13–36 Test Bank to accompany Jiambalvo Managerial Accounting 6th Edition
123. The income statement for 2018 and comparative balance sheets of Daniel Divers for 2017
and 2018 appear below. Dividends totaling $51,200 were paid during the year. Equipment
costing $21,500 with accumulated depreciation of $16,800 was sold for $11,300 cash during
the year.
December 31
Assets
2018
2017
Cash
$ 56,800
$ 58,300
Accounts receivable
14,500
12,200
Merchandise inventories
22,600
30,000
Equipment
112,000
98,700
Accumulated depreciation
(35,600)
(28,400)
Total assets
$170,300
$170,800
Liabilities and Stockholders‘ Equity
Accounts payable
$ 31,500
$ 34,700
Income taxes payable
8,900
7,400
Long-term notes payable
46,700
52,300
Common stock, $0.50 par
37,600
32,100
Retained earnings
45,600
44,300
Total liabilities and stockholders‘ equity
$170,300
$170,800
Sales
$389,000
Cost of goods sold
178,000
Depreciation expense
24,000
Interest expense
Other expenses
2,700
109,700
Gain on sale of equipment
6,600
Income taxes expense
28,700
Net income
$ 52,500
Prepare the investing activities section of the 2018 statement of cash flows using the indirect
method. You may omit the statement heading.
Answer
Proceeds from sale of equipment
Purchase of equipment*
Net cash used by investing activities
Chapter 13 Statement of Cash Flows 13-37
124. The income statement for 2018 and comparative balance sheets of Daniel Divers for 2017
and 2018 appear below. Dividends totaling $51,200 were paid during the year. Equipment
costing $21,500 with a book value of $19,200 was sold for $8,900 cash during the year.
December 31
Assets
2018
2017
Cash
$ 56,800
$ 58,300
Accounts receivable
14,500
12,200
Merchandise inventories
22,600
30,000
Equipment
112,000
98,700
Accumulated depreciation
(35,600)
(28,400)
Total assets
$170,300
$170,800
Liabilities and Stockholders’ Equity
Accounts payable
$ 31,500
$ 34,700
Income taxes payable
8,900
7,400
Long-term notes payable
46,700
52,300
Common stock, $0.50 par
37,600
32,100
Retained earnings
45,600
44,300
Total liabilities and stockholders‘ equity
$170,300
$170,800
Sales
$389,000
Cost of goods sold
178,000
Depreciation expense
24,000
Interest expense
Other expenses
2,700
109,700
Gain on sale of equipment
6,600
Income taxes expense
28,700
Net income
$ 52,500
Prepare the financing activities section of the 2018 statement of cash flows using the
indirect method. You may omit the statement heading.
Answer
Payment of long-term note payable
($ 5,600)
Dividends paid
Issuance of common stock
Net cash used by financing activities
13–38 Test Bank to accompany Jiambalvo Managerial Accounting 6th Edition
125. Wallerton Industries experienced the following during 2017:
1. Issued preferred stock for $250,000
2. Repurchased $140,000 of its own common stock
3. Borrowed $200,000 from a bank by issuing a 5–year note
4. Retired bonds by paying $55,000
5. Declared dividends of $135,000 payable on March 1, 2018
Prepare the financing activities section of the statement of cash flows for Wallerton
Industries for 2017. You may omit the statement heading.
Answer
Financing Activities
Issue preferred stock $250,000
Purchase treasury stock (140,000)
Proceeds from borrowing 200,000
Retirement of bonds (55,000)
Net cash from financing activities $ 255,000
126. Indicate whether each of the following items will be added to or deducted from net income to
arrive at net cash provided/(used) from operating activities under the indirect method.
A. Gain on sale of an asset
B. Decrease in accrued wages payable
C. Increase in accounts receivable
D. Increase in accounts payable
E. Depreciation expense
Answer
Chapter 13 Statement of Cash Flows 13-39
127. The following data were included in a recent annual report of Reward Shopping:
Year 1 Year 2 Year 3
Net income $ 5,200,000 $ 5,900,000 $ 11,700,000
Net cash flow from operating activities 6,300,000 11,100,000 15,400,000
Net cash flow from investing activities (7,900,000) (37,600,000) (31,850,000)
Net cash flow from financing activities 15,200,000 19,590,000 16,090,000
a. Why is a company’s net income typically less than its net cash flow provided/(used)
by operating activities?
b. Why do most companies, including Reward Shopping, typically have negative cash
flows from investing activities?
c. Over the three-year period, what type of activity was the largest source of funds for
Reward Shopping? For what purpose were these funds used?
