of cash flows (indirect method)

P22-94 Complex statement of cash flows (indirect method)

P22-95 Statement of cash flows (indirect method) and statement analysis

MULTIPLE CHOICE

1. The primary purpose of the statement of cash flows is to provide information

a) about an entity’s operating, investing, and financing activities during a period.

b) that is useful in assessing cash flow prospects.

c) about an entity’s cash receipts and cash payments during a period.

d) about an entity's ability to meet its obligations, its ability to pay dividends, and its needs for external financing.

Difficulty: Easy

Learning Objective: Understand cash and cash equivalents as well as the business importance of cash flows, and describe the purpose and uses of the statement of cash flows.

Section Reference: Purpose, Uses, and Importance of Cash, Cash Equivalents and Cash Flows from a Business Perspective

CPA: Financial Reporting

Bloomcode: Knowledge

AACSB: Analytic

2. The information in a statement of cash flows enables stakeholders to assess the

a) amounts, timing and certainty of future cash flows.

b) liquidity and solvency of an entity.

c) change in working capital during the period.

d) reason(s) for the difference between net income and cash flows from financing activities.

Difficulty: Medium

Learning Objective: Understand cash and cash equivalents as well as the business importance of cash flows, and describe the purpose and uses of the statement of cash flows.

Section Reference: Purpose, Uses, and Importance of Cash, Cash Equivalents and Cash Flows from a Business Perspective

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

3. The statement of cash flows is required to be included

a) only for financial statements prepared under IFRS.

b) only for financial statements prepared under ASPE.

c) for both financial statements prepared under IFRS and under ASPE.

d) for financial statements prepared under IFRS, but is optional under ASPE.

Difficulty: Easy

Learning Objective: Understand cash and cash equivalents as well as the business importance of cash flows, and describe the purpose and uses of the statement of cash flows. .

Section Reference: Purpose, Uses, and Importance of Cash, Cash Equivalents and Cash Flows from a Business Perspective

CPA: Financial Reporting

Bloomcode: Knowledge

AACSB: Analytic

4. Cash equivalents include

a) treasury bills, equity investments and long-term bonds.

b) non-equity investments with short maturities and bank overdrafts repayable on demand.

c) treasury bills, commercial paper and all equity investments.

d) treasury bills, commercial paper, and money market funds purchased with excess cash.

Difficulty: Easy

Learning Objective: Understand cash and cash equivalents as well as the business importance of cash flows, and describe the purpose and uses of the statement of cash flows.

Section Reference: Purpose, Uses, and Importance of Cash, Cash Equivalents and Cash Flows from a Business Perspective

CPA: Financial Reporting

Bloomcode: Comprehension

AACSB: Analytic

5. Which of the following is NOT a significant non-cash transaction?

a) capital (finance) lease obligations

b) conversion of preferred shares to common shares

c) exchange of non-monetary assets

d) purchasing a building with a 10% cash down payment and mortgaging the balance

Difficulty: Medium

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

6. A successful company’s major source of cash should be

a) operating activities.

b) investing activities.

c) financing activities.

d) both operating activities and investing activities.

Difficulty: Easy

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

CPA: Financial Reporting

Bloomcode: Knowledge

AACSB: Analytic

7. A statement of cash flows generally would NOT include the effects of

a) common shares issued at an amount greater than par value.

b) the purchase of treasury shares.

c) cash dividends paid.

d) stock dividends declared and issued.

Difficulty: Medium

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

8. All of the following adjustments are added to net income under the indirect method in calculating net cash flow from operating activities except for

a) the loss on a sale of equipment.

b) a decrease in accounts receivable.

c) a decrease in accounts payable.

d) a decrease in inventory.

Difficulty: Easy

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

CPA: Financial Reporting

Bloomcode: Comprehension

AACSB: Analytic

9. All of the following adjustments would be added back under the indirect method in determining net cash flow from operating activities except for

a) amortization of bond discount.

b) an increase in future income tax liability.

c) a loss on sale of plant assets.

d) a decrease in income taxes payable.

Difficulty: Medium

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

10. In a statement of cash flows, which of the following would be reported in the cash flows from investing activities section?

a) issuance of common shares in exchange for a factory building

b) stock dividends received

c) development costs incurred (intangible asset)

d) declaration of cash dividends

Difficulty: Easy

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

CPA: Financial Reporting

Bloomcode: Comprehension

AACSB: Analytic

11. On a statement of cash flows, additional cash invested by a sole proprietor would be disclosed in

a) operating activities.

b) investing activities.

c) financing activities.

d) both operating and financing activities.

Difficulty: Easy

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

CPA: Financial Reporting

Bloomcode: Comprehension

AACSB: Analytic

12. Duncan Corp. purchased a building, paying part of the purchase price in cash and issuing a mortgage note payable to the seller for the balance.

In a statement of cash flows, what amount is included in investing activities for the above transaction?

a) the cash payment

b) the full purchase price

c) zero (but disclosed in the notes)

d) the amount mortgaged

Difficulty: Medium

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

13. Duncan Corp. purchased a building, paying part of the purchase price in cash and issuing a mortgage note payable to the seller for the balance. In a statement of cash flows, what amount is included in financing activities for the above transaction?

a) the cash payment

b) the full purchase price

c) zero (but disclosed in the notes)

d) the amount mortgaged

Difficulty: Medium

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

14. Fables Corp. provided the following information for calendar 2023: Fables adheres to ASPE.

Proceeds from issuing bonds $300,000

Purchase of inventories 570,000

Purchase of treasury shares 90,000

Purchase of long-term investment 420,000

Dividends paid to preferred shareholders 60,000

Proceeds from issuing preferred shares 240,000

Proceeds from sale of equipment 60,000

The cash provided by (used in) investing activities during 2023 is

a) $60,000.

b) $(360,000).

c) $(600,000).

d) $(660,000).

Difficulty: Medium

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Feedback: $60,000 – $420,000 = $(360,000)

15. Fables Corp. provided the following information for calendar 2023: Fables adheres to ASPE.

Proceeds from issuing bonds $300,000

Purchase of inventories 570,000

Purchase of treasury shares 90,000

Purchase of long-term investment 420,000

Dividends paid to preferred shareholders 60,000

Proceeds from issuing preferred shares 240,000

Proceeds from sale of equipment 60,000

The cash provided by financing activities during 2023 is

a) $540,000.

b) $480,000.

c) $390,000.

d) $330,000.

Difficulty: Medium

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Feedback: $300,000 – $90,000 – $60,000 + $240,000 = $390,000

16. Selected information from Regan Ltd.'s 2023 accounting records is as follows:

Proceeds from sale of land $300,000

Proceeds from long-term borrowings 400,000

Purchase of plant assets 280,000

Purchase of inventories 850,000

Proceeds from issuance of common shares 300,000

Based on the above information, the cash provided by investing activities for calendar 2023 is

a) $20,000.

b) $200,000.

c) $320,000.

d) $400,000.

Difficulty: Medium

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Feedback: $300,000 – $280,000 = $20,000

17. Hatian adheres to ASPE. Selected information from Hatian Corp.'s 2023 accounting records is as follows:

Proceeds from issuance of common shares $200,000

Proceeds from issuance of bonds 600,000

Cash dividends paid on common shares 80,000

Cash dividends paid on preferred shares 30,000

Purchase of a FV-NI investment 60,000

Sale of shares to officers and employees

NOT included above 50,000

Based on the above information, the cash provided by (used in) financing activities for calendar 2023 is

a) $80,000.

b) $90,000.

c) $(110,000).

d) $740,000.

Difficulty: Medium

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Feedback: $200,000 + $600,000 – $80,000 – $30,000 + $50,000 = $740,000

18. Oswald Ltd. has recently decided to go public and has hired you as their independent accountant. The company wishes to adhere to IFRS and know that they must prepare a statement of cash flows. Its financial statements for 2023 and 2022 are provided below:

Statements of Financial Position

Dec 31/23 Dec 31/22

Cash $51,000 $ 24,000

Accounts receivable 45,000 27,000

Merchandise inventory 48,000 60,000

Property, plant and equipment $76,000 $120,000

Less accumulated depreciation (40,000) 36,000 (38,000) 82,000

Total Assets $180,000 $193,000

Accounts payable $22,000 $12,000

Income taxes payable 44,000 49,000

Bonds payable 45,000 75,000

Common shares 27,000 27,000

Retained earnings 42,000 30,000

Total Liabilities & Shareholders’ Equity $180,000 $193,000

Income Statement

Year ended December 31, 2023

Sales $1,050,000

Cost of sales 894,000

Gross profit 156,000

Selling and administrative expenses 99,000

Income from operations 57,000

Interest expense 9,000

Income before taxes 48,000

Income taxes 12,000

Net income $ 36,000

The following additional data were provided for calendar 2023:

1. Dividends declared and paid were $24,000.

2. Equipment was sold for $30,000. This equipment originally cost $44,000, and had a book value of $36,000 at the time of sale. The loss on sale was included in “selling and administrative expenses,” as was the depreciation expense for the year.

3. Bonds were retired during the year at par.

On a statement of cash flows for calendar 2023, the cash provided by (used in) investing activities is

a) $6,000.

b) $30,000.

c) $(36,000).

d) $(44,000).

Difficulty: Medium

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Feedback: $30,000 (sale of equipment; no purchases)

19. Oswald Ltd. has recently decided to go public and has hired you as their independent accountant. The company wishes to adhere to IFRS and know that they must prepare a statement of cash flows. Its financial statements for 2023 and 2022 are provided below:

Statements of Financial Position

Dec 31/23 Dec 31/22

Cash $ 51,000 $ 24,000

Accounts receivable 45,000 27,000

Merchandise inventory 48,000 60,000

Property, plant and equipment $76,000 $120,000

Less accumulated depreciation (40,000) 36,000 (38,000) 82,000

Total Assets $180,000 $193,000

Accounts payable $22,000 $ 12,000

Income taxes payable 44,000 49,000

Bonds payable 45,000 75,000

Common shares 27,000 27,000

Retained earnings 42,000 30,000

Total Liabilities & Shareholders’ Equity $180,000 $193,000

Income Statement

Year ended December 31, 2023

Sales $1,050,000

Cost of sales 894,000

Gross profit 156,000

Selling and administrative expenses 99,000

Income from operations 57,000

Interest expense 9,000

Income before taxes 48,000

Income taxes 12,000

Net income $ 36,000

The following additional data were provided for calendar 2023:

1. Dividends declared and paid were $24,000.

2. Equipment was sold for $30,000. This equipment originally cost $44,000 and had a book value of $36,000 at the time of sale. The loss on sale was included in “selling and administrative expenses,” as was the depreciation expense for the year.

3. Bonds were retired during the year at par.

On a statement of cash flows for calendar 2023, the cash provided by (used in) by financing activities is

a) $6,000.

b) $24,000.

c) $(54,000).

d) $(30,000).

Difficulty: Medium

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Feedback: ($24,000) – ($30,000) = ($54,000)

20. The statements of financial position for King Lear Corp. at the end of 2023 and 2022 are as follows:

2023 2022

Cash $75,000 $105,000

Accounts receivable (net) 180,000 135,000

Merchandise inventory 210,000 135,000

Prepaid expenses 30,000 75,000

Land 270,000 120,000

Buildings and equipment 270,000 225,000

Accumulated depreciation—buildings and equipment (54,000) (24,000)

Total Assets $981,000 $771,000

Accounts payable $204,000 $165,000

Salaries payable 36,000 54,000

Notes payable—long-term — 120,000

Mortgage payable 90,000 —

Common shares 627,000 477,000

Retained earnings (deficit) 24,000 (45,000)

Total Liabilities & Shareholders’ Equity $981,000 $771,000

During 2023, land was acquired in exchange for common shares (which had a market value of $150,000 at the time). All equipment purchased was for cash. Equipment costing $15,000 was sold for $6,000 cash; book value of the equipment at the time of sale was $12,000, and the loss was included in net income. Cash dividends of $30,000 were declared and paid during the year. King adheres to ASPE and uses the indirect method when preparing the statement of cash flows. The cash provided by (used in) investing activities was

a) $39,000.

b) $(54,000).

c) $(60,000).

d) $(204,000).

Difficulty: Medium

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Feedback: $6,000 – ($270,000 + $15,000 – $225,000) = ($54,000)

21. The statements of financial position for King Lear Corp. at the end of 2023 and 2022 are as follows:

2023 2022

Cash $ 75,000 $105,000

Accounts receivable (net) 180,000 135,000

Merchandise inventory 210,000 135,000

Prepaid expenses 30,000 75,000

Land 270,000 120,000

Buildings and equipment 270,000 225,000

Accumulated depreciation—buildings and equipment (54,000) (24,000)

Total Assets $981,000 $771,000

Accounts payable $204,000 $165,000

Salaries payable 36,000 54,000

Notes payable—long-term — 120,000

Mortgage payable 90,000 —

Common shares 627,000 477,000

Retained earnings (deficit) 24,000 (45,000)

Total Liabilities & Shareholders’ Equity $981,000 $771,000

a) $90,000.

b) $(30,000).

c) $(60,000).

d) $0.

Difficulty: Medium

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Feedback: ($120,000) + $90,000 – $30,000 = ($60,000)

22. Casio adheres to ASPE. Casio Corp.'s transactions for the year ended December 31, 2023 included the following:

1. Purchased land for $275,000 cash.

2. Borrowed $275,000 from the bank on a long-term note.

3. Sold long-term investments for $250,000.

4. Accounts receivable decreased by $50,000.

5. Paid cash dividends of $300,000.

6. Issued 1,000 common shares for $125,000.

7. Purchased machinery and equipment for $62,500 cash.

8. Accounts payable increased by $100,000.

The cash used in investing activities for 2023 was

a) $(337,500).

b) $(187,500).

c) $(87,500).

d) $(25,000).

