12-175
12-177
210.
Use the following financial statements and additional information to (1) prepare a
complete statement of cash flows for the year ended December 31, 2013. The cash
provided or used by operating activities should be reported using the direct method, and
(2) compute the company’s cash flow on total assets ratio for 2017.
Derby Company
Balance Sheets
At December 31
2016
Assets:
Cash
$65,200
Accounts receivable, net
56,750
Merchandise inventory
144,850
Prepaid expenses
12,680
Equipment
245,600
Accumulated depreciation-
Equipment
(97,600)
Total assets
$427,480
Liabilities:
Accounts payable
$45,450
Income taxes payable
12,240
Notes payable (long term)
79,200
Total liabilities
$136,890
Equity:
Common stock
150,000
Paid-in capital in excess of
par
40,000
Retained earnings
100,590
Total equity
$290,590
Total liabilities and equity
$427,480
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Derby Company
Income Statement
For Year Ended December 31, 2017
Sales
$488,000
Cost of goods sold
$212,540
Depreciation expense
43,000
Other operating expenses
106,260
Interest expense
6,400
(368,200)
Other gains (losses):
Gain on sale of equipment
4,700
Income before taxes
124,500
Income taxes expense
41,100
Net income
$83,400
Additional Information:
a. A $20,000 note payable is retired at its carrying value in exchange for cash.
b. The only changes affecting retained earnings are net income and cash dividends paid.
c. New equipment is acquired for $120,000 cash.
d. Received cash for the sale of equipment that had cost $85,000, yielding a gain of
$4,700.
e. Prepaid expenses relate to Other Expenses on the income statement.
f. All purchases and sales of merchandise inventory are on credit.
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211.
The following transactions and events occurred during the year. Assuming that this
company uses the indirect method to report cash provided by operating activities, indicate
where each item would appear on its statement of cash flows by placing an
x
in the
appropriate column.
Statement of Cash Flows (Indirect Method)
Operating
Activities
Investing
Activities
Financing
Activities
Noncash
Investing &
Financing
Paid cash for operating expenses
Issued common stock for land
Accounts receivable decreased in the year
Recorded depreciation expense
Income taxes payable increased during the year
Sold equipment for cash, yielding a gain
Paid cash for interest expense
Purchased land by for cash
Purchased long-term investment in bonds
Paid cash for retirement of note payable
Statement of Cash Flows (Indirect Method)
Operating
Activities
Investing
Activities
Financing
Activities
Noncash
Investing &
Financing
Paid cash for operating expenses
Issued common stock for land
Fill in the Blank Questions
212.
A main purpose of the statement of cash flows is to report all the major cash ________ and
cash _______________.
213.
Investments that are readily convertible to a known amount of cash and are sufficiently
close to their maturity so that the market value is unaffected by interest rate changes are
214.
_____________ activities include the cash effects of transactions and events that determine
net income.
215.
___________________ activities generally include those transactions and events that affect
long-term assets.
216.
___________________ activities include those transactions that affect long-term liabilities
and equity.
217.
Noncash financing and investing activities are disclosed in a ____________ to the
statement of cash flows or in a separate ______________________________.
218.
The statement of cash flows is divided into three sections called the _____________,
_____________, and _______________ sections.
219.
Probably the most important section of the statement of cash flows in analyzing the
financial performance of a company’s ongoing business is the ____________ section.
220.
The cash flow on total assets ratio is computed by dividing _____________ by
____________.
221.
Information to prepare the statement of cash flows usually comes from three sources: (1)
_______________, (2) _______________________, and (3) ____________________.
222.
All cash transactions eventually affect noncash ___________ accounts.
223.
When preparing the operating section of the statement of cash flows using the indirect
method, noncash expenses are _____________ net income.
224.
The reporting of investing and financing activities is _________________ under the direct
and indirect methods of preparing the statement of cash flows.
225.
The use of a spreadsheet for analysis is especially useful when preparing the statement of
cash flows using the _____________ method.
226.
The FASB requires a reconciliation of net income to net cash provided or used by
operating activities when the ______________ method is used.
227.
IFRS permits classification of cash inflows from interest revenue and dividend revenue
under either the ___________________ activities section of the statement of cash flows,
provided that this classification is consistently applied.