Answer
13–40 Test Bank to accompany Jiambalvo Managerial Accounting 6th Edition
128. The following information concerning property, plant, and equipment appeared in Quick
Wash Laundry’s 2017 balance sheet:
December 31
January 1
Equipment
$228,000
$211,000
Accumulated depreciation
(48,900)
(42,600)
Net property, plant, and equipment
$179,100
$168,400
During 2017, Quick Wash sold equipment that had an original cost of $23,000 and a current
book value of $3,500 for a loss of $2,100. In addition, the company purchased a new
machine by making a down payment of $6,000 and financing the balance by issuing a long–
term note payable. Net income for 2017 was $89,000.
a. How much depreciation expense did Quick Wash Laundry record during 2017?
b. Prepare the investing activities section of the statement of cash flows for Quick Wash
Laundry for 2017.
c. Show how the effects of the transactions related to the accounts of the Quick Wash
Laundry presented will be reported in the operating activities section of the statement
of cash flows for 2017.
Answer
Proceeds from sale of equipment
Purchase of equipment (down payment)
Net cash used by investing activities
Depreciation expense
Loss on sale of equipment
Net cash provided by operating activities
Chapter 13 Statement of Cash Flows 13-41
129. The income statement for Roofer’s Supply House for 2017 is as follows:
Roofer’s Supply House
Income Statement
For the Year Ended December 31, 2017
Sales $1,025,000
Cost of goods sold 620,000
Gross profit 405,000
Less:
Depreciation expense $70,000
Amortization of patent 6,500
Wages expense 61,000
Insurance expense 12,000 149,500
Income before taxes 255,500
Less income taxes 91,175
Net income $ 164,325
Other information is as follows:
a. Accounts receivable decreased by $20,000 during the year.
b. Accounts payable increased by $7,500.
c. Wages payable had a balance of $0 at the beginning of the year; at the end of the
year, the balance was $4,500.
d. Prepaid insurance increased by $9,500 during the year.
Prepare the operating activities section of the statement of cash flows for 2017 for Roofer’s
Supply House using the indirect method.
13–42 Test Bank to accompany Jiambalvo Managerial Accounting 6th Edition
130. Walsh Company uses the indirect method to prepare the operating activities section of the
statement of cash flows. Indicate the proper treatment of each item in the statement of cash
flows by writing the respective letter of the treatment in the blank adjacent to each item
appearing in A through I.
A Added to net income
D Deducted from net income
N Not reported in the operating activities section of the statement of
cash flows prepared using the indirect method
A. Proceeds from the sale of old warehouse ______
B. Decrease in accounts payable ______
C. Increase in prepaid insurance ______
D. Depreciation expense ______
E. Decrease in inventory ______
F. Amortization of patents ______
G. Gain on the retirement of bonds ______
H. Loss on the sale of a used delivery truck ______
I. Bad debt expense ______
131. The following information was selected from Save Mart’s accounting records during 2017:
Cash provided by operations $1,400,000
Long-term note payable issued to acquire land and building 1,800,000
Common stock issued to retire preferred stock 200,000
Proceeds from sale of long-term investment 340,000
Cost of machinery purchased 320,000
The machinery purchased required a 10% down payment with the balance due during 2018.
How must is Save Mart’s net increase(decrease) in cash and cash equivalents for 2017?
Answer
Chapter 13 Statement of Cash Flows 13-43
132. Below are items from the accounting records of a national retailer. For each item, fill in the
chart by indicating in which section of the statement of cash flows it would appear assuming
the indirect method is used. For amounts you identified as operating, indicate whether the
amount would have been added to or subtracted from net income in the operating activities
section of the statement of cash flows. Any item that is not reported in any of the cash flow
sections under the indirect method should be answered as ‘none’.
Items Section Add/Subtract
A. Accounts payable, increase
B. Accounts receivable, decrease
C. Accrued expenses payable, decrease
D. Capital expenditures made for cash
E. Income taxes payable, increase
F. Depreciation expense
G. Dividends paid
H. Interest payable, decrease
I. Issuance of common stock
J. Issuance of a long-term note payable
K. Cash received from customers
L. Merchandise inventories, decrease
M. Cash paid to buy a patent
N. Proceeds from the sale of equipment
O. Purchase another company
P. Purchase of treasury stock
Q. Repayment of long-term debt
13–44 Test Bank to accompany Jiambalvo Managerial Accounting 6th Edition
133. During the year, Macklin Grill earned net income of $11,800 during the year. Beginning and
ending balances for the year for selected accounts follow:
Ending Beginning
Cash $21,000 $19,400
Accounts receivable 18,900 21,100
Inventory 36,000 33,500
Prepaid insurance 4,000 1,200
Accumulated depreciation 6,500 3,200
Accounts payable 13,500 17,000
Wages payable 2,100 1,900
Prepare the operating activities section of the statement of cash flows using the indirect
method for the year. No long-term assets were acquired or sold during the year.