Difficulty: Medium

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Feedback: $250,000 – $275,000 – $62,500 = $(87,500)

23. Casio adheres to ASPE. Casio Corp.'s transactions for the year ended December 31, 2023 included the following:

1. Purchased land for $275,000 cash.

2. Borrowed $275,000 from the bank on a long-term note.

3. Sold long-term investments for $250,000.

4. Accounts receivable decreased by $50,000.

5. Paid cash dividends of $300,000.

6. Issued 1,000 common shares for $125,000.

7. Purchased machinery and equipment for $62,500 cash.

8. Accounts payable increased by $100,000.

The cash provided by (used in) financing activities for 2023 was

a) $12,500.

b) $100,000.

c) $(225,000).

d) $(250,000).

Difficulty: Medium

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Feedback: $275,000 – $300,000 + $125,000 = $100,000

24. SenecaHecaRoss Corp.'s transactions for calendar 2023 included the following:

1. Acquired 50% of Lennox Ltd.'s common shares for $90,000 cash.

2. Issued 5,000 preferred shares in exchange for land with a fair value of $160,000.

3. Issued 11% bonds, par value $200,000, due 2023, for $196,000 cash.

4. Purchased a patent for $110,000 cash.

5. Borrowed $90,000 from Bank A.

6. Paid $60,000 toward a bank loan with Bank B.

7. Sold long-term investments for $398,000.

The cash provided by investing activities in 2023 was

a) $148,000.

b) $198,000.

c) $238,000.

d) $308,000.

Difficulty: Medium

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Feedback: $398,000 – $90,000 – $110,000 = $198,000

25. SenecaHecaRoss Corp.'s transactions for calendar 2023 included the following:

1. Acquired 50% of Lennox Ltd.'s common shares for $90,000 cash.

2. Issued 5,000 preferred shares in exchange for land with a fair value of $160,000.

3. Issued 11% bonds, par value $200,000, due 2023, for $196,000 cash.

4. Purchased a patent for $110,000 cash.

5. Borrowed $90,000 from Bank A.

6. Paid $60,000 toward a bank loan with Bank B.

7. Sold long-term investments for $398,000.

The cash provided by financing activities in 2023 was

a) $136,000.

b) $226,000.

c) $286,000.

d) $296,000.

Difficulty: Medium

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Feedback: $196,000 + $90,000 – $60,000 = $226,000

26. Malcolm Corp.'s statements of financial position at December 31, 2023 and 2022 and information relating to 2023 activities are presented below:

December 31,

2023 2022

Assets

Cash $ 110,000 $ 50,000

Temporary investments 150,000 —

Accounts receivable (net) 255,000 255,000

Inventory 345,000 300,000

Long-term investments 100,000 150,000

Property, plant and equipment 850,000 500,000

Accumulated depreciation (225,000) (225,000)

Goodwill 45,000 50,000

Total assets $1,630,000 $1,080,000

Liabilities and Shareholders' Equity

Accounts payable $ 415,000 $ 360,000

Long-term note payable 145,000 —

Common shares 600,000 475,000

Retained earnings 470,000 245,000

Total liabilities and shareholders' equity $1,630,000 $1,080,000

Other information relating to 2023 activities:

1. Net income was $375,000.

2. Cash dividends of $150,000 were declared and paid.

3. Equipment costing $250,000, with a book value of $80,000, was sold for $90,000.

4. A long-term investment was sold for $80,000. There were no other transactions affecting long-term investments.

5. 5,000 common shares were issued for $25 a share.

6. Temporary investments consist of treasury bills maturing on June 30, 2024.

The cash used in investing activities in 2023 was

a) $580,000.

b) $455,000.

c) $430,000.

d) $420,000.

Difficulty: Medium

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Feedback: $80,000 + $90,000 – ($850,000 + $250,000 – $500,000) – $150,000 = $580,000

27. Malcolm Corp.'s statements of financial position at December 31, 2023 and 2022 and information relating to 2023 activities are presented below:

December 31,

2023 2022

Assets

Cash $ 110,000 $ 50,000

Temporary investments 150,000 —

Accounts receivable (net) 255,000 255,000

Inventory 345,000 300,000

Long-term investments 100,000 150,000

Property, plant and equipment 850,000 500,000

Accumulated depreciation (225,000) (225,000)

Goodwill 45,000 50,000

Total assets $1,630,000 $1,080,000

Liabilities and Shareholders' Equity

Accounts payable $ 415,000 $ 360,000

Long-term note payable 145,000 —

Common shares 600,000 475,000

Retained earnings 470,000 245,000

Total liabilities and shareholders' equity $1,630,000 $1,080,000

Other information relating to 2023 activities:

1. Net income was $375,000.

2. Cash dividends of $150,000 were declared and paid.

3. Equipment costing $250,000, with a book value of $80,000, was sold for $90,000.

4. A long-term investment was sold for $80,000. There were no other transactions affecting long-term investments.

5. 5,000 common shares were issued for $25 a share.

6. Temporary investments consist of treasury bills maturing on June 30, 2024.

The cash provided by financing activities in 2023 was

a) $420,000.

b) $270,000.

c) $130,000.

d) $120,000.

Difficulty: Medium

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Feedback: (5,000 × $25 = $125,000) + $145,000 – $150,000 = $120,000

28. Which of the following statements about cash flows is correct?

a) Cash flows are defined as inflows and outflows of cash.

b) Cash is defined as cash on hand less accounts payable.

c) Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of change in value.

d) All of the choices are correct.

Difficulty: Easy

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

CPA: Financial Reporting

Bloomcode: Comprehension

AACSB: Analytic

29. When preparing a statement of cash flows, a decrease in accounts receivable during a period would cause which one of the following adjustments in calculating cash flows from operating activities?

Direct Method Indirect Method

a) increase decrease

b) decrease increase

c) increase increase

d) decrease decrease

Difficulty: Medium

Learning Objective: Understand the basic steps in the manual preparation of a statement of cash flows.

Section Reference: Basic Steps in the Preparation of the Statement of Cash Flows

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

30. In calculating cash flows from operating activities, a decrease in accounts payable during a period

a) means that accrual basis income is less than cash basis income.

b) requires an addition to net income under the indirect method.

c) requires an increase to cost of goods sold under the direct method.

d) requires a decrease to cost of goods sold under the direct method.

Difficulty: Medium

Learning Objective: Understand the basic steps in the manual preparation of a statement of cash flows.

Section Reference: Basic Steps in the Preparation of the Statement of Cash Flows

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

31. When preparing a statement of cash flows, an increase in accounts payable during a period would require which of the following adjustments in determining cash flows from operating activities?

Indirect Method Direct Method

a) increase decrease

b) decrease increase

c) increase increase

d) decrease decrease

Difficulty: Medium

Learning Objective: Understand the basic steps in the manual preparation of a statement of cash flows.

Section Reference: Basic Steps in the Preparation of the Statement of Cash Flows

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

32. When preparing a statement of cash flows, a decrease in prepaid insurance during a period would require which of the following adjustments in determining cash flows from operating activities?

Indirect Method Direct Method

a) increase decrease

b) decrease increase

c) increase increase

d) decrease decrease

Difficulty: Medium

Learning Objective: Understand the basic steps in the manual preparation of a statement of cash flows.

Section Reference: Basic Steps in the Preparation of the Statement of Cash Flows

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

33. Under the direct method, cash payments to employees equals wage expense

a) plus decreases wages payable.

b) minus decreases in wages payable.

c) plus increases in wages payable.

d) plus increases in accounts payable.

Difficulty: Easy

Learning Objective: Prepare a statement of cash flows using the direct method.

Section Reference: Preparing a Statement of Cash Flows Using the Direct Method

CPA: Financial Reporting

Bloomcode: Comprehension

AACSB: Analytic

34. Under the direct method, cash received from customers equals revenue

a) plus increases in accounts receivable.

b) minus decreases in accounts receivable.

c) plus decreases in accounts receivable.

d) None of the choices are correct.

Difficulty: Easy

Learning Objective: Prepare a statement of cash flows using the direct method.

Section Reference: Preparing a Statement of Cash Flows Using the Direct Method

CPA: Financial Reporting

Bloomcode: Comprehension

AACSB: Analytic

35. When preparing a statement of cash flows using the direct method, a net loss reported on the income statement will

a) automatically result in a cash outflow from operating activities.

b) be included in financing activities.

c) be disclosed as a note to the statement of cash flows.

d) not be included on the statement at all.

Difficulty: Medium

Learning Objective: Prepare a statement of cash flows using the direct method.

Section Reference: Preparing a Statement of Cash Flows Using the Direct Method

CPA: Financial Reporting

Bloomcode: Comprehension

AACSB: Analytic

36. Noah Inc., a service organization, reports the following for calendar 2023:

Service revenue $525,000

Cash received from customers 450,000

Interest payments (on long-term debt) 12,000

Salaries and wages paid to employees 157,500

Purchase of new equipment for cash 240,000

Cash dividends paid 30,000

Payments for office rental & general expenses 210,000

Income taxes paid 22,500

Net income 67,500

Noah adheres to ASPE. Based on the above information, and using the direct method, the cash provided by (used in) operating activities to be reported on Noah’s 2023 statement of cash flows is

a) $48,000.

b) $60,000.

c) $105,000.

d) $(135,000).

Difficulty: Medium

Learning Objective: Prepare a statement of cash flows using the direct method.

Section Reference: Preparing a Statement of Cash Flows Using the Direct Method

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Feedback: $450,000 – $12,000 – $157,500 – $210,000 – $22,500 = $48,000

37. Oswald Ltd. has recently decided to go public and has hired you as its independent accountant. The company wishes to adhere to IFRS and knows that it must prepare a statement of cash flows. The financial statements for 2023 and 2022 are provided below:

Statements of Financial Position

Dec 31/23 Dec 31/22

Cash $ 51,000 $ 24,000

Accounts receivable 45,000 27,000

Merchandise inventory 48,000 60,000

Property, plant and equipment $76,000 $120,000

Less accumulated depreciation (40,000) 36,000 (38,000) 82,000

Total Assets $180,000 $193,000

Accounts payable $ 22,000 $ 12,000

Income taxes payable 44,000 49,000

Bonds payable 45,000 75,000

Common shares 27,000 27,000

Retained earnings 42,000 30,000

Total Liabilities & Shareholders’ Equity $180,000 $193,000

Income Statement

Year ended December 31, 2023

Sales $1,050,000

Cost of sales 894,000

Gross profit 156,000

Selling and administrative expenses 99,000

Income from operations 57,000

Interest expense 9,000

Income before taxes 48,000

Income taxes 12,000

Net income $ 36,000

The following additional data were provided for calendar 2023:

1. Dividends declared and paid were $24,000.

3. Bonds were retired during the year at par.

On a statement of cash flows for calendar 2023, the cash received from customers is

a) $1,068,000.

b) $1,055,000.

c) $1,050,000.

d) $1,032,000.

Difficulty: Medium

Learning Objective: Prepare a statement of cash flows using the direct method.

Section Reference: Preparing a Statement of Cash Flows Using the Direct Method

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Feedback: $27,000 + $1,050,000 – $45,000 = $1,032,000

38. Oswald Ltd. has recently decided to go public and has hired you as its independent accountant. The company wishes to adhere to IFRS and knows that it must prepare a statement of cash flows. The financial statements for 2023 and 2022 are provided below:

Statements of Financial Position

Dec 31/23 Dec 31/22

Cash $ 51,000 $ 24,000

Accounts receivable 45,000 27,000

Merchandise inventory 48,000 60,000

Property, plant and equipment $76,000 $120,000

Less accumulated depreciation (40,000) 36,000 (38,000) 82,000

Total Assets $180,000 $193,000

Accounts payable $ 22,000 $ 12,000

Income taxes payable 44,000 49,000

Bonds payable 45,000 75,000

Common shares 27,000 27,000

Retained earnings 42,000 30,000

Total Liabilities & Shareholders’ Equity $180,000 $193,000

Income Statement

Year ended December 31, 2023

Sales $1,050,000

Cost of sales 894,000

Gross profit 156,000

Selling and administrative expenses 99,000

Income from operations 57,000

Interest expense 9,000

Income before taxes 48,000

Income taxes 12,000

Net income $ 36,000

The following additional data were provided for calendar 2023:

1. Dividends declared and paid were $24,000.

3. Bonds were retired during the year at par.

On a statement of cash flows for calendar 2023, the cash paid for income taxes is

a) $17,000.

b) $12,000.

c) $7,000.

d) $5,000.

Difficulty: Medium

Learning Objective: Prepare a statement of cash flows using the direct method.

Section Reference: Preparing a Statement of Cash Flows Using the Direct Method

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Feedback: $49,000 + $12,000 – $44,000 = $17,000

39. Tampa Ltd.'s prepaid insurance balance was $20,000 at December 31, 2023 and $10,000 at December 31, 2022. Insurance expense was $8,000 for 2023 and $6,000 for 2022. How much cash paid for insurance would be reported in Tampa 2023 statement of cash flows prepared using the direct method?

a) $22,000

b) $18,000

c) $12,000

d) $8,000

Difficulty: Medium

Learning Objective: Prepare a statement of cash flows using the direct method.

