60. The following information was taken from the records of Albert’s Fine Coffee:
2015
2014
Machinery
$90,000
$40,000
Accumulated depreciation
(30,000)
(20,000)
Depreciation expense
14,000
12,000
Gain on sale of machinery
4,000
1,000
During 2015, machinery with a cost of $16,000 was sold.
The journal entry to record the sale of the machinery would include:
a. a debit to Accumulated Depreciation of $4,000.
b. a debit to Cash of $2,000.
c. a debit to Machinery for $16,000.
d. a credit to Gain on Sale for $3,000.
Solution:
61. The following year-end totals were taken from the records of Langston Company.
2015
2014
Prepaid insurance
$8,000
$5,200
Wages payable
7,000
0
Insurance expense
4,000
5,700
Wage expense
9,500
4,000
What is the amount of cash outflow associated with insurance during 2015?
a. $4,000
b. $2,800
c. $1,700
d. $6,800
Solution:
62. The following year-end totals were taken from the records of Langston Company.
2015
Prepaid insurance
$8,000
Wages payable
7,000
Insurance expense
4,000
Wage expense
9,500
What is the amount of cash outflow associated with wages during 2015?
a. $9,500
b. $2,500
c. $5,500
d. $7,000
Solution:
Test Bank – Chapter 14 – The Statement of Cash Flows 14–23
KP 6 BT: AN Difficulty: Difficult TOT: 2 min. AACSB: Analytic
AICPA BB: Critical Thinking AICPA FN: Measurement
MATCHING QUESTIONS
1. For each transaction provided in items 1 through 12, select the proper section of the
statement of cash flows in which it should be reported from the reporting categories
provided below.
Reporting Categories
A. Cash provided/used by financing activities
B Cash provided/used by investing activities
C. Cash provided/used by operating activities
D. Disclosed in notes
1. Principal payment on long-term note payable
2. Customers paid cash for inventory items
3. Cash dividends paid to investors
4. Issuance of stock for more than its par value
5. Payment of employees’ salaries
6. Issuance of common stock for cash
7. Payment of income taxes
8. Issuance of bonds at a premium
9. Sale of available-for-sale securities (long-term)
10. Purchase of equipment
11. Purchase of treasury stock
12. Sale of long-term investment
Solution:
2. For each transaction provided in items 1 through 5, select the proper section of the
statement of cash flows in which it should be reported using the indirect method from the
reporting categories provided in a through h below. If the item is not required to be
reported on the statement of cash flows, place an ‘X’ in the space provided.
Reporting Categories
a. Cash flows from operating activities—will be added to net income
b. Cash flows from operating activities—will be subtracted from net income
c. Cash flows from investing activities—increase as a result of cash inflows
d. Cash flows from investing activities—decrease as a result of cash outflows
e. Cash flows from financing activities—increase as a result of cash inflows
f. Cash flows from financing activities—decrease as a result of cash outflows
g. Disclosed as a non-cash transaction in the notes
h. Appears in operating activities only under the direct method
1. Accepted deposit for advance product offering
2. Pays cash dividends
3. Accrued income taxes for the period; to be paid next year
4. Adjustment to increase the book value of trading securities to market
5. Accounts receivable were collected from customers
Solution:
3. For each transaction provided in items 1 through 5, select the proper section of the
statement of cash flows in which it should be reported using the indirect method from the
reporting categories provided in a through h below. If the item is not required to be
reported on the statement of cash flows, place an ‘X’ in the space provided.
Reporting Categories
a. Cash flows from operating activities—will be added to net income
b. Cash flows from operating activities—will be subtracted from net income
c. Cash flows from investing activities—increase as a result of cash inflows
d. Cash flows from investing activities—decrease as a result of cash outflows
e. Cash flows from financing activities—increase as a result of cash inflows
f. Cash flows from financing activities—decrease as a result of cash outflows
g. Disclosed as a non-cash transaction in the notes
h. Appears in operating activities only under the direct method
1. Retired long-term debt before its maturity date
2. Cash paid for income taxes
3. Recognized loss on the sale of equipment
4. Declared cash dividends
5. Amortization of patent
Solution:
4. For each transaction provided in items 1 through 7, select the proper section of the
statement of cash flows in which it should be reported using the indirect method from the
reporting categories provided in a through h below.