Answer
Chapter 13 Statement of Cash Flows 13-45
CHALLENGE EXERCISES
134. The excerpts below were taken from Sonata, Inc.’s comparative balance sheet follows.
December 31, 2018 December 31, 2017
Property, plant, & equipment
Land $ 94,000 $116,000
Equipment 580,000 576,000
Accumulated depreciation 216,000 219,000
New equipment purchased during 2018 totaled $44,000, paid for with a 20% down payment
and the balance paid with a long-term note payable over 4 years. Land with an original cost of
$22,000 was sold for $52,000 during 2018. Sonata’s 2018 income statement disclosed net
income totaling $54,000, equipment depreciation expense of $31,000, a $2,000 loss on the
sale of equipment, and a gain on the sale of land.
Show how the effects of the transactions on the property, plant, and equipment
classification will appear on a statement of cash flows prepared using the indirect method for
2018.
Answer
13–46 Test Bank to accompany Jiambalvo Managerial Accounting 6th Edition
135. The following selected information is taken from the accounting records of Metro
Communications for the years ending December 31, 2018 and 2017:
Amounts in millions
December 31, 2018
December 31, 2017
Accumulated
depreciation
$1,110
$1,100
Net income (loss)
2,600
2,800
Accounts payable
650
700
Building
2,300
1,840
Dividends payable
240
150
Retained earnings
780
350
Depreciation expense
220
210
Loss on sale of building
20
0
During 2018, Metro Communications sold a building with a book value of $990 and an
original cost of $1,200. The company also purchased a new building during 2018 for cash.
Prepare the investing and financing activities sections of the statement of cash flows for the
year ending December 31, 2018.
Answer
Purchase building
Net cash used by investing activities
$(2,080)
Chapter 13 Statement of Cash Flows 13-47
136. Turner Pest Control has the following selected account balances for the beginning and end
of the 2017:
January 1
December
31
Cash
$2,000
$17,000
Accounts receivable
6,500
12,500
Inventories
8,000
3,500
Plant and equipment
2,000
1,500
Accounts payable
1,000
6,700
Salaries payable
1,800
0
Dividends payable
1,200
1,800
Income taxes payable
1,000
5,500
Common stock
2,000
3,000
Additional paid-in capital
5,500
9,000
Retained earnings
6,000
13,500
Sales
$69,500
Cost of goods sold
16,000
Other operating expenses
19,000
Interest expense
5,000
Depreciation expense
2,000
Income tax expense
11,000
Net income
$16,500
Use the direct method to prepare the operating activities section of Turner Pest Control’s statement
of cash flows for the year. All amounts owed to creditors pertain to merchandise sold.
Answer
13–48 Test Bank to accompany Jiambalvo Managerial Accounting 6th Edition
137. A portion of Ring Power comparative balance sheets follows:
December 31
2018
2017
Land
$100,000
$ 40,000
Equipment
564,000
500,000
Note payable
92,000
0
Retained earnings
115,000
120,000
Additional paid in capital
45,000
20,000
Common stock, $1 par value
90,000
85,000
• New equipment purchased during 2018 totaled $100,000 in exchange for a $92,000, 12%,
5-year term note and the balance in cash.
• Old equipment with a book value of $2,000, an original cost of $36,000, and a 10-year
useful life was sold for a gain of $7,000 during 2018.
• Land was acquired for cash.
• During 2018, a cash dividend was declared and paid.
• Net income for 2018 was $40,000.
Prepare the investing and financing sections of Ring Power’s statement of cash flows for 2018.
Dividends paid: $120,000 + $40,000 – $115,000 = $40,000
Stock issuance: $$90,000 + 45,000 – $85,000 – $20,000 = $30,000
Investing Activities
Sale of equipment
$ 9,000
Purchase equipment (partial payment)
(8,000)
Purchase land
(60,000)
Net cash used by investing activities
($59,000)
Financing Activities
Issuance of stock
$ 30,000
Dividends paid
(45,000)
Net cash used by financing activities
($15,000)
Chapter 13 Statement of Cash Flows 13-49
SHORT-ANSWER ESSAYS
138. Identify the primary cash inflows and cash outflows under the investing activities section of
the statement of cash flows.
Answer
139. Identify the primary cash inflows and cash outflows under the financing activities section of
the statement of cash flows.
Answer
140. Explain the difference between the direct and indirect methods of calculating the net cash
flows from operating activities.
Answer
141. Identify the adjustments made to net income under the indirect method to calculate cash
flows from operating activities. Indicate whether each adjustment is “added” to or “deducted”
from net income.