Section Reference: Preparing a Statement of Cash Flows Using the Direct Method

CPA: Financial Reporting

Bloomcode: Analysis

AACSB: Analytic

Feedback: $20,000 + $8,000 – $10,000 = $18,000

40. Which method adjusts net income for items that affect reported net income but do NOT affect cash?

a) direct

b) adjustment

c) accrual

d) indirect

Difficulty: Easy

Learning Objective: Prepare a statement of cash flows using the indirect method.

Section Reference: Preparing a Statement of Cash Flows Using the Indirect Method

CPA: Financial Reporting

Bloomcode: Comprehension

AACSB: Analytic

41. Using the indirect method, an increase in inventory would be reported in a statement of cash flows as a(n)

a) addition to net income in calculating cash flows from operating activities.

b) deduction from net income in calculating cash flows from operating activities.

c) cash flow from investing activities.

d) cash flow from financing activities.

Difficulty: Medium

Learning Objective: Prepare a statement of cash flows using the indirect method.

Section Reference: Preparing a Statement of Cash Flows Using the Indirect Method

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

42. When preparing a statement of cash flows (indirect method), which of the following is NOT an adjustment to reconcile net income to cash flows from operating activities?

a) an increase in prepaid expenses

b) an increase in bonds payable

c) a decrease in income taxes payable

d) depreciation expense

Difficulty: Medium

Learning Objective: Prepare a statement of cash flows using the indirect method.

Section Reference: Preparing a Statement of Cash Flows Using the Indirect Method

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

43. When preparing a statement of cash flows (indirect method), an increase in ending inventory over beginning inventory will result in an adjustment to net income because

a) cash was increased while cost of goods sold was decreased.

b) acquisition of inventory is an investment activity.

c) inventory purchased during the period was less than inventory sold, resulting in a net cash increase.

d) cost of goods sold on an accrual basis is lower than on a cash basis.

Difficulty: Medium

Learning Objective: Prepare a statement of cash flows using the indirect method.

Section Reference: Preparing a Statement of Cash Flows Using the Indirect Method

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

44. Oyster Corp. reports its income from investments by the equity method and recognized income of $25,000 from its investment in Pearl Ltd. during the current year, even though no dividends were declared or paid by Pearl during the year. On Oyster's statement of cash flows (indirect method), the $25,000 should

a) not be shown.

b) be shown as cash inflow from investing activities.

c) be shown as cash outflow from financing activities.

d) be shown as a deduction from net income in the cash flows from operating activities section.

Difficulty: Medium

Learning Objective: Prepare a statement of cash flows using the indirect method.

Section Reference: Preparing a Statement of Cash Flows Using the Indirect Method

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

45. An analysis of the machinery accounts of Polonius Ltd. during 2023 follows:

Accumulated Book

Machinery Depreciation Value

Balance, Jan 1, 2023 $500,000 $125,000 $375,000

Purchases of new machinery in 2023 for cash 200,000 — 200,000

2023 depreciation — 100,000 (100,000)

Balance, Dec 31, 2023 $700,000 $225,000 $475,000

The information concerning Polonius's machinery accounts should be shown in their statement of cash flows (indirect method) for the year ended December 31, 2023, as a(n)

a) subtraction from net income of $100,000 and a $200,000 decrease in cash flows from financing activities.

b) addition to net income of $100,000 and a $200,000 decrease in cash flows from investing activities.

c) $100,000 increase in cash flows from financing activities.

d) $200,000 decrease in cash flows from investing activities.

Difficulty: Medium

Learning Objective: Prepare a statement of cash flows using the indirect method.

Section Reference: Preparing a Statement of Cash Flows Using the Indirect Method

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

46. A fire damaged Francisco Corp.’s office building. The company received $600,000 as a settlement from its insurance company, which was $180,000 less than the book value of the building. its income tax rate is 25%. On the statement of cash flows (indirect method), the receipt from the insurance company should

a) be shown as an addition to net income of $420,000.

b) be shown as an inflow from investing activities of $420,000.

c) be shown as an inflow from investing activities of $600,000.

d) be shown as an inflow from investing activities of $450,000.

Difficulty: Medium

Learning Objective: Prepare a statement of cash flows using the indirect method.

Section Reference: Preparing a Statement of Cash Flows Using the Indirect Method

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Feedback: $600,000 (actual proceeds)

47. During 2023, Olivier Corp., which uses the allowance method of accounting for expected credit losses, recorded loss on impairment of accounts receivable of $25,000. As well, the corporation wrote off uncollectible accounts receivable of $9,000. As a result of these transactions, its cash flows from operating activities would be calculated (indirect method) by adjusting net income with a

a) $25,000 increase.

b) $9,000 increase.

c) $16,000 increase.

d) $34,000 decrease.

Difficulty: Medium

Learning Objective: Prepare a statement of cash flows using the indirect method.

Section Reference: Preparing a Statement of Cash Flows Using the Indirect Method

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Feedback: $25,000 (Loss on impairment of accounts receivable added back). The change in accounts receivable is adjusted for the A/R write-offs using indirect method. Alternately, use just the change in net receivables and ignore the loss on impairment for accounts receivable.

48. Horatio Corp. sold some of its plant assets during calendar 2023 for $21,000 cash. The original cost of the assets was $150,000, and the accumulated depreciation to the date of sale was $140,000. This transaction should be shown on Horatio's 2023 statement of cash flows (indirect method) as a(n)

a) deduction from net income of $11,000 and a $10,000 cash inflow from financing activities.

b) addition to net income of $11,000 and a $21,000 cash inflow from investing activities.

c) deduction from net income of $11,000 and a $21,000 cash inflow from investing activities.

d) addition to net income of $21,000.

Difficulty: Medium

Learning Objective: Prepare a statement of cash flows using the indirect method.

Section Reference: Preparing a Statement of Cash Flows Using the Indirect Method

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Feedback: $21,000 – ($150,000 – $140,000) = $11,000 (gain); $21,000 (proceeds)

49. Marcus Ltd. sold equipment during calendar 2023 for $28,500 cash. The original cost of the equipment was $69,000, and the accumulated depreciation to the date of sale was $36,750. This transaction should be shown on Marcus’ 2023 statement of cash flows (indirect method) as a(n)

a) addition to net income of $3,750 and a $28,500 cash inflow from investing activities.

b) deduction from net income of $3,750 and a $32,250 cash inflow from investing activities.

c) deduction from net income of $3,750 and a $28,500 cash inflow from investing activities.

d) addition to net income of $3,750 and a $28,500 cash inflow from financing activities.

Difficulty: Medium

Learning Objective: Prepare a statement of cash flows using the indirect method.

Section Reference: Preparing a Statement of Cash Flows Using the Indirect Method

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Feedback: $28,500 – ($69,000 – $36,750) = $3,750 (loss); $28,500 (proceeds)

50. Downsview Corp. reported net income for calendar 2023 of $375,000. Additional information follows:

Depreciation on property, plant and equipment $187,500

Loss on impairment of accounts receivable 68,750

Purchase of equipment 31,250

Interest paid on long-term bonds 18,750

Loss on sale of equipment 106,250

Based on the above information, the cash provided by operating activities (indirect method) for calendar 2023 is

a) $706,250.

b) $737,500.

c) $756,250.

d) $787,500.

Difficulty: Medium

Learning Objective: Prepare a statement of cash flows using the indirect method.

Section Reference: Preparing a Statement of Cash Flows Using the Indirect Method

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Feedback: $375,000 + $187,500 + $68,750 + $106,250 = $737,500

51. The statements of financial position for King Lear Corp. at the end of 2023 and 2022 are as follows:

2023 2022

Cash $ 75,000 $105,000

Accounts receivable (net) 180,000 135,000

Merchandise inventory 210,000 135,000

Prepaid expenses 30,000 75,000

Land 270,000 120,000

Buildings and equipment 270,000 225,000

Accumulated depreciation—buildings and equipment (54,000) (24,000)

Total Assets $981,000 $771,000

Accounts payable $204,000 $165,000

Salaries payable 36,000 54,000

Notes payable—long-term 120,000

Mortgage payable 90,000

Common shares 627,000 477,000

Retained earnings (deficit) 24,000 (45,000)

Total Liabilities & Shareholders’ Equity $981,000 $771,000

a) $72,000.

b) $78,000.

c) $84,000.

d) $99,000.

Difficulty: Medium

Learning Objective: Prepare a statement of cash flows using the indirect method.

Section Reference: Preparing a Statement of Cash Flows Using the Indirect Method

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Feedback: $24,000 + $30,000 + $45,000 = $99,000 (NI)
($15,000 – $3,000) – $6,000 = $6,000 (Loss)
$54,000 + $3,000 – $24,000 = $33,000 (Depreciation expense)
$99,000 – $45,000 – $75,000 + $45,000 + $6,000 + $33,000 + $39,000 – $18,000 = $84,000

52. Edgar Inc. reported net income for calendar 2023 of $3,500,000. Additional information follows:

Impairment of goodwill $30,000

Depreciation on plant assets 1,100,000

Long-term debt:

Bond premium amortized 45,000

Interest expense 600,000

Loss on impairment of accounts receivable 75,000

Based on the above information, the cash provided by operating activities (indirect method) for calendar 2023 is

a) $4,750,000.

b) $4,730,000.

c) $4,715,000.

d) $4,660,000.

Difficulty: Medium

Learning Objective: Prepare a statement of cash flows using the indirect method.

Section Reference: Preparing a Statement of Cash Flows Using the Indirect Method

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Feedback: $3,500,000 + $30,000 + $1,100,000 – $45,000 + $75,000 = $4,660,000

53. Oswald Ltd. has recently decided to go public and has hired you as its independent accountant. The company wishes to adhere to IFRS and knows that it must prepare a statement of cash flows. The financial statements for 2023 and 2022 are provided below:

Statements of Financial Position

Dec 31/23 Dec 31/22

Cash $ 51,000 $ 24,000

Accounts receivable 45,000 27,000

Merchandise inventory 48,000 60,000

Property, plant and equipment $76,000 $120,000

Less accumulated depreciation (40,000) 36,000 (38,000) 82,000

Total Assets $180,000 $193,000

Accounts payable $ 22,000 $ 12,000

Income taxes payable 44,000 49,000

Bonds payable 45,000 75,000

Common shares 27,000 27,000

Retained earnings 42,000 30,000

Total Liabilities & Shareholders’ Equity $180,000 $193,000

Income Statement

Year ended December 31, 2023

Sales $1,050,000

Cost of sales 894,000

Gross profit 156,000

Selling and administrative expenses 99,000

Income from operations 57,000

Interest expense 9,000

Income before taxes 48,000

Income taxes 12,000

Net income $ 36,000

The following additional data were provided for calendar 2023:

1. Dividends declared and paid were $24,000.

3. Bonds were retired during the year at par.

For a statement of cash flows for calendar 2023, using the indirect method, the cash provided by operating activities is

a) $51,000.

b) $36,000.

c) $30,000.

d) $25,000.

Difficulty: Medium

Learning Objective: Prepare a statement of cash flows using the indirect method.

Section Reference: Preparing a Statement of Cash Flows Using the Indirect Method

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Feedback: $36,000 + $6,000 + ($40,000 + $8,000 – $38,000) – $18,000 + $12,000 +
$10,000 – $5,000 = $51,000

54. During calendar 2023, Marcellus Inc. sold equipment for $168,000. The equipment had cost $252,000 and had a book value of $144,000 at the time of sale. Accumulated Depreciation—Equipment was $688,000 at Dec 31, 2022 and $736,000 at Dec 31, 2023. Therefore, Depreciation Expense (Equipment) for 2023 was

a) $60,000.

b) $96,000.

c) $156,000.

d) $192,000.

Difficulty: Medium

Learning Objective: Prepare a complex statement of cash flows using both methods.

Section Reference: Preparing Statement of Cash Flows Using Both Methods

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Feedback: $736,000 – $688,000 + ($252,000 – $144,000) = $156,000

55. Macbeth Corp.'s comparative statements of financial position at December 31, 2023 and 2022 reported accumulated depreciation balances of $960,000 and $720,000, respectively. Equipment with a cost of $60,000 and a book value of $48,000 was the only equipment sold in 2023. Therefore, the depreciation expense for 2023 was

a) $228,000.

b) $240,000.

c) $252,000.

d) $264,000.

Difficulty: Medium

Learning Objective: Prepare a complex statement of cash flows using both methods.

Section Reference: Preparing Statement of Cash Flows Using Both Methods

CPA: Financial Reporting

Bloomcode: Analysis

AACSB: Analytic

Feedback: $960,000 – $720,000 + ($60,000 – $48,000) = $252,000

56. Acquiring assets by issuing equity securities would be reported as

a) an investing activity.

b) a financing activity.

c) both an investing activity and a financing activity.

d) a noncash investing and financing activity.

Difficulty: Easy

Learning Objective: Prepare a complex statement of cash flows using both methods.

Section Reference: Preparing Statement of Cash Flows Using Both Methods

CPA: Financial Reporting

Bloomcode: Comprehension

AACSB: Analytic

57. With regard to disclosures required under IFRS and ASPE, which of the following statements is INCORRECT?

a) IFRS requires separate disclosure of taxes on income.

b) IFRS requires separate disclosure of interest received and paid and dividends received and paid.

c) ASPE does not require reporting and explanation of the amount of cash and cash equivalents that have restrictions on their use.

d) ASPE does not require separate disclosure of taxes on income.

