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81. Eight Corporation declared and paid $90,000 of dividends to its shareholders during Year 3. The statement
of cash flows classifies the transaction as a(n)
82. During Year 7, Seven Corporation wrote down marketable equity securities to their market value. The
journal entry made for this write-down is as follows:
Unrealized Holding Loss on Marketable Equity Securities
Available for Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.000
Marketable Equity Securities Available for Sale . . . . . . . . . . . . . . . . . 7,000
This entry
83. During Year 5, Five Corporation signed a long-term lease for a building. It classified the lease as a capital
lease and recorded it in the accounts as follows:
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000
Capitalized Lease Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000
The transaction requires
84. During Year 3, investors in bonds of Three Corporation exercised their option to convert their debt
securities into shares of common stock. The entry made in the accounting records to record the conversion is as
follows:
Bonds Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000
Additional Paid-in Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . .2,000
The transaction requires
85. The extent to which a firm adjusts net income for changes in noncurrent assets and noncurrent liabilities in
deriving cash flow from operations under the indirect method depends on the nature of its operations.
Capital-intensive firms will likely show a substantial
86. The extent to which a firm adjusts net income for changes in noncurrent assets and noncurrent liabilities in
deriving cash flow from operations under the indirect method depends on the nature of its operations. Service
firms will likely show a small amount of
87. The extent to which a firm adjusts net income for changes in noncurrent assets and noncurrent liabilities in
deriving cash flow from operations under the indirect method depends on the nature of its operations. Rapidly
growing firms usually
88. The extent to which a firm adjusts net income for changes in noncurrent assets and noncurrent liabilities in
deriving cash flow from operations under the indirect method depends on the nature of its operations. Firms
that stop growing or that shrink usually
89. The extent to which a firm adjusts net income for changes in noncurrent assets and noncurrent liabilities in
deriving cash flow from operations under the indirect method depends on the nature of its operations Firms that
grow or diversify by acquiring minority ownership positions in other businesses will often show
90. The extent to which a firm adjusts net income for changes in noncurrent assets and noncurrent liabilities in
deriving cash flow from operations under the indirect method depends on the nature of its operations. Firms that
decrease in size will usually show
91. The adjustment for changes in operating working capital accounts depends in part on a firm’s rate of
growth. Rapidly growing firms usually experience significant increases in.
92. The adjustment for changes in operating working capital accounts depends in part on a firm’s rate of
growth. Some firms use suppliers or other creditors to finance these working capital needs, which are
93. The adjustment for changes in operating working capital accounts depends in part on a firm’s rate of
growth. Some firms use short- or long-term borrowing or equity financing, which is
94. The product life-cycle concept from microeconomics and marketing provides useful insights into the
relations between cash flows from operating, investing, and financing activities. During the introduction phase
95. The product life-cycle concept from microeconomics and marketing provides useful insights into the
relations between cash flows from operating, investing, and financing activities. During the introduction phase
96. The product life-cycle concept from microeconomics and marketing provides useful insights into the
relations between cash flows from operating, investing, and financing activities. During the introduction phase
97. The product life-cycle concept from microeconomics and marketing provides useful insights into the
relations between cash flows from operating, investing, and financing activities. During the growth phase
98. The product life-cycle concept from microeconomics and marketing provides useful insights into the
relations between cash flows from operating, investing, and financing activities. During the maturity phase
99. The product life-cycle concept from microeconomics and marketing provides useful insights into the
relations between cash flows from operating, investing, and financing activities. When a product matures
100. The product life-cycle concept from microeconomics and marketing provides useful insights into the
relations between cash flows from operating, investing, and financing activities. When a product matures
101. The product life-cycle concept from microeconomics and marketing provides useful insights into the
relations between cash flows from operating, investing, and financing activities. At the beginning of the decline
phase
102. The product life-cycle concept from microeconomics and marketing provides useful insights into the
relations between cash flows from operating, investing, and financing activities. The beginning of the decline
phase can produce
103. The product life-cycle concept from microeconomics and marketing provides useful insights into the
relations between cash flows from operating, investing, and financing activities. In the United States, which
phase best describes:
Biotechnology firms Consumer foods companies Steel manufacturers
104. For each of the following items:
1.
identify whether the adjustment is an addition or a subtraction in preparing the statement of cash flows
using the indirect method, and
2.
state which section of the statement of cash flows the addition or subtraction should be reported.
a. amortization of patent
b. bond premium amortization
c. increase in deferred taxes (hint: a liability)
d. sale of equipment
a.
1. addition
2. operations
b.
1. subtraction
2. operations
c.
1. addition
2. operations
d.
1. addition
2. investing
105. Arctic Company reported the following changes in the balance sheet accounts between Year 1 and Year 2.
Change In
Dr.(Cr.)
Cash
$100
Accounts receivable
(50)
Inventory
80
Equipment
100
Accumulated depreciation
(20)
Prepaid insurance
(10)
Accounts payable
(20)
Warranties payable
(10)
Deferred tax liability
(10)
Notes payable
(110)
Retained earnings
(30)
Common stock
0
Preferred stock
(20)
Assume that there were no sales of equipment and that no dividends were declared or paid.
Required:
Given the changes in the balance sheet for Year 2, state:
a.
whether the change in each account indicates that an addition or subtraction needs to be made to
determine cash flow, and
b.
in what section of the statement of cash flows the adjustment would appear. Indicate if no adjustment is
necessary.
a., b.
Change In
Dr.(Cr.)
