81
179) For each of the following five transactions, indicate by letter whether the cash effect of each
transaction is reported in a statement of cash flows as an operating (O), investing (I), financing (F),
or noncash (NC) activity.
Type of
Activity
Transaction
1. Purchase of inventory
2. Repayment of note payable
3. Payment of employee salaries
4. Sale of equipment for a note receivable
5. Issuance of bonds
Activity
Transaction
1. Purchase of inventory
2. Repayment of note payable
3. Payment of employee salaries
4. Sale of equipment for a note receivable
5. Issuance of bonds
82
180) Classify each of the following items as an operating, investing, or financing activity.
1. Dividends paid.
2. Sale of goods or services for cash.
3. Sale of equipment.
4. Purchase of inventory.
5. Repayment of notes payable.
181) Classify each of the following items as an operating, investing, or financing activity.
1. Payment of income taxes.
2. Sale of investments.
3. Receipt of interest.
4. Issuance of common stock.
5. Purchase of intangibles.
83
182) The following selected transactions occur during the first year of operations. Determine how
each should be reported in the statement of cash flows. State whether it is a cash inflow or a cash
outflow and whether it is an operating, investing, or financing activity.
1. Issued 1 million shares of common stock at $20 per share.
2. Purchased land and a building for $3 million.
3. Received $200,000 from a cash sale of merchandise to customers.
4. Paid a dividend of $1 per share to common stockholders.
5. Loaned $50,000 to an employee and accepted a note receivable.
84
183) Analysis of the income statement, balance sheets, and additional information from the
accounting records of Gaming Strategies reveals the following items:
1. Collection of notes receivable.
2. Purchase of equipment.
3. Exchange of long-term assets.
4. Decrease in accounts payable.
5. Payment of dividends.
6. Purchase of a patent.
7. Depreciation expense.
8. Decrease in accounts receivable.
9. Issuance of note payable.
10. Increase in inventory.
Indicate in which section of the statement of cash flows each of these items would be reported:
operating activities (indirect method), investing activities, financing activities, or noncash
activities.
85
184) Place the following items in the correct order as they would appear in the statement of cash
flows:
1. Beginning cash balance
2. Ending cash balance
3. Investing activities
4. Financing activities
5. Net increase (decrease) in cash
6. Operating activities
86
185) Electronic Wonders reports net income of $95,000. The accounting records reveal
Depreciation Expense of $50,000, as well as increases in Prepaid Rent, Accounts Payable, and
Income Tax Payable of $40,000, $23,000, and $20,000, respectively. Prepare the operating
activities section of Electronic Wonders’ statement of cash flows using the indirect method.
186) Micro Manufacturing reports net income of $850,000. Depreciation Expense is $60,000,
Accounts Receivable increases $30,000 and Accounts Payable decreases $10,000. Calculate net
cash flows from operating activities using the indirect method.
87
187) Fidelity Systems reports net income of $80 million. Included in that number is depreciation
expense of $8 million, and a gain on the sale of equipment of $1 million. Records reveal increases
in Accounts Receivable, Inventory, and Accounts Payable of $4 million, $3 million, and $2
million, respectively. Calculate Fidelity’s net cash flows from operating activities using the
indirect method.
88
188) Alpha Computers reports net income of $44 million. Included in that number is depreciation
expense of $7 million, and a loss on the sale of land of $2 million. Records reveal decreases in
Accounts Receivable, Inventory, and Accounts Payable of $4 million, $3 million, and $2 million,
respectively. Calculate Alpha Computers’ net cash flows from operating activities using the
indirect method.
89
189) Portions of the financial statements for Horizon Telecom are provided below.
Horizon Telecom
Income Statement
For the Year Ended December 31, 2021
Revenues
$610,000
Expenses:
Cost of goods sold
370,000
Operating expenses
120,000
Depreciation expense
32,000
Income tax expense
44,000
Total expenses
566,000
Net Income
$44,000
Horizon Telecom
Selected Balance Sheet Data
December 31, 2021
Increase in accounts receivable
$6,000
Increase in inventory
13,000
Decrease in prepaid rent
9,000
Increase in operating expenses payable
5,000
Decrease in accounts payable
8,000
Increase in income tax payable
20,000
Prepare the operating activities section of the statement of cash flows for Horizon Telecom using
the indirect method.
91
190) Nathan Herrmann has completed the basic format to be used in preparing the statement of
cash flows (indirect method) for CEO Consultants.
CEO Consultants
Statement of Cash Flows
For the Year Ended December 31, 2021
Cash Flows from Operating Activities
Net income
Adjustments to reconcile net income to net
cash flows from operating activities:
Net cash flows from operating activities
Cash Flows from Investing Activities
Net cash flows from investing activities
Cash Flows from Financing Activities
Net cash flows from financing activities
Net increase (decrease) in cash
(50,000)
Cash at the beginning of the period
95,000
Cash at the end of the period
$45,000
Listed below in random order are line items to be included in the statement of cash flows.
Purchase of equipment
$220,000
Increase in inventory
30,000
Increase in prepaid rent
10,000
Payment of dividends
40,000
Depreciation expense
20,000
Increase in accounts receivable
60,000
Increase in accounts payable
10,000
Loss on sale of land
7,000
Net income
70,000
Repayment of notes payable
50,000
Cash received from the sale of land
3,000
Issuance of common stock
250,000
Prepare the statement of cash flows for CEO Consultants using the indirect method.
93
191) Mobile Video Systems sold land, investments, and issued their own common stock for $10
million, $15 million, and $20 million, respectively. Mobile Video also purchased treasury stock,
equipment, and a patent for $2 million, $4 million, and $6 million, respectively. What amount
should the company report as net cash flows from investing activities? What amount should the
company report as net cash flows from financing activities?
94
192) Two competitors in the construction supply industry report the following selected financial
data:
Company A
Company B
Sales
$47,220
$66,176
Net income
1,783
2,620
Operating cash flows
4,054
5,125
Total assets, beginning
32,625
41,164
Total assets, ending
33,005
40,877
Calculate the cash return on assets, cash flow to sales ratio, and asset turnover ratio for each
company. Which company has the better cash flow to sales ratio and which company has the better
asset turnover ratio?
Company A
Company B
Company A
Company B
95
193) The balance sheets of Integrated Systems reports total assets of $890,000 and $950,000 at the
beginning and end of the year, respectively. Sales revenues are $1.6 million, net income is
$185,000, and net cash flows from operating activities are $155,000. Calculate the cash return on
assets, cash flow to sales, and asset turnover for Integrated Systems.
194) The balance sheets of The Computer Doctor reports total assets of $160,000 and $220,000 at
the beginning and end of the year, respectively. The cash return on assets for the year is 10%.
Calculate The Computer Doctor’s net cash flows from operating activities for the year.
96
195) Discount Computers’ accounts receivable increases during the year by $3 million. What is the
amount of cash received from customers during the reporting period if its sales are $47 million?
196) Laser Solutions’ inventory decreases during the year by $8 million and its accounts payable to
suppliers increases by $6 million during the same period. What is the amount of cash paid to
suppliers of merchandise during the reporting period if its cost of goods sold is $81 million?
97
197) Freedom Wireless reports operating expenses of $255,000. Operating expenses include both
rent expense and salaries expense. Prepaid rent decreases during the year by $10,000 and salaries
payable increases by $25,000. What is the cash paid for operating expenses during the year?
198) Wilson Electric reports income tax expense of $150,000. Income tax payable at the beginning
and end of the year are $20,000 and $25,000, respectively. What is the cash paid for income taxes
during the year?
98
199) Portions of the financial statements for Horizon Telecom are provided below.
Horizon Telecom
Income Statement
For the Year Ended December 31, 2021
Revenues
$610,000
Expenses:
Cost of goods sold
391,000
Operating expenses
120,000
Depreciation expense
32,000
Income tax expense
44,000
Total expenses
587,000
Net Income
$23,000
Horizon Telecom
Selected Balance Sheet Data
December 31, 2021
Increase in accounts receivable
$6,000
Increase in inventory
13,000
Decrease in prepaid rent
9,000
Increase in operating expenses payable
5,000
Decrease in accounts payable
8,000
Increase in income tax payable
20,000
Prepare the operating activities section of the statement of cash flows for Horizon Telecom using
the direct method.