Difficulty: Easy

Learning Objective: Identify the financial presentation and disclosure requirements for the statement of cash flows.

Section Reference: Presentation

CPA: Financial Reporting

Bloomcode: Knowledge

AACSB: Analytic

58. Free cash flow is

a) the cash flows from operating activities reported on the statement of cash flows.

b) the discretionary cash that an entity has available for increasing capacity, acquiring new investments, paying dividends, and retiring debt.

c) the discretionary cash that an entity has available for increasing capacity, selling off investments, paying dividends, and incurring new debt.

d) the cash flows from operating activities reported on the statement of cash flows increased by the capital expenditures that are needed to sustain the current level of operations.

Difficulty: Medium

Learning Objective: Read and interpret a statement of cash flows.

Section Reference: Analyzing the Statement of Cash Flows

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

59. Of the following questions, which one would NOT be answered by the statement of cash flows?

a) Where did the cash come from during the period?

b) What was the cash used for during the period?

c) Were all the cash expenditures of benefit to the company during the period?

d) What was the change in the cash balance during the period?

Difficulty: Easy

Learning Objective: Read and interpret a statement of cash flows.

Section Reference: Analyzing the Statement of Cash Flows

CPA: Financial Reporting

Bloomcode: Comprehension

AACSB: Analytic

60. If a plant asset is sold for cash and there is a gain, which activities are affected in the statement of cash flows under the indirect method?

a) investing only

b) financing only

c) operating and investing

d) operating and financing

Difficulty: Easy

Learning Objective: Read and interpret a statement of cash flows.

Section Reference: Analyzing the Statement of Cash Flows

CPA: Financial Reporting

Bloomcode: Comprehension

AACSB: Analytic

61. Which of the following is NOT one of the benefits that creditors and investors can derive from the statement of cash flows?

a) Assess the effectiveness of management's borrowing policy.

b) Assess the company's ability to generate future cash flows.

c) Assess the company's ability to pay future cash dividends.

d) Explain the difference between net income and net cash flow from operating activities.

Difficulty: Easy

Learning Objective: Read and interpret a statement of cash flows.

Section Reference: Analyzing the Statement of Cash Flows

CPA: Financial Reporting

Bloomcode: Comprehension

AACSB: Analytic

*62. Ophelia Ltd. reported retained earnings at December 31, 2022 of $270,000, and at December 31, 2023, $218,000. Net income for calendar 2023 was $187,500. During 2023, a stock dividend was declared and distributed, which increased the common shares account by $116,500. As well, a cash dividend was declared and paid during the year. The stock dividend should be reported on the statement of cash flows as

a) an outflow from operating activities of $116,500.

b) an outflow from financing activities of $116,500.

c) an outflow from investing activities of $116,500.

d) Stock dividends are not shown on a statement of cash flows.

Difficulty: Medium

Learning Objective: Use a work sheet to prepare a statement of cash flows.

Section Reference: Use of a Work Sheet

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

*63. Hamlet Ltd. adheres to ASPE. On Hamlet Ltd.'s statement of cash flows (indirect method) for calendar 2023, cash flows from operating activities were reported at $154,000. The statement included the following items: depreciation on plant assets of $60,000; impairment of goodwill of $10,000; and cash dividends paid of $72,000. Based only on the information given above, Hamlet’s net income for 2023 was

a) $12,000.

b) $84,000.

c) $154,000.

d) $214,000.

Difficulty: Medium

Learning Objective: Use a work sheet to prepare a statement of cash flows.

Section Reference: Use of a Work Sheet

CPA: Financial Reporting

Bloomcode: Analysis

AACSB: Analytic

Feedback: $154,000 – $60,000 – $10,000 = $84,000

*64. During calendar 2023, Laertes Corp. sold equipment for $70,000. The equipment had cost $100,000 and had a book value of $52,000 at the time of sale. Data from their comparative statements of financial position are:

Dec 31/23 Dec 31/22

Equipment $720,000 $650,000

Accumulated Depreciation 210,000 190,000

Depreciation expense for 2023 was

a) $86,000.

b) $68,000.

c) $18,000.

d) $12,000.

Difficulty: Medium

Learning Objective: Use a work sheet to prepare a statement of cash flows.

Section Reference: Use of a Work Sheet

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Feedback: $210,000 – $190,000 + ($100,000 – $52,000) = $68,000

*65. During calendar 2023, Laertes Corp. sold equipment for $70,000. The equipment had cost $100,000 and had a book value of $52,000 at the time of sale. Data from their comparative statements of financial position are:

Dec 31/23 Dec 31/22

Equipment $720,000 $650,000

Accumulated Depreciation 210,000 190,000

Equipment purchased during 2023 was

a) $170,000.

b) $100,000.

c) $70,000.

d) $30,000.

Difficulty: Medium

Learning Objective: Use a work sheet to prepare a statement of cash flows.

Section Reference: Use of a Work Sheet

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Feedback: $720,000 – $650,000 + $100,000 = $170,000

*66. Financial statements for Bernard Corp. are presented below:

BERNARD CORP.

Statement of Financial Position

January 1, 2023

Assets Liabilities and Equity

Cash $160,000 Accounts payable $ 76,000

Accounts receivable 144,000

Buildings and equipment 600,000

Accumulated depreciation—

buildings and equipment (200,000) Common shares 460,000

Patents 72,000 Retained earnings 240,000

Total Assets $776,000 Total Liabilities &

Shareholders’ Equity $776,000

BERNARD CORP.

Statement of Cash Flows (indirect method)

Year ended December 31, 2023

Cash provided by operating activities

Net income $200,000

Add back non-cash expenses:

Increase in accounts receivable $(64,000)

Increase in accounts payable 32,000

Depreciation expense 60,000

Gain on disposal of equipment (24,000)

Amortization of patents 8,000 12,000

Cash provided by operating activities $212,000

Cash provided by (used in) investing activities

Sale of equipment 48,000

Purchase of land (100,000)

Purchase of buildings and equipment (192,000)

Cash used by investing activities (244,000)

Cash provided by financing activities

Payment of cash dividends (60,000)

Issuance of common shares 160,000

Cash provided by financing activities 100,000

Net increase in cash 68,000

Cash, January 1, 2023 160,000

Cash, December 31, 2023 $228,000

Total assets on the December 31, 2023 statement of financial position were $1,108,000. Accumulated depreciation on the equipment sold was $56,000. When the equipment was sold, the Buildings and Equipment account was credited with

a) $48,000.

b) $56,000.

c) $80,000.

d) $104,000.

Difficulty: Medium

Learning Objective: Use a work sheet to prepare a statement of cash flows.

Section Reference: Use of a Work Sheet

CPA: Financial Reporting

Bloomcode: Analysis

AACSB: Analytic

Feedback: $48,000 – $24,000 = $24,000 (BV); $24,000 + $56,000 = $80,000

*67. Financial statements for Bernard Corp. are presented below:

BERNARD CORP.

Statement of Financial Position

January 1, 2023

Assets Liabilities and Equity

Cash $160,000 Accounts payable $76,000

Accounts receivable 144,000

Buildings and equipment 600,000

Accumulated depreciation—

buildings and equipment (200,000) Common shares 460,000

Patents 72,000 Retained earnings 240,000

Total Assets $776,000 Total Liabilities &

Shareholders’ Equity $776,000

BERNARD CORP.

Statement of Cash Flows (indirect method)

Year ended December 31, 2023

Cash provided by operating activities

Net income $200,000

Add back non-cash expenses:

Increase in accounts receivable $(64,000)

Increase in accounts payable 32,000

Depreciation expense 60,000

Gain on disposal of equipment (24,000)

Amortization of patents 8,000 12,000

Cash provided by operating activities $212,000

Cash provided by (used in) investing activities

Sale of equipment 48,000

Purchase of land (100,000)

Purchase of buildings and equipment (192,000)

Cash used by investing activities (244,000)

Cash provided by financing activities

Payment of cash dividends (60,000)

Issuance of common shares 160,000

Cash provided by financing activities 100,000

Net increase in cash 68,000

Cash, January 1, 2023 160,000

Cash, December 31, 2023 $228,000

Total assets on the December 31, 2023 statement of financial position were $1,108,000. Accumulated depreciation on the equipment sold was $56,000. The book value of the buildings and equipment at December 31, 2023 was

a) $508,000.

b) $520,000.

c) $588,000.

d) $712,000.

Difficulty: Medium

Learning Objective: Use a work sheet to prepare a statement of cash flows.

Section Reference: Use of a Work Sheet

CPA: Financial Reporting

Bloomcode: Analysis

AACSB: Analytic

Feedback: ($600,000 – $200,000) – $24,000 + $192,000 – $60,000 = $508,000

*68. Financial statements for Bernard Corp. are presented below:

BERNARD CORP.

Statement of Financial Position

January 1, 2023

Assets Liabilities and Equity

Cash $160,000 Accounts payable $ 76,000

Accounts receivable 144,000

Buildings and equipment 600,000

Accumulated depreciation—

buildings and equipment (200,000) Common shares 460,000

Patents 72,000 Retained earnings 240,000

Total Assets $776,000 Total Liabilities &

Shareholders’ Equity $776,000

BERNARD CORP.

Statement of Cash Flows (indirect method)

Year ended December 31, 2023

Cash provided by operating activities

Net income $200,000

Add back non-cash expenses:

Increase in accounts receivable $(64,000)

Increase in accounts payable 32,000

Depreciation expense 60,000

Gain on disposal of equipment (24,000)

Amortization of patents 8,000 12,000

Cash provided by operating activities $212,000

Cash provided by (used in) investing activities

Sale of equipment 48,000

Purchase of land (100,000)

Purchase of buildings and equipment (192,000)

Cash used by investing activities (244,000)

Cash provided by financing activities

Payment of cash dividends (60,000)

Issuance of common shares 160,000

Cash provided by financing activities 100,000

Net increase in cash 68,000

Cash, January 1, 2023 160,000

Cash, December 31, 2023 $228,000

Total assets on the December 31, 2023 statement of financial position were $1,108,000. Accumulated depreciation on the equipment sold was $56,000. The balance in the Accounts Payable account at December 31, 2023 was

a) $148,000.

b) $108,000.

c) $44,000.

d) $32,000.

Difficulty: Medium

Learning Objective: Use a work sheet to prepare a statement of cash flows.

Section Reference: Use of a Work Sheet

CPA: Financial Reporting

Bloomcode: Analysis

AACSB: Analytic

Feedback: $76,000 + $32,000 = $108,000

*69. Financial statements for Bernard Corp. are presented below:

BERNARD CORP.

Statement of Financial Position

January 1, 2023

Assets Liabilities and Equity

Cash $160,000 Accounts payable $ 76,000

Accounts receivable 144,000

Buildings and equipment 600,000

Accumulated depreciation—

buildings and equipment (200,000) Common shares 460,000

Patents 72,000 Retained earnings 240,000

Total Assets $776,000 Total Liabilities &

Shareholders’ Equity $776,000

BERNARD CORP.

Statement of Cash Flows (indirect method)

Year ended December 31, 2023

Cash provided by operating activities

Net income $200,000

Add back non-cash expenses:

Increase in accounts receivable $(64,000)

Increase in accounts payable 32,000

Depreciation expense 60,000

Gain on disposal of equipment (24,000)

Amortization of patents 8,000 12,000

Cash provided by operating activities $212,000

Cash provided by (used in) investing activities

Sale of equipment 48,000

Purchase of land (100,000)

Purchase of buildings and equipment (192,000)

Cash used by investing activities (244,000)

Cash provided by financing activities

Payment of cash dividends (60,000)

Issuance of common shares 160,000

Cash provided by financing activities 100,000

Net increase in cash 68,000

Cash, January 1, 2023 160,000

Cash, December 31, 2023 $228,000

Total assets on the December 31, 2023 statement of financial position were $1,108,000. Accumulated depreciation on the equipment sold was $56,000. The balance in the Retained Earnings account at December 31, 2023 was

a) $500,000.

b) $440,000.

c) $380,000.

d) $180,000.

Difficulty: Medium

Learning Objective: Use a work sheet to prepare a statement of cash flows.

Section Reference: Use of a Work Sheet

CPA: Financial Reporting

Bloomcode: Analysis

AACSB: Analytic

Feedback: $240,000 + $200,000 – $60,000 = $380,000

*70. Financial statements for Bernard Corp. are presented below:

BERNARD CORP.

Statement of Financial Position

January 1, 2023

Assets Liabilities and Equity

Cash $160,000 Accounts payable $ 76,000

Accounts receivable 144,000

Buildings and equipment 600,000

Accumulated depreciation—

buildings and equipment (200,000) Common shares 460,000

Patents 72,000 Retained earnings 240,000

Total Assets $776,000 Total Liabilities &

Shareholders’ Equity $776,000

BERNARD CORP.

Statement of Cash Flows (indirect method)

Year ended December 31, 2023

Cash provided by operating activities

Net income $200,000

Add back non-cash expenses:

Increase in accounts receivable $(64,000)

Increase in accounts payable 32,000

Depreciation expense 60,000

Gain on disposal of equipment (24,000)

Amortization of patents 8,000 12,000

Cash provided by operating activities $212,000

Cash provided by (used in) investing activities

Sale of equipment 48,000

Purchase of land (100,000)

Purchase of buildings and equipment (192,000)

Cash used by investing activities (244,000)

Cash provided by financing activities

Payment of cash dividends (60,000)

Issuance of common shares 160,000

Cash provided by financing activities 100,000

Net increase in cash 68,000

Cash, January 1, 2023 160,000

Cash, December 31, 2023 $228,000

Total assets on the December 31, 2023 statement of financial position were $1,108,000. Accumulated depreciation on the equipment sold was $56,000. The balance in the Common Shares account at December 31, 2023 was

a) $260,000.

b) $400,000.

c) $460,000.

d) $620,000.