ADD/SUB
ACTIVITY
Cash
$100
n/a
n/a
Accounts receivable
(50)
Addition
Operations
Inventory
80
Subtract
Operations
Equipment
100
Subtract
Investing
Accumulated depreciation
(20)
Addition
Operations
Prepaid insurance
(10)
Addition
Operations
Accounts payable
(20)
Addition
Operations
Warranties payable
(10)
Addition
Operations
Deferred taxes
(10)
Addition
Operations
Notes payable
(110)
Addition
Financing
Retained earnings
(30)
Addition
Operations
Common stock
0
n/a
n/a
Preferred stock
(20)
Addition
Financing
106. Given the following information for Aerobic Corporation, complete a statement of cash flows in good form
using the indirect method.
Year 1
Year 2
Cash
$25,000
$29,500
Accounts receivable
50,000
63,800
Inventory
45,000
38,000
Equipment
83,000
82,000
Accumulated depreciation
54,000
58,300
Warranties payable
39,000
16,400
Deferred tax liability
20,000
27,000
Notes payable
3,000
5,400
Retained earnings
79,000
92,200
Common stock
6,000
11,000
Treasury stock
2,000
3,000
Net income
17,500
18,200
Dividend payable
5,000
0
Note: In Year 2, equipment with a book value of $800 was sold for $900.
Year 1
Year 2
Difference
Cash
$25,000
$29,500
$ 4,500
Accounts receivable
50,000
63,800
13,800
Inventory
45,000
38,000
(7,000)
Equipment
83,000
82,000
(1,000)
Accumulated depreciation
54,000
58,300
(4,300)
Warranties payable
39,000
16,400
(22,600)
Deferred taxes
20,000
27,000
7,000
Notes payable
3,000
5,400
2,400
Retained earnings
79,000
92,200
13,200
Common stock
6,000
11,000
5,000
Treasury stock
2,000
3,000
1,000
Net income
17,500
18,200
700
Dividend payable
5,000
0
(5,000)
Aerobic Corporation
Statement of Cash Flows
For the Period Ending December 31, Year 2
Operations:
Net Income
$18,200
Noncash revenues, expenses, gains,
and losses included in income:
Depreciation
$ 4,500
Gain on sale
(100)
Increase in accounts receivable
(13,800)
Decrease in inventory
7,000
Decrease in warranties payable
(22,600)
Increase in deferred taxes
7,000
Total adjustments
(18,000)
Cash flow from operations
$ 200
Investing:
Sale of equipment
900
Cash flow from investing
900
Financing:
Increased borrowing
2,400
Sale of treasury stock
1,000
Sales of common stock
5,000
Dividends
(5,000)
Cash flow from financing
3,400
Net change in cash
4,500
Cash, beginning of year
25,000
Cash, end of year
$29,500
107. For each of the following transactions, determine what adjustments are necessary to prepare the statement
of cash flows using the indirect method.
a.
Firm A sells equipment with a cost of $2,000 and accumulated depreciation of $1,000 for $600 cash.
b.
Firm A uses the equity method to record its investment in Firm B. In the current year, A records $1,500
as equity in earnings of affiliate. A also received $1,600 in dividends from B in the current year.
c.
Firm A converts $50,000 of debt to common stock.
a.
Add $400 loss on sale back to income from operations. Show $600 as cash from investing activity-sale
of equipment.
b.
Add $100 to cash from operations. (Dividend exceeded current year income recorded on equity method)
c.
Add $50,000 to cash from financing-issue of common stock. Subtract $50,000 from cash from
financing-conversion of long-term bonds.
108. Packer Company reported the following changes in the balance sheet accounts between Year 1 and Year 2.
No dividends are paid during the year, land was sold at its book value of $30,000 and any change in the patent
account is due to amortization.
Change In
Dr.(Cr.)
Cash
$(50)
Accounts receivable
(10)
Inventory
(20)
Patent, net of amortization
(10)
Equipment & land
(30)
Accumulated depreciation
(10)
Accounts payable
40
Notes payable
0
Retained earnings
40
Common stock
50
Required:
Given the changes in the balance sheet for Year 2, state:
a.
whether the change in each account indicates that an addition or subtraction needs to be made to
determine cash flow, and
b.
in what section of the statement of cash flows the adjustment would appear. Indicate if no adjustment is
necessary.
a., b.
Change In
Dr.(Cr.)
ADD/SUB
ACTIVITY
Cash
$(50)
n/a
n/a
Accounts receivable
(10)
Addition
Operations
Inventory
(20)
Addition
Operations
Patent
(10)
Addition
Operations
Equipment & Land
(30)
Addition
Investing
Accumulated depreciation
(10)
Addition
Operations
Accounts payable
40
Subtract
Operations
Notes payable
0
n/a
n/a
Retained earnings
40
Subtract
Operations
Common stock
50
Subtract
Financing
109. For each of the following transactions, determine what adjustment is necessary to prepare the statement of
cash flows using the indirect method.
a.
Firm A sells equipment with a cost of $1,000 and accumulated depreciation of $800 for $400 cash.
b.
Firm A uses the equity method to record its investment in Firm B. In the current year, A records $1,000
as equity in earnings of affiliate. No dividends are paid by B.
c.
Firm A acquires a building through a capital lease transaction. The building and lease were recorded at
$100,000. Firm A chooses to report this transaction in the statement of cash flows.
.
a.
Subtract $200 gain on sale from income from operations. Show $400 as cash from investing
activity-sale of equipment.
b.
Subtract $1,000 from income from operations.
c.
Add $100,000 to cash from financing--capital lease obligation. Subtract $100,000 from cash for
investing--acquisition of building.