Reporting Categories
a. Cash flows from operating activities—will be added to net income
b. Cash flows from operating activities—will be subtracted from net income
c. Cash flows from investing activities—increase as a result of cash inflows
d. Cash flows from investing activities—decrease as a result of cash outflows
e. Cash flows from financing activities—increase as a result of cash inflows
f. Cash flows from financing activities—decrease as a result of cash outflows
g. Disclosed as a non-cash transaction in the notes
h. Cash flows are already included in net income – not necessary to
separately report on statement of cash flows
1. Loss on sale of old equipment
2. Declaration of stock (not cash) dividends
3. Recorded amortization on intangible assets
4. Sold trading investments at book value (no gain or loss)
5. Paid for salaries for the current period
6. Paid for salaries that were accrued during the previous period
7. Acquired machinery by issuing bonds payable
Solution:
KP 2,6 BT: K Difficulty: Easy TOT: 5 min. AACSB: Analytic
AICPA BB: Critical Thinking AICPA FN: Reporting
SHORT PROBLEMS
1. Accrued wages payable on December 31, 2014 and 2015 are $9,000 and $4,000,
respectively. During 2015, wages expense is $36,000. Calculate the amount of cash
paid for wages during 2015.
Solution:
2. Graham, Inc. experienced the following changes in its cash balance during the current
calendar year:
Increases in Cash:
From customers
$6,000
Sale of investments
3,000
Collection of interest
800
Issue of common stock
3,000
Decreases in Cash:
Payment to suppliers
$3,000
Wages
1,000
Purchase of building
3,000
Payment of interest
400
Retirement of long-term debt
600
Payment of dividends
500
Payment of salespersons’ commissions
200
Prepare, in good form, a cash flow statement for the current year.
Solution:
Graham, Inc.
Cash Flow Statement for Current Year
Cash provided by operations:
Add: From customers
$6,000
Interest collections
800
$6,800
Less: Payment to suppliers
3,000
Wages paid
1,000
Interest paid
400
Payment to salespersons
200
(4,600)
Cash inflow (outflow) from operations
$2,200
Cash flows from investment activities:
Sale of investments
$3,000
Purchase of building
(3,000)
0
Cash flows from financing activities:
Issuance of stock
$3,000
Retirement of debt
(600)
Dividend payment
(500)
1,900
Net increase (decrease) in cash flows
$4,100
KP 6 BT: K Difficulty: Easy TOT: 7 min. AACSB: Analytic
AICPA BB: Critical Thinking AICPA FN: Reporting
3. Beginning and ending balances for relevant balance sheet accounts are as follows:
12/31/15
1/01/15
Merchandise inventory
$32,000
$21,000
Accounts payable
15,000
8,000
During 2015, cost of goods sold was $102,000. Calculate the amount of cash paid to
suppliers of merchandise inventory.
Solution:
4. The following is the cash ledger account for Jensen Corp., which summarizes events
that impacted the cash account during 2015.
CASH
Balance 1/02/15
15,000
Interest payments
4,000
Receivable collections
26,000
Fixed asset purchases
56,000
Cash sales
59,000
Wages
12,000
Sale of land
48,000
Dividend payments
7,000
Issue of common stock
31,000
Accounts payable payments
36,000
Interest collections
3,000
Using the information contained in the cash ledger, complete the following cash flow
statement.
Cash provided by operations:
Amounts
Add:
Less:
Cash inflows (outflows) from operations
Cash flows from investment activities:
Cash flows from financing activities:
Net increase (decrease) cash
Solution:
Cash provided by operations:
Add:
From customers
$85,000
Interest collections
3,000
$88,000
Less: Interest payments
$(4,000)
Wages paid
(12,000)
Payment on accounts payable
(36,000)
(52,000)
Cash inflows (outflows) from operations
$36,000
Cash flows from investment activities:
Sale of land
$48,000
Fixed asset purchase
(56,000)
(8,000)
Cash flows from financing activities:
Issuance of stock
$31,000
Dividend payment
(7,000)
24,000
Net increase in cash
$52,000
Test Bank – Chapter 14 – The Statement of Cash Flows 14–29
KP 2 BT: K Difficulty: Easy TOT: 10 min. AACSB: Analytic
5. Richards Inc. presented its comparative financial data and other data as follows:
Dec. 31, 2015
Dec. 31, 2014
Cash
$ 16,000
$ 9,000
Accounts receivable
22,000
16,000
Prepaid expenses
3,800
3,000
Investment in stock (no fair value)
8,000
21,000
Building and equipment
103,200
80,000
Accumulated depreciation
(60,000)
(51,000)
$ 93,000
$ 78,000
Accounts payable
$ 9,000
$ 6,000
Notes payable (used for operations)
6,000
8,000
Accrued expenses
13,000
7,000
Mortgage payable
25,000
31,000
Common stock
9,000
5,000
Additional paid-in capital
21,000
16,000
Retained earnings
10,000
5,000
$ 93,000
$78,000
Additional information:
1. Equipment was purchased for $43,200 and was paid in cash. Other equipment
was sold at a $3,000 gain and was 50% depreciated at the time of sale.