Difficulty: Medium

Learning Objective: Use a work sheet to prepare a statement of cash flows.

Section Reference: Use of a Work Sheet

CPA: Financial Reporting

Bloomcode: Analysis

AACSB: Analytic

Feedback: $460,000 + $160,000 = $620,000

*71. Ophelia Ltd. reported retained earnings at December 31, 2022 of $270,000, and at December 31, 2023, $218,000. Net income for calendar 2023 was $187,500. During 2023, a stock dividend was declared and distributed, which increased the common shares account by $116,500. As well, a cash dividend was declared and paid during the year. The amount of the cash dividend declared and paid was

a) $93,000.

b) $123,000.

c) $164,500.

d) $239,500.

Difficulty: Medium

Learning Objective: Use a work sheet to prepare a statement of cash flows.

Section Reference: Use of a Work Sheet

CPA: Financial Reporting

Bloomcode: Analysis

AACSB: Analytic

Feedback: $270,000 + $187,500 – $116,500 – X = $218,000; X = $123,000

Exercises

Ex. 22-72 Classification of cash flows and transactions

Assuming the company follows ASPE, provide:

a) three distinct examples of investing activities.

b) three distinct examples of financing activities.

c) three distinct examples of significant non-cash transactions.

d) two examples of transactions not shown on a statement of cash flows.

Solution 22-72

Examples for each of the categories above are listed below:

a) Investing activities:

purchase or sale of both tangible and intangible assets

purchase or sale of investments in other entities

loans or collection of principal on loans to other entities

b) Financing activities:

issuance or reacquiring of shares

issuance or retirement of debt

cash dividends paid

c) Significant non-cash transactions:

acquiring assets by issuing shares or debt

capital (finance) leases

conversion or refinancing of debt

non-monetary exchanges of assets

d) Not shown on the statement of cash flows:

stock dividends

stock splits

Difficulty: Easy

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

CPA: Financial Reporting

Bloomcode: Knowledge

AACSB: Analytic

Ex. 22-73 Effects of transactions on the statement of cash flows (indirect method)

Any given transaction may affect a statement of cash flows (using the indirect method) in one or more of the following ways:

Cash flows from operating activities

A. Net income will be increased or adjusted upward.

B. Net income will be decreased or adjusted downward.

Cash flows from investing activities

C. Increase as a result of cash inflows.

D. Decrease as a result of cash outflows.

Cash flows from financing activities

E. Increase as a result of cash inflows.

F. Decrease as a result of cash outflows.

The statement of cash flows is not affected

G. Not required to be reported on the statement.

Instructions

For each transaction listed below, list the letter or letters from above that describe(s) the effect of the transaction on a statement of cash flows (indirect method) assuming the company follows ASPE. Ignore any income tax effects.

1. Redeemed preferred shares with a carrying value of $44,000 for $50,000.

2. Wrote off uncollectible accounts receivable of $3,000 against the allowance for doubtful accounts balance of $12,200.

3. Sold machinery that originally cost $3,000, with a book value of $1,800, for $5,000.

4. Acquired land through the issuance of bonds payable.

5. Sold 1,000 common shares for $25 per share.

6. Sold treasury shares at their carrying value.

7. Paid cash dividends of $8,000.

8. Purchased a patent for $20,000.

____ 9. Recorded depreciation expense of $150,000 for the year.

Solution 22-73

1. F

2. G

3. B,C

4. G

5. E

6. E

7. F

8. D

9. A

Difficulty: Medium

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

Learning Objective: Prepare a statement of cash flows using the indirect method.

Section Reference: Preparing a Statement of Cash Flows Using the Indirect Method

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

*Ex. 22-74 Effects of transactions on the statement of cash flows (indirect method)

Indicate for each of the following what should be disclosed on a statement of cash flows (indirect method), assuming the company follows ASPE. If not disclosed, write "Not shown." There may be more than one answer for some items. For an item that is added to net income, write "Add," and for an item that is deducted from net income, write "Deduct." Show financing and investing outflows in parentheses. For example, an answer might be: Deduct $4,700 or Investing ($31,000). If the item is a non-cash transaction that should be disclosed separately, write "Non-cash."

a) The deferred tax liability increased $10,000.

b) The balance in “Investment in Kinnear Corp.” increased $12,000 as a result of using the equity method.

c) Issuance of a stock dividend increased the common shares account by $56,000.

d) Amortization of bond discount, $1,600.

e) Machinery, which cost $100,000 with accumulated depreciation of $48,000, was sold for $55,000.

f) Issued 3,000 common shares with a market value of $15 per share for machinery. (Show the amount, too.)

g) Amortization of patents, $3,000.

h) Cash dividends paid, $60,000.

*Solution 22-74

a) Add $10,000

b) Deduct $12,000

c) Not shown

d) Add $1,600

e) Investing $55,000; Deduct $3,000 (gain)

f) Non-cash $45,000

g) Add $3,000

h) Financing ($60,000)

Difficulty: Medium

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

Learning Objective: Prepare a statement of cash flows using the indirect method.

Section Reference: Preparing a Statement of Cash Flows Using the Indirect Method

CPA: Financial Reporting

Bloomcode: Analysis

AACSB: Analytic

*Ex. 22-75 Effects of transactions on the statement of cash flows (indirect method)

Assuming ASPE, indicate for each of the following what should be disclosed on a statement of cash flows (indirect method) and in which section. If not disclosed, write, "Not shown." If an item is a non-cash transaction that would not be on the statement but should be shown separately, write "non-cash." If an item is added to net income, write "Add," and if an item is deducted from net income, write "Deduct." Show financing and investing outflows in parentheses. For example, an answer might be: Deduct $4,700 or Investing ($31,000). There may be more than one answer for some items.

a) For 2023, net income was $650,000.

b) Amortization of bond premium, $1,100.

c) The balance in Retained Earnings was $485,000 at December 31, 2022 and $728,000 at December 31, 2023. A stock dividend was declared and distributed which increased common shares by $280,000. (Show calculation of the cash dividend and indicate how it and the stock dividend would be shown).

d) Equipment, which cost $115,000 with accumulated depreciation of $53,000, was sold for $67,000.

e) The deferred tax liability increased $18,000.

f) Issued 2,000 preferred shares with a fair value of $130 per share for a parcel of land.

*Solution 22-75

a) Operating, add $650,000.

b) Operating, deduct $1,100.

c) Retained earnings 12/31/23 $728,000 (or) Net income $650,000

Retained earnings 12/31/22 485,000 Increase in retained earnings 243,000

Increase 243,000 Total dividends 407,000

Stock dividend 280,000 Stock dividends 280,000

523,000 Cash dividend $127,000

Net income 650,000

Cash dividend $127,000

Stock dividend—Not shown

Cash dividend—Financing ($127,000)

d) Investing, $67,000.

Operating, deduct $5,000 (gain on disposal).

e) Operating, add $18,000.

f) Non-cash, $260,000. (2,000 x $130)

Difficulty: Medium

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

Learning Objective: Prepare a statement of cash flows using the indirect method.

Section Reference: Preparing a Statement of Cash Flows Using the Indirect Method

CPA: Financial Reporting

Bloomcode: Analysis

AACSB: Analytic

*Ex. 22-76 Preparation of statement of cash flows (indirect method)

The following information is taken from Green Lake Corporation's financial statements. Green Lake adheres to ASPE:

December 31

2023 2022

Cash $ 92,000 $ 27,000

Accounts receivable 95,000 80,000

Allowance for expected credit losses (4,500) (3,100)

Inventory 145,000 175,000

Prepaid expenses 7,500 6,800

Land 93,000 60,000

Buildings 287,000 244,000

Accumulated depreciation (35,000) (13,000)

Patents, net of accumulated amortization 20,000 35,000

Total Assets $700,000 $611,700

Accounts payable $ 90,000 $ 84,000

Accrued liabilities 54,000 63,000

Bonds payable 125,000 60,000

Common shares 100,000 100,000

Retained earnings 346,000 312,700

Treasury shares, at cost (15,000) (8,000)

Total Liabilities & Shareholders’ Equity $700,000 $611,700

For 2023 Year

Net income $53,300

Depreciation expense 22,000

Amortization of patents 7,000

Cash dividends declared and paid 20,000

Gain or loss on disposal of patents none

Instructions

Prepare a statement of cash flows (indirect method) for Green Lake Corporation for calendar 2023.

*Solution 22-76

GREEN LAKE CORPORATION

Statement of Cash Flows

Year ended December 31, 2023

Cash flows provided by operating activities

Net income $53,300

Adjustments to reconcile net income to net cash provided

by operating activities:

Depreciation expense $22,000

Amortization of patent 7,000

Increase in accounts receivable (13,600)

Decrease in inventory 30,000

Increase in prepaid expenses (700)

Increase in accounts payable 6,000

Decrease in accrued liabilities (9,000) 41,700

Cash provided by operating activities 95,000

Cash flows provided by (used in) investing activities

Purchase of land (33,000)

Purchase of buildings (43,000)

Sale of patent ($35,000 - $20,000 - $7,000) 8,000

Cash used in investing activities (68,000)

Cash flows provided by financing activities

Sale of bonds 65,000

Purchase of treasury shares (7,000)

Payment of cash dividends (20,000)

Cash provided by financing activities 38,000

Net increase in cash $65,000

Cash, January 1, 2023 27,000

Cash, December 31, 2023 $92,000

Difficulty: Medium

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

Learning Objective: Prepare a statement of cash flows using the indirect method.

Section Reference: Preparing a Statement of Cash Flows Using the Indirect Method

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

*Ex. 22-77 Preparation of statement of cash flows

Comparative statements of financial position for Burgundy Bay Ltd. are shown below: Burgandy adheres to ASPE.

BURGUNDY BAY LTD.

Statements of Financial Position

___December 31__

2023 2022

Cash $30,900 $10,200

Accounts receivable (net) 48,300 20,300

Inventory 35,000 42,000

Long-term investments 0 15,000

Property, plant & equipment 236,500 150,000

Accumulated depreciation (37,700) (25,000)

Total Assets $313,000 $212,500

Accounts payable $ 19,000 $ 26,500

Accrued liabilities 19,000 17,000

Long-term notes payable 70,000 50,000

Common shares 130,000 90,000

Retained earnings 75,000 29,000

Total Liabilities & Shareholders’ Equity $313,000 $212,500

Additional information concerning transactions and events during 2023:

1. Net income was $80,000.

2. Sold the long-term investments for $28,000.

3. Paid cash dividends of $34,000.

4. Purchased machinery costing $26,500, paid cash.

5. Purchased machinery by signing a $60,000 long-term note payable.

6. Extinguished a $40,000 long-term note payable by issuing common shares.

Instructions

Prepare a statement of cash flows (indirect method) for calendar 2023 for Burgundy Bay Ltd.

*Solution 22-77

BURGUNDY BAY LTD.

Statement of Cash Flows

Year ended December 31, 2023

Cash provided by operating activities

Net income $80,000

Adjustments to reconcile net income to net cash

provided by operating activities:

Depreciation expense $12,700

Gain on disposal of investments (13,000)

Increase in accounts receivable (28,000)

Decrease in inventory 7,000

Decrease in accounts payable (7,500)

Increase in accrued liabilities 2,000

(26,800)

Cash provided by operating activities 53,200

Cash provided by investing activities

Sale of long-term investments 28,000

Purchase of machinery (26,500)

Cash provided by investing activities 1,500

Cash provided by (used in) financing activities

Paid dividends (34,000)

Cash provided by (used in) financing activities (34,000)

Net increase in cash $20,700

Cash, January 1, 2023 10,200

Cash, December 31, 2023 $30,900

Difficulty: Medium

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

Learning Objective: Prepare a statement of cash flows using the indirect method.

Section Reference: Preparing a Statement of Cash Flows Using the Indirect Method

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Ex. 22-78 Classification of cash flows (indirect method)

Note that X in the following statement of cash flows identifies a dollar amount and the letters (A) through (F) identify specific items, which appear in the major sections of the statement of cash flows prepared using the indirect method.

Cash flows from operating activities

Net income X

Add (deduct) non-cash expenses:

Add +X (A)

Deduct –X (B)

Cash provided by operating activities X

Cash flows from investing activities

Inflows +X (C)

Outflows –X (D)

Cash provided by (used in) investing activities X

Cash flows from financing activities

Inflows +X (E)

Outflows –X (F)

Cash provided by (used in) by financing activities X

Net increase (decrease) in cash X

Instructions

For each of the following items, indicate by letter in the blank spaces below, the section or sections where the effect would be reported assuming the company follows ASPE. Use the code (A through F) from above. If the item is not required to be reported on the statement of cash flows, write the word "none" in the blank. Assume that generally accepted accounting principles have been followed in determining net income and that there are no temporary investments which are considered cash equivalents.

1. Issued preferred shares in exchange for equipment.

2. Accounts receivable increased by $60,000.

3. Accrued estimated income taxes for the year.

4. Amortization of premium on bonds payable.

5. Purchase of long-term investment.

6. The book value of FV-NI investments was reduced to fair value.

7. Declaration of stock dividends.

8. Loss on impairment of accounts receivable recorded (company uses the allowance method).

9. Gain on disposal of old machinery.

10. Declaration and payment of cash dividends.

11. FV-NI investments sold at a loss.

Solution 22-78

1. None

2. B

3. A

4. B

5. D

6. A

7. None

8. A

9. B

10. F

11. A

Difficulty: Medium

Learning Objective: Identify the major classifications of cash flows and explain the significance of each classification.

Section Reference: Classification of Cash Flows

Learning Objective: Prepare a statement of cash flows using the indirect method.

Section Reference: Preparing a Statement of Cash Flows Using the Indirect Method

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Ex. 22-79 Calculations for statement of cash flows (direct method)

Presented below is the latest income statement of Mandolin Ltd.:

Sales $570,000

Cost of goods sold 337,500

Gross profit $232,500

Operating expenses 127,500

Income before income taxes 105,000

Income taxes 42,000

Net income $ 63,000

In addition, the following information related to net changes in working capital is available:

Debit Credit

Cash $18,000

Accounts receivable (net) 12,000

Inventories $29,100

Salaries payable (operating expenses) 9,000

Accounts payable 13,500

Income tax payable 4,500

Mandolin Ltd. also reports that depreciation expense for the year was $20,550 and that the deferred tax liability account increased $3,900.

Instructions

Prepare a schedule calculating the net cash flow from operating activities that would be shown on a statement of cash flows using the direct method.

Solution 22-79

MANDOLIN LTD.

Statement of Cash Flows (Partial)

(Direct Method)

Cash flows from operating activities

Cash received from customers ($570,000 – $12,000) $558,000

Cash paid to suppliers ($337,500 – $29,100 – $13,500) $294,900

Operating expenses paid ($127,500 + $9,000 – $20,550) 115,950

Taxes paid ($42,000 + $4,500 – $3,900) 42,600 453,450

Net cash provided by operating activities $104,550

Difficulty: Medium

Learning Objective: Prepare the operating activities section of a statement of cash flows using the direct versus the indirect method.

Section Reference: Format of the Statement

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Ex. 22-80 Calculation of operating activities (direct method)

The statement of income of Rebel Corporation is shown below:

REBEL CORPORATION

Statement of Income

Year Ended October 31, 2023

Sales $2,125,000

Cost of goods sold 1,300,000

Gross profit 825,000

Operating expenses $312,500

Depreciation expense 35,000 347,500

Net income $ 477,500

Additional information:

1. Accounts receivable increased $105,000 during the year.

2. Inventory increased $62,500 during the year.

3. Prepaid expenses increased $53,750 during the year.

4. Accounts payable to merchandise suppliers increased $72,500 during the year.

5. Accrued expenses payable increased $40,000 during the year.

Instructions

Using the direct method, prepare the operating activities section of the statement of cash flows for the year ended October 31, 2023.

Solution 22-80

REBEL CORPORATION

Statement of Cash Flows (partial)

Year Ended October 31, 2023

Cash flows provided (used) by operating activities

Cash receipts from customers $2,020,000 (1)

Cash payments:

To suppliers $1,290,000 (2)

For operating expenses 326,250 (3) 1,616,250

Net cash provided by operating activities $ 403,750

(1) Sales $2,125,000

Deduct: Increase in accounts receivable (105,000)

Cash receipts from customers $2,020,000

(2) Cost of goods sold $1,300,000

Add: Increase in inventory 62,500

Purchases 1,362,500

Deduct: Increase in accounts payable (72,500)

Cash payments to suppliers $1,290,000

(3) Operating expenses $ 312,500

Add: Increase in prepaid expenses 53,750

Deduct: Increase in accrued expenses payable (40,000)

Cash payments for operating expenses $ 326,250

Difficulty: Medium

Learning Objective: Prepare the operating activities section of a statement of cash flows using the direct versus the indirect method.

Section Reference: Format of the Statement

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Ex. 22-81 Use the statement of cash flows and the impact of using the direct versus the indirect method

a) Explain the purpose of the statement of cash flows.

b) Explain how the cash flow statement is affected by choosing the direct method versus the indirect method.

Solution 22-81

a) The primary purpose of the statement of cash flows is to provide information about an entity’s cash receipts and cash payments during a period. A secondary objective is to provide information on a cash basis about its operating, investing, and financing activities. The statement of cash flows therefore reports cash receipts, cash payments, and the net change in cash and cash equivalents resulting from an enterprise’s operating, investing, and financing activities. It does so in a format that reconciles the beginning and ending cash and cash equivalent balances and is designed to provide relevant information.

b) Only the operating activities section is affected by the choice of method. The investing and financing sections are the same under both methods.

The direct method adjusts revenues and expenses to a cash basis by showing the actual cash received from customers (and any other forms of revenue) and the actual amount of cash paid out for suppliers, employees, operating expenses, interest, taxes, etc. The difference between cash revenues and cash expenses is cash net income, i.e., the net cash flow from operating activities.

The indirect method adjusts accrual net income to a cash basis. This is done by starting with the accrual net income and adding or subtracting changes in the balances of current assets and current liabilities during the year and adjusting for non-cash items included in net income. Examples of non-cash items include depreciation and amortization, Loss on impairment of accounts receivable, amortization of bond discount or premium, book gains and losses on disposal of assets, and equity method revenues and losses.

Difficulty: Easy

Learning Objective: Prepare the operating activities section of a statement of cash flows using the direct versus the indirect method.

Section Reference: Format of the Statement

CPA: Communication

CPA: Financial Reporting

Bloomcode: Comprehension

AACSB: Communication

*Ex. 22-82 Calculations for statement of cash flows (indirect method)

During 2023, equipment was sold for $15,000. This equipment originally cost $24,000 and had a book value of $14,000 at the date of sale. Accumulated depreciation for equipment was $65,000 at December 31, 2022 and $62,000 at December 31, 2023.

Instructions

Based on the above information show how the sale (including any gain or loss), and the depreciation expense for 2023 would be shown on a statement of cash flows (indirect method). Include your calculations.

*Solution 22-82

1. Sale – cash inflow from investing activities $15,000

2. Sale price $15,000

Book value 14,000

Gain on disposal $ 1,000 Deduct from net

Income

3. Cost $24,000

Book value 14,000

Accumulated depreciation 10,000

Deduct decrease in accumulated depreciation (3,000)

Depreciation expense $ 7,000 Add to net income

Difficulty: Medium

Learning Objective: Prepare a statement of cash flows using the indirect method.

Section Reference: Preparing a Statement of Cash Flows Using the Indirect Method

CPA: Financial Reporting

Bloomcode: Analysis

AACSB: Analytic

*Ex. 22-83 Calculations for statement of cash flows (indirect method)

Cornwall Ltd. sold a machine that cost $19,000 and had a book value of $11,000 for $13,000. Data from the corporation's comparative statements of financial position are:

Dec 31/23 Dec 31/22

Machinery $200,000 $173,000

Accumulated depreciation 48,000 34,000

Instructions

Based on the above information, there are four items that need to be shown on a statement of cash flows (indirect method). Calculate these four items. Show your calculations.

*Solution 22-83

1. Sale – cash inflow from investing activities $13,000

2. Sale price $13,000

Book value 11,000

Gain on disposal $ 2,000 Deduct from net

income

3. Cost $19,000

Book value 11,000

Accumulated depreciation 8,000

Add increase in accumulated depreciation 14,000

Depreciation expense $22,000 Add to net income

4. Cost of machine sold $19,000

Add increase in machinery 27,000

Purchase of machinery $46,000 Cash outflow from

investing activities

Difficulty: Medium

Learning Objective: Prepare a statement of cash flows using the indirect method.

Section Reference: Preparing a Statement of Cash Flows Using the Indirect Method

CPA: Financial Reporting

Bloomcode: Analysis

AACSB: Analytic

Ex. 22-84 Cash flows from operating activities (indirect and direct methods)

Presented below is the latest income statement of Minx Ltd.:

Sales $1,900,000

Cost of goods sold 1,125,000

Gross profit $775,000

Operating expenses 425,000

Income before income taxes 350,000

Income taxes 140,000

Net income $ 210,000

In addition, the following information related to net changes in working capital is available:

Debit Credit

Cash $60,000

Accounts receivable (net) 40,000

Inventories $77,000

Prepaid expenses 20,000

Salaries payable (operating expenses) 30,000

Accounts payable 45,000

Income tax payable 15,000

Minx Ltd. also reports that depreciation expense for the year was $68,500 and that the deferred tax liability account increased $13,000.

Instructions

Prepare a schedule calculating the net cash flow from operating activities that would be shown on a statement of cash flows:

a) using the indirect method.

b) using the direct method.

Solution 22-84

MINX LTD.

Statement of Cash Flows (Partial)

(Indirect Method)

Cash flows from operating activities

Net income $210,000

Adjustments to reconcile net income to net

cash provided by operating activities:

Increase in accounts receivable $(40,000)

Decrease in inventories 77,000

Decrease in prepaid expenses 20,000

Decrease in salaries payable (operating expenses) (30,000)

Increase in accounts payable 45,000

Decrease in income taxes payable (15,000)

Depreciation expense 68,500

Increase in future income tax liability 13,000 138,500

Net cash provided by operating activities $348,500

MINX LTD.

Statement of Cash Flows (Partial)

(Direct Method)

Cash flows from operating activities

Cash received from customers ($1,900,000 – $40,000) $1,860,000

Cash paid to suppliers ($1,125,000 – $77,000 – $20,000 – $45,000) $983,000

Operating expenses paid ($425,000 + $30,000 – $68,500) 386,500

Taxes paid ($140,000 + $15,000 – $13,000) 142,000 1,511,500

Net cash provided by operating activities $ 348,500

Difficulty: Medium

Learning Objective: Prepare a complex statement of cash flows using both methods.

Section Reference: Preparing Statement of Cash Flows Using Both Methods

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Ex. 22-85 Cash flows from operating activities (indirect and direct methods)

Presented below is the latest income statement of Oxford Ltd.:

Sales $380,000

Cost of goods sold 225,000

Gross profit $155,000

Operating expenses 85,000

Income before income taxes 70,000

Income taxes 28,000

Net income $ 42,000

In addition, the following information related to net changes in working capital is available:

Debit Credit

Cash $12,000

Accounts receivable (net) 8,000

Inventories $19,400

Salaries payable (operating expenses) 6,000

Accounts payable 9,000

Income tax payable 3,000

Oxford Ltd. also reports that depreciation expense for the year was $13,700 and that the deferred tax liability account increased $2,600.

Instructions

Prepare a schedule calculating the net cash flow from operating activities that would be shown on a statement of cash flows:

a) using the indirect method.

b) using the direct method.

Solution 22-85

OXFORD LTD.

Statement of Cash Flows (Partial)

(Indirect Method)

Cash flows from operating activities

Net income $42,000

Adjustments to reconcile net income to net

cash provided by operating activities:

Increase in accounts receivable $(8,000)

Decrease in inventories 19,400

Decrease in salaries payable (operating expenses) (6,000)

Increase in accounts payable 9,000

Decrease in income taxes payable (3,000)

Depreciation expense 13,700

Increase in future income tax liability 2,600 27,700

Net cash provided by operating activities $69,700

OXFORD LTD.

Statement of Cash Flows (Partial)

(Direct Method)

Cash flows from operating activities

Cash received from customers ($380,000 – $8,000) $372,000

Cash paid to suppliers ($225,000 – $19,400 – $9,000) $196,600

Operating expenses paid ($85,000 + $6,000 – $13,700) 77,300

Taxes paid ($28,000 + $3,000 – $2,600) 28,400 302,300

Net cash provided by operating activities $ 69,700

Difficulty: Medium

Learning Objective: Prepare a complex statement of cash flows using both methods.

Section Reference: Preparing Statement of Cash Flows Using Both Methods

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Ex. 22-86 Calculating and using free cash flow

Sherpa Advertising Ltd. produces the following information from its latest financial statements:

Net income $ 21,000

Dividends paid 5,000

Average total assets 210,000

Current assets 150,000

Current liabilities 100,000

Cash provided by operating activities 19,000

Net capital expenditures 10,000

Sales 150,000

Total liabilities 105,000

Total assets 175,000

Cash used in investing activities 12,000

Instructions

(a) Calculate the free cash flow.

(b) Explain the importance of the free cash flow calculation.

Solution 22-86

(a) Free cash flow = Cash provided by operating activities – Net capital expenditures

$19,000 – $10,000 = $9,000

(b) Free cash flow is a non-GAAP performance measure that uses information provided on the statement of cash flows as an indicator of financial flexibility. It reflects net operating cash flows reduced by the capital expenditures that are needed to sustain the current level of operations. The resulting cash flow is the discretionary cash that a company has available for increasing its capacity and acquiring new investments, paying dividends, retiring debt, repurchasing its shares, or simply adding to its liquidity. In general, companies with significant free cash flow can take advantage of new opportunities or cope well during poor economic times without jeopardizing current operations.

Difficulty: Medium

Learning Objective: Read and interpret a statement of cash flows.

Section Reference: Analyzing the Statement of Cash Flows

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Ex. 22-87 Choices of statement of cash flows categories under IFRS

Under IFRS, choices are allowed in the categorization of interest paid and received and dividends received. Explain what these choices are.

Solution 22-87

Under IFRS, there are several choices available for these items:

1. Interest paid/received and dividends received (except dividends received from a significant influence investment) can be recognized in operating activities (assuming they are included in calculating net income).

2. Interest paid can also be treated as a financing outflow.

3. Interest and dividends received can also be treated as investing inflows.

4. Dividends paid can be treated as a financing outflow (highlighting the fact they are returns to shareholders), or an as operating outflow (as a measure of the ability of operations to cover returns to shareholders).

Note, however, once management makes the appropriate choices, they must be applied consistently.

Difficulty: Easy

Learning Objective: Identify differences in IFRS and ASPE, and explain what changes are expected to standards for the statement of cash flows.

Section Reference: IFRS/ASPE Comparison

CPA: Communication

CPA: Financial Reporting

Bloomcode: Knowledge

AACSB: Communication

PROBLEMS

Pr. 22-88 Preparation of statement of cash flows (direct method)

Oswald Ltd. has recently decided to go public and has hired you as its independent accountant. It wishes to adhere to IFRS and knows that it must prepare a statement of cash flows. Its financial statements for 2023 and 2022 are provided below:

Statements of Financial Position

Dec 31/23 Dec 31/22

Cash $ 51,000 $ 24,000

Accounts receivable 45,000 27,000

Merchandise inventory 48,000 60,000

Property, plant and equipment $76,000 $120,000

Less accumulated depreciation (40,000) 36,000 (38,000) 82,000

Total Assets $180,000 $193,000

Accounts payable $ 22,000 $ 12,000

Income taxes payable 44,000 49,000

Bonds payable 45,000 75,000

Common shares 27,000 27,000

Retained earnings 42,000 30,000

Total Liabilities & Shareholders’ Equity $180,000 $193,000

Income Statement

Year ended December 31, 2023

Sales $1,050,000

Cost of sales 894,000

Gross profit 156,000

Selling and administrative expenses 99,000

Income from operations 57,000

Interest expense 9,000

Income before taxes 48,000

Income taxes 12,000

Net income $ 36,000

The following additional data were provided for calendar 2023:

1. Dividends declared and paid were $24,000.

3. Bonds were retired during the year at par.

Instructions

a) From the information above, prepare a statement of cash flows (direct method) for calendar 2023.

b) CRITICAL THINKING: The company CFO reviews the statement of cash flows and expresses a preference for using the indirect method rather than the direct method that you prepared. Explain to the CFO why the direct method was chosen. As part of your explanation provide a rational for the use of the direct method versus the indirect method.

Solution 22-88

OSWALD LTD.

Statement of Cash Flows (direct method)

Year ended December 31, 2023

Cash provided by operating activities

Cash received from customers (1) $1,032,000

Cash paid to suppliers (2) $872,000

Operating expenses paid (3) 83,000

Interest paid 9,000

Taxes paid ($49,000 + $12,000 – $44,000) 17,000 981,000

Net cash provided by operating activities 51,000

Cash provided by (used in) investing activities

Sale of equipment 30,000

Cash provided by financing activities

Retirement of bonds (30,000)

Payment of cash dividend (24,000)

Cash used by financing activities (54,000)

Net increase in cash 27,000

Cash, January 1, 2023 24,000

Cash, December 31, 2023 $ 51,000

1. $1,050,000 – $18,000 (increase in A/R)

2. $894,000 – $12,000 (decrease in Inventory) – $10,000 (increase in A/P)

3. $99,000 – $10,000 (depreciation) – $6,000 (loss on sale of equipment)

b) CRITICAL THINKING: The direct method adjusts revenues and expenses to a cash basis. The difference between cash revenues and cash expenses is cash net income, which is equal to net cash flow from operating activities (effectively, reporting income on a cash basis). The indirect method involves adjusting accrual net income to a cash basis. This is done by starting with accrual net income, adjusting for changes in working capital items and adding or subtracting non-cash items included in net income.

Public companies generally prefer the indirect method, whereas lending officers and investors tend to prefer the direct method, because of the additional information provided. The only section affected by use of the direct vs indirect methods is the operating activities. IFRS and ASPE also encourage the use of the direct method.

The principal advantage of the direct method is that it shows operating cash receipts and payments and is more consistent with the primary objective of a statement of cash flows, which is to provide information about an entity’s cash receipts and cash payments during a specific period. Advocates of this method maintain that such information is useful for estimating future cash flows. A possible disadvantage is that many companies say their data collection methods do not gather the information required to use the direct method, although this argument may be a bit weak given the powerful computer systems available today. As well, supporters of the indirect method say the direct method may incorrectly suggest that net cash flow from operating activities is as good as (or even better than) accrual net income as a performance measure.

The principal advantage of the indirect method is that it focuses on the difference between net income reported on the income statement and the actual cash flow from operating activities. Other advantages offered by indirect method advocates are that it is the “familiar” method which has been used for many years, and that it is cheaper to develop the information compared to the information required for the direct method.

Difficulty: Medium

Learning Objective: Prepare a statement of cash flows using the direct method.

Section Reference: Preparing a Statement of Cash Flows Using the Direct Method

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Pr. 22-89 Preparation of statement of cash flows (direct method)

White Horse Ltd. has prepared the following comparative statements of financial position at December 31, 2022 and 2023: White Horse adheres to ASPE.

2023 2022

Cash $ 99,000 $ 51,000

Accounts receivable 53,000 39,000

Inventory 50,000 60,000

Prepaid expenses 6,000 9,000

Property, plant & equipment 420,000 350,000

Accumulated depreciation (150,000) (125,000)

Goodwill 51,000 58,000

$529,000 $442,000

Accounts payable $ 51,000 $ 56,000

Accrued liabilities 20,000 14,000

Mortgage payable —

Preferred shares 215,000 —

Common shares 200,000 200,000

Retained earnings 43,000 22,000

$529,000 $442,000

1. The Accumulated Depreciation account has been credited only for the depreciation expense for the year. There were no disposals of property, plant and equipment, but new equipment was purchased during 2023.

2. Depreciation expense and a charge for impairment of goodwill have both been included in operating expenses.

3. The Retained Earnings account was debited for cash dividends declared and paid of $46,000 and credited for the net income for the year.

The condensed income statement for 2023 is as follows:

Sales $660,000

Cost of sales 363,000

Gross profit 297,000

Operating expenses 230,000

Net income $ 67,000

Instructions

From the information above, prepare a statement of cash flows (direct method) for calendar 2023.

Solution 22-89

WHITE HORSE LTD.

Statement of Cash Flows (direct method)

Year ended December 31, 2023

Cash provided by operating activities

Cash received from customers (1) $646,000

Cash paid to suppliers (2) $358,000

Operating expenses paid (3) 189,000 547,000

Net cash provided by operating activities 99,000

Cash provided by (used in) investing activities

Purchase of plant assets (70,000)

Cash provided by financing activities

Payment of cash dividend (46,000)

Payment of mortgage payable (150,000)

Sale of preferred shares 215,000

Cash provided by financing activities 19,000

Net increase in cash 48,000

Cash, January 1, 2023 51,000

Cash, December 31, 2023 $ 99,000

1. $660,000 – $14,000 (increase in A/R)

2. $363,000 – $10,000 (decrease in INVT) + $5,000 (decrease in A/P)

3. $230,000 – $25,000 (depreciation) – $7,000 (impairment of goodwill) – $3,000 (decrease in prepaid expenses) – $6,000 (increase in accrued liabilities)

Difficulty: Medium

Learning Objective: Prepare a statement of cash flows using the direct method.

Section Reference: Preparing a Statement of Cash Flows Using the Direct Method

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Pr. 22-90 Preparation of statement of cash flow (direct method)

The financial statements of Panda Express Limited appear below:

PANDA EXPRESS LIMITED

Comparative Statements of Financial Position

March 31

Assets

2023 2022

Cash $118,000 $ 46,000

Accounts receivable 62,000 68,000

Inventory 40,000 30,000

Property, plant, and equipment 100,000 156,000

Accumulated depreciation (40,000) (48,000)

Total $280,000 $252,000

Liabilities and Shareholders' Equity

Accounts payable $ 30,000 $ 46,000

Income tax payable 26,000 16,000

Mortgage payable 18,000 66,000

Common shares 78,000 48,000

Retained earnings 128,000 76,000

Total $280,000 $252,000

PANDA EXPRESS LIMITED

Statement of Income

Year Ended March 31, 2023

Sales $760,000

Cost of goods sold 580,000

Gross profit 180,000

Operating expenses 72,000

Interest expense 8,000

Income before income tax 100,000

Income tax expense 20,000

Net income $ 80,000

Additional information regarding fiscal 2023:

1. Dividends declared and paid were $28,000.

2. During the year, equipment was sold for $24,000 cash. This equipment cost $56,000 originally and had a carrying amount of $24,000 at the time of sale.

3. Depreciation expense is included in operating expenses.

4. All sales and purchases are on account.

5. Accounts payable pertain to merchandise suppliers.

6. All operating expenses except for depreciation were paid in cash.

Instructions

Using the direct method, prepare a statement of cash flows for the year ended March 31, 2023. Panda uses ASPE.

Solution 22-90

PANDA EXPRESS LIMITED

Statement of Cash Flows

Year Ended March 31, 2023

Operating activities

Cash receipts from customers ($760,000 + $6,000) $766,000

Cash payments:

To suppliers $606,000 (1)

For operating expenses 48,000 (2)

For interest expense 8,000

For income tax ($20,000 – $10,000) 10,000 672,000

Net cash provided by operating activities 94,000

Investing activities

Sale of equipment $ 24,000

Net cash provided by investing activities 24,000

Financing activities

Repayment of mortgage $(48,000)

Issue of common shares 30,000

Payment of cash dividend (28,000)

Net cash used by financing activities (46,000)

Net increase in cash 72,000

Cash, January 1 46,000

Cash, December 31 $118,000

(1) Cost of goods sold $580,000

Add: Increase in inventory 10,000

Purchases 590,000

Add: Decrease in accounts payable 16,000

Cash payments to suppliers $606,000

(2) Operating expenses $ 72,000

Less: Depreciation expense (24,000)*

Cash payments for operating expenses $ 48,000

*$48,000 – $32,000 = $16,000 balance in accumulated depreciation after sale.

Ending balance, $40,000 – $16,000 = $24,000 depreciation expense.

Difficulty: Medium

Learning Objective: Prepare a statement of cash flows using the direct method.

Section Reference: Preparing a Statement of Cash Flows Using the Direct Method

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Pr. 22-91 Preparation of statement of cash flows (indirect method)

Comparative statements of financial position for Jabber Jaws Corporation appear below:

Jabber Jaws CORPORATION

Comparative Statements of Financial Position

July 31

Assets

July 31, 2023 July 31, 2022

Cash $ 78,000 $ 62,000

Accounts receivable 146,000 120,000

Prepaid insurance 38,000 34,000

Land 36,000 80,000

Equipment 140,000 120,000

Accumulated depreciation—equipment (40,000) (26,000)

Total assets $398,000 $390,000

Liabilities and Shareholders' Equity

Accounts payable $ 22,000 $ 12,000

Bonds payable 54,000 38,000

Common shares 280,000 230,000

Retained earnings 42,000 110,000

Total liabilities and shareholders' equity $398,000 $390,000

Additional information regarding fiscal 2023:

1. A loss of $50,000 was reported for the year.

2. Cash dividends were declared and paid.

3. Land was sold for cash at a loss of $20,000. This was the only land transaction during the year.

4. Equipment with a cost of $30,000 and accumulated depreciation of $20,000 was sold for $10,000 cash.

5. The bonds were originally issued at face value. $24,000 worth of bonds were retired during the year at their carrying amount.

6. Equipment was exchanged for common shares. The fair value of the shares at the time of the exchange was $50,000.

Instructions

Using the indirect method, prepare a statement of cash flows for the year ended July 31, 2023.

Solution 22-91

JABBER JAWS CORPORATION

Statement of Cash Flows

Year Ended July 31, 2023

Operating activities

Loss $(50,000)

Adjustments to reconcile net loss to net cash provided

by operating activities:

Depreciation expense (a) $ 34,000

Loss on sale of land 20,000

Increase in accounts receivable (26,000)

Increase in prepaid expenses (4,000)

Increase in accounts payable 10,000 34,000

Net cash used by operating activities (16,000)

Investing activities

Proceeds from the sale of land (b) $24,000

Proceeds from the sale of equipment 10,000

Net cash provided by investing activities 34,000

Financing activities

Retirement of bonds payable $(24,000)

Issue of bonds payable (c) 40,000

Payment of dividends (d) (18,000)

Net cash used by financing activities (2,000)

Increase in cash 16,000

Cash, August 1 62,000

Cash, July 31 $ 78,000

Noncash investing and financing activities

Purchase of equipment through issue of common shares $50,000

(a) Accumulated depreciation, July 31, 2022 $26,000

Accumulated depreciation, July 31, 2023 40,000

Difference 14,000

Add: accumulated depreciation on equipment sold 20,000

Depreciation expense $34,000

(b) Cost of land sold $44,000

Less loss on sale of land (20,000)

Proceeds from sale of land $24,000

Bonds payable, July 31, 2023 54,000

Increase 16,000

Add retirement of bonds 24,000

New bonds issued $40,000

(d) Retained earnings, July 31, 2022 $110,000

Less loss for year (50,000)

Less retained earnings, July 31, 2023 (42,000)

Dividends declared $ 18,000

Difficulty: Medium

Learning Objective: Prepare a statement of cash flows using the indirect method.

Section Reference: Preparing a Statement of Cash Flows Using the Indirect Method

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Pr. 22-92 Preparation of statement of cash flows (indirect method)

White Horse Ltd. has prepared the following comparative statements of financial position at December 31, 2022 and 2023: White Horse adheres to ASPE.

2023 2022

Cash $99,000 $51,000

Accounts receivable 53,000 39,000

Inventory 50,000 60,000

Prepaid expenses 6,000 9,000

Property, plant & equipment 420,000 350,000

Accumulated depreciation (150,000) (125,000)

Goodwill 51,000 58,000

$529,000 $442,000

Accounts payable $51,000 $56,000

Accrued liabilities 20,000 14,000

Mortgage payable — 150,000

Preferred shares 215,000 —

Common shares 200,000 200,000

Retained earnings 43,000 22,000

$529,000 $442,000

2. Depreciation expense and a charge for impairment of goodwill have both been included in operating expenses.

3. The Retained Earnings account was debited for cash dividends declared and paid of $46,000 and credited for the net income for the year.

The condensed income statement for 2023 is as follows:

Sales $660,000

Cost of sales 363,000

Gross profit 297,000

Operating expenses 230,000

Net income $ 67,000

Instructions

From the information above, prepare a statement of cash flows (indirect method) for calendar 2023.

Solution 22-92

WHITE HORSE LTD.

Statement of Cash Flows (indirect method)

Year ended December 31, 2023

Cash provided by operating activities

Net income $67,000

Adjustments to reconcile net income to net cash

provided by operating activities:

Depreciation expense 25,000

Impairment of goodwill 7,000

Increase in accounts receivable (14,000)

Decrease in inventory 10,000

Decrease in prepaid expenses 3,000

Decrease in accounts payable (5,000)

Increase in accrued liabilities 6,000 32,000

Cash provided by operating activities 99,000

Cash provided by (used in) investing activities

Purchase of plant assets (70,000)

Cash provided by financing activities

Payment of cash dividend (46,000)

Payment of mortgage payable (150,000)

Sale of preferred shares 215,000

Cash provided by financing activities 19,000

Net increase in cash 48,000

Cash, January 1, 2023 51,000

Cash, December 31, 2023 $99,000

Difficulty: Medium

Learning Objective: Prepare a statement of cash flows using the indirect method.

Section Reference: Preparing a Statement of Cash Flows Using the Indirect Method

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

*Pr. 22-93 Preparation of statement of cash flows (indirect method)

Brown Derby adheres to ASPE. The net changes in the statement of financial position accounts of Brown Derby Corp. for calendar 2023 are shown below:

Account Debit Credit

Cash $ 92,000

FV-NI investments $121,000

Accounts receivable 73,200

Allowance for expected credit losses 13,300

Inventory 74,200

Prepaid expenses 22,800

Long-term investment (100% owned subsidiary) 20,000

Plant and equipment 235,000

Accumulated depreciation 155,000

Accounts payable 80,700

Accrued liabilities 16,500

Deferred tax liability 15,500

Long-term bonds 80,000

Common shares 240,000

Retained earnings 98,000 __________

$668,600 $668,600

Other information regarding the corporation’s 2023 year:

An analysis of the Retained Earnings account shows:

Retained earnings, December 31, 2022 $1,300,000

Add: Net income 287,000

Subtotal 1,587,000

Deduct: Cash dividend $145,000

Stock dividend 240,000 385,000

Retained earnings, December 31, 2023 $1,202,000

1. On January 2, 2023, FV-NI investments costing $121,000 were sold for $150,000.

2. The company paid the cash dividend on February 1, 2023 and distributed the stock dividend on August 1, 2023.

3. Accounts receivable of $16,200 and $19,400 were considered uncollectible and written off in 2023 and 2022, respectively.

4. Major repairs of $25,000 to the equipment were debited to the Plant and Equipment account during the year.

5. The 100% owned subsidiary reported a net loss for the year of $20,000.

6. At January 1, 2023, the cash balance was $136,000.

7. Long-term bonds were issued at par.

Instructions

Prepare a statement of cash flows (indirect method) for calendar 2023.

*Solution 22-93

BROWN DERBY CORP.

Statement of Cash Flows (indirect method)

Year ended December 31, 2023

Cash provided by operating activities

Net income $287,000

Adjustments to reconcile net income to net cash

provided by operating activities:

Equity investment loss $20,000

Depreciation expense 155,000

Gain on disposal of FV-NI investments (29,000)

Decrease in deferred tax liability (15,500)

Increase in accounts receivable (59,900)

Increase in inventory (74,200)

Decrease in prepaid expenses 22,800

Decrease in accounts payable (80,700)

Increase in accrued liabilities 16,500 (45,000)

Cash provided by operating activities 242,000

Cash flows provided by (used in) investing activities

Sale of FV-NI investments 150,000

Purchase of plant and equipment (210,000)

Major repairs to equipment (25,000)

Net cash provided by (used in) investing activities (85,000)

Cash provided by (used in) financing activities

Payment of cash dividend (145,000)

Sale of bonds 80,000

Net cash provided by (used in) financing activities (65,000)

Net increase in cash 92,000

Cash, January 1, 2023 136,000

Cash, December 31, 2023 $228,000

Difficulty: Medium

Learning Objective: Prepare a statement of cash flows using the indirect method.

Section Reference: Preparing a Statement of Cash Flows Using the Indirect Method

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

*Pr. 22-94 Complex statement of cash flows (indirect method)

The net changes in the statement of financial position accounts of Black Beauty Inc. for the calendar year 2023 are shown below:

Account Debit Credit

Cash $ 62,800

Accounts receivable $ 32,000

Allowance for expected credit losses 7,000

Inventory 108,600

Prepaid expenses 10,000

Long-term investments 72,000

Land 150,000

Buildings 300,000

Machinery 50,000

Office equipment 14,000

Accumulated depreciation:

Buildings 12,000

Machinery 10,000

Office equipment 6,000

Accounts payable 91,600

Accrued liabilities 36,000

Dividends payable 64,000

Bonds payable 416,000

Preferred shares 30,000

Common shares 189,600

Retained earnings 43,600 __________

$852,600 $852,600

Additional information:

1. Net income for the year was $70,000.

2. Cash dividends of $64,000 were declared December 15, 2023, payable January 15, 2024. A 5% common stock dividend was issued March 31, 2023, when the market value was $22.00 per share. At the time there were 36,000 common shares outstanding.

3. The long-term investments were sold for $70,000.

4. A building which had cost $240,000, with a book value of $150,000, was sold for $200,000, and a new one was purchased.

5. The following entry was made to record an exchange of an old machine for a new one:

Machinery 80,000

Accumulated Depreciation—Machinery 20,000

Machinery 30,000

Cash 70,000

6. A fully depreciated copier machine, which cost $14,000, was written off.

Preferred shares originally issued for $30,000 were redeemed for $40,000.

8. Black Beauty sold 6,000 common shares on June 15, 2023 for $25 a share.

9. Bonds were sold at 104 on December 31, 2023.

10. Land with a book value of $120,000 was sold for $54,000.

Instructions

Prepare a statement of cash flows (indirect method) for calendar 2023.

*Solution 22-94

BLACK BEAUTY INC.

Statement of Cash Flows (indirect method)

Year ended December 31, 2023

Cash provided by operating activities

Net income $ 70,000

Adjustments to reconcile net income to net cash

provided by operating activities:

Depreciation expense—buildings $102,000 (1)

Depreciation expense—machinery 30,000 (2)

Depreciation expense—office equipment 8,000 (3)

Gain on disposal of building (50,000) (4)

Loss on disposal of long-term investments 2,000 (5)

Loss on disposal of land 66,000 (6)

Decrease in accounts receivable (net) 39,000

Increase in inventory (108,600)

Increase in prepaid expenses (10,000)

Decrease in accounts payable (91,600)

Increase in accrued liabilities 36,000 22,800

Cash provided by operating activities 92,800

Cash provided by (used in) investing activities

Sale of long-term investments 70,000

Proceeds from sale of land 54,000

Purchase of land (270,000) (7)

Proceeds from sale of building 200,000

Purchase of building (540,000) (8)

Purchase of machinery (70,000)

Cash provided by (used in) investing activities (556,000)

Cash provided by financing activities

Sale of bonds 416,000 (9)

Retirement of preferred shares (40,000)

Sale of common shares 150,000 (10)

Cash provided by financing activities 526,000

Net increase in cash $ 62,800

(1) Net change $12,000

Debit to accumulated depreciation on sale 90,000

Depreciation expense $102,000

(2) Net change $10,000

Debit to accumulated depreciation on exchange 20,000

Depreciation expense $30,000

(3) Net change $(6,000)

Write-off 14,000

Depreciation expense $ 8,000

(4) Sale price of building $200,000

Book value 150,000

Gain on disposal $ 50,000

(5) Carrying value of long-term investments $72,000

Sale price 70,000

Loss on disposal $ 2,000

(6) Book value of land $120,000

Sale price 54,000

Loss on disposal $ 66,000

(7) Net change $150,000

Cost of land sold 120,000

$270,000

(8) Net change $300,000

Cost of building sold 240,000

$540,000

(9) $400,000 x 1.04 = $416,000.

(10) 6,000 × $25 = $150,000.

Common shares

Sale 6,000 × $25 = $150,000

Stock dividend 36,000 x 5% × $22 = 39,600

Net change $189,600

Retained Earnings

Net income $ 70,000

Dividends (cash) (64,000)

Dividends (stock) (39,600)

Preferred share redemption (10,000)

Net change $(43,600)

Difficulty: Medium

Learning Objective: Prepare a statement of cash flows using the indirect method.

Section Reference: Preparing a Statement of Cash Flows Using the Indirect Method

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

Pr. 22-95 Statement of cash flows (indirect method) and statement analysis

Maribal Company’s junior controller prepared the following statement of cash flows for 2023:

MARIBAL COMPANY INC.
Statement of Cash Flows
Year Ended December 31, 2023
Operating activities
Net income		$78,000
Adjustments to reconcile net income to net cash provided (used) by operating activities
Depreciation expense	$ 8,500
Loss on disposal of equipment	(1,245)
Increase in accounts receivable	(4,500)
Decrease in inventory	1,785
Increase in accounts payable	(780)
Increase in income tax payable	(7,450)	(3,690)
Net cash provided by operating activities		74,310
Investing activities
Purchase of equipment	(57,840)
Proceeds from disposal of equipment	6,750
Net cash used by investing activities		(51,090)
Financing activities
Repayment of mortgage payable	(34,580)
Payment of cash dividend	6,575
Net cash used by financing activities		(28,005)
Net decrease in cash		(4,785)
Cash, January 1		4,250
Cash, December 31		$ (535)

The CFO is reviewing the work completed by the junior controller and thinks the statement is incorrect.

Instructions

a) Prepare a corrected statement cashflows.

b) Briefly comment on Maribal’s performance, include a calculation of free cash flow.

Solution Pr.22-95

a) The following is the corrected statement of cash flows for Maribal Company Inc.:

MARIBAL COMPANY INC.
Statement of Cash Flows
Year Ended December 31, 2023
Operating activities
Net income		$78,000
Adjustments to reconcile net income to net cash provided (used) by operating activities
Depreciation expense	$ 8,500
Loss on disposal of equipment	1,245
Increase in accounts receivable	(4,500)
Decrease in inventory	1,785
Increase in accounts payable	780
Increase in income tax payable	7,450	15,260
Net cash provided by operating activities		93,260
Investing activities
Purchase of equipment	(57,840)
Proceeds from disposal of equipment	6,750
Net cash used by investing activities		(51,090)
Financing activities
Repayment of mortgage payable	(34,580)
Payment of cash dividend	(6,575)
Net cash used by financing activities		(41,155)
Net increase in cash		1,015
Cash, January 1		4,250
Cash, December 31		$ 5,265

b) Overall, the cash flows have increased and there is a net increase in cash of $1,105 as a result of operating activities. Both investing and financing activities were a use of cash.

The free cash flow is $42,170.

Free Cash Flow = Cash provided by operating activities – net capital expenditures

Free Cash Flow: $93,260 – $51,090 = $42,170

Difficulty: Medium

Learning Objective: Prepare a statement of cash flows using the indirect method.

Section Reference: Preparing a Statement of Cash Flows Using the Indirect Method

Learning Objective: Read and interpret a statement of cash flows.

Section Reference: Analyzing the Statement of Cash Flows

CPA: Financial Reporting

Bloomcode: Application

AACSB: Analytic

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The data contained in these files are protected by copyright. This manual is furnished under licence and may be used only in accordance with the terms of such licence.

The material provided herein may not be downloaded, reproduced, stored in a retrieval system, modified, made available on a network, used to create derivative works, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise without the prior written permission of John Wiley & Sons Canada, Ltd.

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Chapter Number:

Created Date:

Aug 21, 2025

Chapter Name:

Chapter 22 Statement of Cash Flows

Author:

Donald E. Kieso

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Chapter 20 Leases

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Chapter 21 Accounting Changes and Error Analysis

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Chapter 22 Statement of Cash Flows

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Chapter 23 Other Measurement and Disclosure Issues

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Appendix C The Accounting Information System v2

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Exam Questions Statement of Cash Flows Ch22

CHAPTER STUDY OBJECTIVES

Solution 22-72

d) Not shown on the statement of cash flows:

Solution 22-73

*Solution 22-74

*Solution 22-76

*Solution 22-77

Solution 22-79

Solution 22-81

*Solution 22-82

*Solution 22-83

Solution 22-84

Solution 22-85

Solution 22-87

Solution 22-89

*Solution 22-93

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