157.
Relationship of cash flows to accrual accounting
(a) The 2015 statement of cash flows of Citation Corporation shows the amount of cash
received from customers as $800,000. Comparative balance sheets report accounts
receivable to be $70,000 at January 1 and $100,000 at December 31, 2015. Compute the
amount of net sales reported in Citation Corporation’s income statement for 2015:
$_______________
(b) The supplementary schedule for noncash investing and financing activities
accompanying Citation Corporation’s 2015 statement of cash flows disclosed the following:
Citation Corporation’s 2015 income statement reports a $61,000 loss on the disposal of
land. Prepare the journal entry made by Citation in 2015 to record this sale of land.
158.
Differences between net income and operating cash flow.
Identify three factors that may cause net income to differ from the net cash flow from
operating activities.
159.
Significance of cash flows
In the long run, is it more important for a business to have a positive cash flow from its
operating activities, investing activities, or financing activities? Why?
160.
Cash flows from operating activities-indirect method
In the computation of net cash flows from operating activities for 2015 by the indirect
method, determine whether each of the following items would be added to net income,
deducted from net income, or omitted from the computation. Indicate your answer by using
the following symbols: + (added to net income), – (deducted from net income), or 0
(omitted from computation).
____ (a) A decrease in accounts payable to suppliers of merchandise during 2015.
____ (b) A loss recognized on the sale of office equipment during 2015.
____ (c) Depreciation expense for 2015.
____ (d) Dividends, declared at the end of last year, paid to shareholders during the current
year.
____ (e) An increase in inventory levels during 2015.
____ (f) A decrease in accounts receivable from customers during 2015.
161.
Cash flow from operations activities-indirect method
An analysis of the 2015 financial statements of Portside Provisions reveals the following:
(a) Accounts payable to suppliers of merchandise decreased by $65,000 during 2015.
(b) Dividends of $135,000 were declared in November 2015, to be paid in January 2016.
(c) Dividends of $120,000, declared in November 2014, were paid in January 2015.
(d) Inventory levels increased by $91,000 during 2015.
(e) Depreciation expense for 2015 amounted to $53,000.
(f) Land, which had a cost of $350,000, was sold in 2015 for $400,000 cash, resulting in a
gain of $50,000.
(g) Net income for 2015 was $745,000.
Using only the above information, follow the indirect method to compute Portside
Provisions’ net cash flows from operating activities for 2015.
13–99
162.
Cash flows from operating activities-indirect method
The data below are taken from the financial statements of the Rutherford Corporation:
Complete the partial statement of cash flows for the year ended December 31, 2015,
showing the computation of net cash flows from operating activities by the indirect
method:
13–101
163.
Cash flows from operating activities-indirect method
The data below are taken from the financial statements of the Spectrum Corporation:
Complete the partial statement of cash flows for the year ended December 31, 2015,
showing the computation of net cash flows from operating activities by the indirect
method:
164.
Significance of cash flows
Saxony, Inc. is a relatively new business. In its first three years of operations, the company
has recorded positive and increasing net cash flows from its operating activities. In each of
these three years, the company has also reported a net loss on its income statement.
Suggest at least one plausible explanation for these financial results. Given the net losses
in the first three years of operations, should investors be concerned about the solvency and
future profitability of Saxony? Explain.
13–104
165.
Based on the information provided below, complete the following worksheet to be used to
prepare the statement of cash flows for the Gulp-it-Down Coffee Co.
Additional Information:
(1.) Net income for the year amounted to $60,000, and cash dividends were declared and
paid in the amount of $20,000.
(2.) Gulp-it-Down Coffee Co.’s only noncash expense was depreciation which totaled
$100,000.
(3.) The company purchased plant assets for $140,000.
(4.) Notes payable in the amount of $60,000 were issued during the year.