2. During 2015, Richards Inc. declared and paid cash dividends.
3. Part of the investment in the stock portfolio was sold at book value. The stock is
closely-held so no fair value adjustments are made.
4. Net income was $49,000.
Prepare a statement of cash flows using the indirect method for 2010. You may omit the
heading.
Solution:
Cash flows from operating activities:
Net income
$ 49,000
Depreciation expense
19,000
Gain on sale of equipment
(3,000)
Increase in accounts receivable
(6,000)
Increase in prepaid expenses
(800)
Increase in accounts payable
3,000
Decrease in short-term operating loan
(2,000)
Increase in accrued expenses
6,000
Cash provided by operations
$ 65,200
Cash flows from investing activities:
Sale of investments
$ 13,000
Purchase of building and equipment
(43,200)
Sale of building and equipment
13,000
Cash used by investing activities
(17,200)
Cash flows from financing activities:
Payments on mortgage
$(6,000)
Sale of common stock
9,000
Payment of dividends
(44,000)
Cash provided by financing activities
(41,000)
Net increase in cash flows
$ 7,000
14–30 Test Bank – Chapter 14 – The Statement of Cash Flows
6. The comparative balance sheets of Shad Inc. contain prepaid insurance of $48,000 on
January 1, 2015 and $37,000 on December 31, 2015. Shad’s 2015 income statement
contains insurance expense of $15,000. Calculate the amount of cash paid for insurance
premiums during 2015.
Solution:
7. Beginning and ending balances for relevant balance sheet accounts are as follows:
12/31/15
1/01/15
Merchandise inventory
$32,000
$18,000
Accounts payable
13,000
20,000
During 2015, cost of goods sold was $148,000. Calculate the amount of cash paid to
suppliers of merchandise inventory.
Solution:
8. List two distinct examples of investing activities and two distinct examples of financing
activities.
Solution:
Investing activities:
9. The accounts receivable balances on January 1 and December 31 are $22,000 and
$18,000, respectively. The income statement for the year included sales revenue of
$120,000. Determine the amount of cash collected from customers during the year.
Solution:
10. Selected information from Thompson Corporation is provided below for the years ending
December 31, 2015 and 2014.
2015
2014
Accumulated depreciation
$41,000
$35,000
Accounts payable
39,000
25,000
Equipment
55,000
49,000
During 2015 depreciation expense was recorded. New equipment was acquired for
cash. Old equipment which was 60% depreciated with an original cost of $26,000 was
sold for a loss of $4,000. Prepare the investing activities section of the statement of cash
flows.
Solution:
Cash flows from investing activities:
Purchase of plant assets
$(32,000)
Sale of plant assets
6,400
Cash used by investing activities
$(25,600)
KP 6 BT: K Difficulty: Easy TOT: 4 min. AACSB: Analytic
AICPA BB: Critical Thinking AICPA FN: Reporting
11. Beginning and ending balances for selected accounts are as follows:
12/31/15
1/01/15
Accounts receivable
$14,000
$19,000
Revenue received in advance
6,000
3,000
During 2015, sales revenue is $110,000. Calculate the cash collected from customers.
Solution:
12. The August 1 and August 31 balances in accounts receivable are $21,000 and $18,000,
respectively. During August, the company collected $56,000 from its customers and
incurred $37,000 of expenses, all paid in cash. Calculate the amount of cash flows from
operations for August.
Solution:
13. During the current year, Martini Foods reported sales of $250,000, and wrote off $7,000
of accounts receivable as uncollectible under the direct write-off method. On January 1
and December 31 of the current year, Richard Young had accounts receivable of
$26,000 and $14,000, respectively. Determine the amount of cash collected from
customers during the current year.
Solution:
14. List two distinct examples of significant noncash transactions and two distinct examples
of transactions not reported directly on a statement of cash flows
Solution:
Significant noncash transactions: