6. Use the following selected data and additional information to answer the questions that follow:
Balance Sheet Data
2013
Accounts receivable
$ 42,000
Inventories
25,000
Accounts payable
35,000
Salaries payable
1,000
Equipment
40,000
Accumulated depreciation
16,000
Bonds payable
100,000
Common stock
100,000
Retained earnings
20,000
Income Statement Data
2014
Net sales
$420,000
Cost of goods sold
300,000
Operating expenses (excluding depreciation expense)
84,000
Net income
30,000
Gain on sale of equipment (included in net income above)
2,000
Additional information:
Cash flows from operating activities:
Net Income
$365,000
Depreciation Expense
107,000
Decrease in prepaid expenses
6,000
Increase in accounts payable
27,000
Increase in accounts receivable
Increase in inventory
Net cash flows from operating activities
$442,000
Cash flows from investing activities:
Sale of long-term investments
Purchase of long-term assets
Net cash flows from investing activities
Cash flows from financing activities:
Issuance of long-term debt
$200,000
Issuance of stock for cash
160,000
Purchase of treasure stock
Net cash flows from financing activities
Net change in cash:
Increase in operating activities
Decrease in investing activities
Increase in financing activities
Net Change in Cash
1.
Equipment with a cost of $15,000 and a book value of $3,000 was sold for $5,000 during
2014.
2.
Common stock was issued to retire bonds payable during 2014.
3.
Dividends declared and paid during 2014 were $12,000.
A.
Prepare the operating activities section of a statement of cash flows for 2014 using the
indirect method.
B.
Prepare the investing activities section of a statement of cash flows for 2014.
C.
Prepare the financing activities section of a statement of cash flows for 2014.
7. Bradley Company’s net income last year was $77,000. Changes in the company’s balance sheet
accounts for the year appear below:
Increases
(Decreases)
Debit balances:
Cash
$12,000
Accounts receivable
(16,000)
Net income
Add (deduct) adjusting items:
Depreciation
Decrease in accounts receivable
Increase in salaries payable
Gain on sale equipment
Increase in inventories
Decrease in accounts payable
Net cash provided from operating activities
Decrease in accounts receivable ($42,000 − $36,000)
Increase in salaries payable ($2,000 − $1,000)
Gain on sale of equipment ($5,000 − $3,000)
Increase in inventories ($28,000 − $25,000)
Decrease in accounts payable ($35,000 − $31,000)
Depreciation ($15,000 − $3,000 + $12,000 − $16,000)
Proceeds from selling equipment
Purchase of equipment (40,000 – 15,000 + 35,000)
Net cash used by for investing activities
Payment of dividends
Net cash used by for financing activities
Inventory
18,000
Prepaid expenses
7,000
Long-term investments
20,000
Plant and equipment
70,000
Credit balances:
Accumulated depreciation
32,000
Accounts payable
26,000
Accrued liabilities
(4,000)
Taxes payable
7,000
Bonds payable
(20,000)
Common stock
30,000
Retained earnings
40,000
The company declared and paid cash dividends of $37,000 last year.
Required:
A.
Prepare the operating activities section of the company’s statement of cash flows for the
year. (Use the indirect method.)
B.
Prepare the investing activities section of the company’s statement of cash flows for the
year.
C.
Prepare the financing activities section of the company’s statement of cash flows for the
year.
8. Baskin Company’s net income last year was $98,000. Changes in the company’s balance sheet
accounts for the year appear below:
Increases
(Decreases)
Debit balances:
Cash
$24,000
Accounts receivable
15,000
Inventory
(18,000)
Prepaid expenses
(6,000)
Long-term investments
10,000
Plant and equipment
40,000
Credit balances:
Accumulated depreciation
32,000
Accounts payable
(14,000)
Accrued liabilities
11,000
Taxes payable
4,000
Bonds payable
(40,000)
Common stock
10,000
Retained earnings
62,000
The company declared and paid cash dividends of $36,000 last year.
Required:
A.
Prepare the operating activities section of the company’s statement of cash flows for the
year. (Use the indirect method.)
B.
Prepare the investing activities section of the company’s statement of cash flows for the
year.
C.
Prepare the financing activities section of the company’s statement of cash flows for the
year.
4,000
(40,000)
9. Black Company’s net income last year was $84,000. Changes in the company’s balance sheet accounts
for the year appear below:
Increases
(Decreases)
Debit balances:
Cash
$(12,000)
Accounts receivable
13,000
Inventory
(15,000)
Prepaid expenses
(9,000)
Long-term investments
20,000
Plant and equipment
60,000
Credit balances:
Accumulated depreciation
26,000
Accounts payable
(15,000)
Accrued liabilities
(8,000)
Taxes payable
19,000
Bonds payable
(30,000)
Common stock
40,000
Retained earnings
25,000
The company declared and paid cash dividends of $59,000 last year.
Required:
A.
Prepare the operating activities section of the company’s statement of cash flows for the
year. (Use the indirect method.)
B.
Prepare the investing activities section of the company’s statement of cash flows for the
year.
C.
Prepare the financing activities section of the company’s statement of cash flows for the
year.
(36,000)
10. Daniels Company’s comparative balance sheet and income statement for last year appear below:
Balance Sheet
Ending
Beginning
Balance
Balance
Cash
$ 62,000
$ 38,000
Accounts receivable
85,000
66,000
Inventory
31,000
44,000
Prepaid expenses
0
4,000
Long-term investments
260,000
210,000
Plant and equipment
450,000
450,000
Accumulated depreciation
(255,000)
(219,000)
Total assets
$633,000
$593,000
Accounts payable
$ 33,000
$ 45,000
Accrued liabilities
36,000
18,000
Taxes payable
17,000
24,000
Deferred taxes payable
41,000
24,000
Bonds payable
150,000
190,000
Common stock
130,000
100,000
Retained earnings
226,000
192,000
Total liabilities and stockholders’ equity
$633,000
$593,000
Income Statement
Sales
$610,000
Less cost of goods sold
330,000
Gross margin
280,000
Less operating expenses
180,000
Net operating income
100,000
Less income taxes
30,000
Net income
$ 70,000
The company declared and paid $36,000 in cash dividends during the year.
Increase in taxes payable
19,000
Net cash flows from operating activities
$117,000
Increase in long-term investments
$ (20,000)
Increase in plant & equipment
Net cash flows from investing activities
$ (80,000)
Decrease in bonds payable
$ (30,000)
Increase in common stock
40,000
Cash dividends
Net cash flows from financing activities
$ (49,000)
Required: Using the indirect method, prepare each of the following activities sections of the
company’s statement of cash flows for the year:
A.
Operating activities section.
B.
Investing activities section.
C.
Financing activities section.
11. Trueblood Company’s comparative balance sheet and income statement for last year appear below:
Balance Sheet
Ending
Beginning
Balance
Balance
Cash
$ 60,000
$ 25,000
Accounts receivable
48,000
61,000
Inventory
56,000
48,000
Prepaid expenses
13,000
19,000
Long-term investments
300,000
210,000
Plant and equipment
470,000
470,000
Accumulated depreciation
(222,000)
(188,000)
Total assets
$725,000
$645,000
Accounts payable
$ 59,000
$ 36,000
Accrued liabilities
42,000
24,000
Taxes payable
7,000
14,000
Net income
$ 70,000
Add (deduct) Adjusting Items:
Depreciation expense
36,000
Increase in accounts receivable
Decrease in inventory
13,000
Decrease in prepaid expenses
4,000
Decrease in accounts payable
Increase in accrued liabilities
18,000
Decrease in taxes payable
(7,000)
Increase in deferred taxes
Net cash flows from operating activities
$120,000
Increase in long-term investments
$ (50,000)
Net cash flows from investing activities
$ (50,000)
Decrease in bonds payable
$ (40,000)
Increase in common stock
30,000
Cash dividends paid
Net cash flows from financing activities
$ (46,000)
Deferred taxes payable
38,000
23,000
Bonds payable
80,000
140,000
Common stock
110,000
70,000
Retained earnings
389,000
338,000
Total liabilities and stockholders’ equity
$725,000
$645,000
Income Statement
Sales
$540,000
Less cost of goods sold
300,000
Gross margin
240,000
Less operating expenses
150,000
Net operating income
90,000
Less income taxes
27,000
Net income
$ 63,000
The company declared and paid $12,000 in cash dividends during the year.
Required: Using the indirect method, prepare each of the following activities sections of the
company’s statement of cash flows for the year:
A.
Operating activities section.
B.
Investing activities section.
C.
Financing activities section.
Net income
$ 63,000
Add (deduct) adjusting items:
Depreciation expense
34,000
Increase in inventory
Decrease in prepaid expenses
Increase in accounts payable
23,000
Increase in accrued liabilities
18,000
Decrease in taxes payable
Increase in deferred taxes payable
15,000
Net cash flows from operating activities
$157,000
Increase in long-term investments
Net cash flows from investing activities
Decrease in bonds payable
Increase in common stock
40,000
Cash dividends
Net cash flows from financing activities
12. The comparative balance sheets for Bessler Company appear below:
Bessler Company
Comparative Balance Sheet
2014
2013
Assets
Cash
$ 23,000
$15,000
Accounts receivable
18,000
14,000
Prepaid expenses
6,000
9,000
Inventory
27,000
15,000
Long-term investments
-0-
18,000
Equipment
60,000
30,000
Accumulated depreciation—equipment
(18,000)
(14,000)
Total assets
$116,000
$87,000
Liabilities and Stockholders’ Equity
Accounts payable
$ 21,000
$ 9,000
Bonds payable
37,000
45,000
Common stock
40,000
23,000
Retained earnings
18,000
10,000
Total liabilities and stockholders’ equity
$116,000
$87,000
Additional information:
1.
Net income for the year ending December 31, 2014, was $20,000.
2.
Cash dividends of $12,000 were declared and paid during the year.
3.
Long-term investments that had a book value of $18,000 were sold for $16,000.
4.
Sales for 2014 are $120,000.
Required: Prepare a statement of cash flows for the year ended December 31, 2014, using the indirect
method.
Cash flows from operating activities
Net income
Add (deduct) adjusting items:
Depreciation expense
Increase in accounts receivable
Decrease in prepaid expenses
Loss on sale of long-term investment in bonds
Increase in inventories
Increase in accounts payable
Cash flows from investing activities
Sale of long-term investments
Purchase of equipment
Cash flows from financing activities
13. A comparative balance sheet for the Bright Corporation is presented below:
BRIGHT CORPORATION
Comparative Balance Sheet
2014
2013
Assets
Cash
$ 39,000
$ 31,000
Accounts receivable (net)
80,000
60,000
Prepaid insurance
22,000
17,000
Land
18,000
40,000
Equipment
70,000
60,000
Accumulated depreciation
(20,000)
(13,000)
Total Assets
$209,000
$195,000
Liabilities and Stockholders’ Equity
Accounts payable
$ 11,000
$ 6,000
Bonds payable
27,000
19,000
Common stock
140,000
115,000
Retained earnings
31,000
55,000
Total liabilities &stockholders’ equity
$209,000
$195,000
Additional information:
1.
Net loss for 2014 is $20,000. Net sales for 2014 are $250,000.
2.
Cash dividends of $4,000 were declared and paid in 2014.
3.
Land was sold for cash at a loss of $10,000. This was the only land transaction during the
year.
4.
Equipment with a cost of $15,000 and accumulated depreciation of $10,000 was sold for
$5,000 cash.
5.
$12,000 of bonds were retired during the year at carrying (book) value.
6.
Equipment was acquired for common stock. The fair market value of the stock at the time
of the exchange was $25,000.
Required: Prepare a statement of cash flows for the year ended 2014 using the indirect method.
BRIGHT CORPORATION
Issuance of common stock
Payment of cash dividend
Net increase in cash
Cash at beginning of period
Cash at end of period
14. The following information is available for the Benning Corporation for the year ended Dec. 31, 2014:
Collection of principal on long-term loan to a supplier
$35,000
Acquisition of equipment for cash
10,000
Proceeds from sale of long-term investment at book value
27,000
Issuance of common stock for cash
20,000
Depreciation expense
25,000
Redemption of bonds payable at carrying (book) value
24,000
Payment of cash dividends
9,000
Net income
35,000
Purchase of land by issuing bonds payable
40,000
In addition, the following information is available from the comparative balance sheet for Benning at
the end of 2014 and 2013:
2014
2013
Cash
$107,000
$14,000
Accounts receivable (net)
20,000
15,000
Net loss
Add (deduct) adjusting items:
Depreciation
$17,000
Loss on sale of land
10,000
Increase in accounts payable
5,000
Increase in accounts receivable
Increase in prepaid insurance
Net cash flows from operating activities
Cash flows from investing activities:
Proceeds from the sale of land
12,000
Proceeds from the sale of equipment
Net cash flows from investing activities
17,000
Cash flows from financing activities:
Retirement of bonds payable
Issuance of bonds payable
20,000
Payment of dividends
Net cash flows from financing activities
Increase in cash
8,000
Cash at beginning of period (12−31−13)
Cash at end of period (12−31−14)
Noncash investing and financing activities:
Purchase of equipment through issuance of common stock
$25,000
Prepaid insurance
17,000
13,000
Total current assets
$144,000
$42,000
Accounts payable
$ 25,000
$19,000
Salaries payable
4,000
7,000
Total current liabilities
$ 29,000
$26,000
Required: Prepare Benning’s statement of cash flows for the year ended Dec. 31, 2014, using the
indirect method.
15. Assuming a statement of cash flows is prepared, indicate the reporting of the transactions and events
listed below by major categories on the statement. Use the following code letters to indicate the
appropriate category under which the item would appear on the statement of cash flows.
Cash flows from operating activities
Net income
$35,000
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation
$25,000
Increase in accounts receivable
Increase in prepaid insurance
Increase in accounts payable
Decrease in salaries payable
(3,000)
Net cash provided by operating activities
Cash flows from investing activities:
Collection of long-term loan
Proceeds from the sale of investments
Purchase of equipment
(10,000)
Net cash provided by investing activities
Cash flows from financing activities:
Issuance of common stock
Redemption of bonds
Payment of dividends
Net cash used by financing activities
(13,000)
Increase in Cash
Cash at beginning of period
14,000
Cash at end of period
$107,000
Noncash investing and financing activities
Purchase of land by issuing bonds
$ 40,000
Code
Cash Flows From Operating Activities
Add to Net Income
A
Deduct from Net Income
D
Cash Flows From Investing Activities
IA
Cash Flows From Financing Activities
FA
Category
1.
Common stock is issued for cash at an amount above par value.
_____
2.
Merchandise inventory increased during the period.
_____
3.
Depreciation expense recorded for the period.
_____
4.
Building was purchased for cash.
_____
5.
Bonds payable were acquired and retired at their carrying value.
_____
6.
Accounts payable decreased during the period.
_____
7.
Prepaid expenses decreased during the period.
_____
8.
Treasury stock was acquired for cash.
_____
9.
Land is sold for cash at an amount equal to book value.
_____
10.
Patent amortization expense recorded for a period.
_____
ANS:
16. Playtown Company’s income statement for last year appears below:
Playtown Company
Income Statement
Sales
$100,000
Less: Cost of goods sold
60,000
Gross margin
40,000
Less: Operating expenses
25,000
Income before income taxes
15,000
Less: Income taxes
6,000
Net income
$ 9,000
The beginning and ending balances for last year are available for the following selected accounts:
Ending
Beginning
Category
1.
Common stock is issued for cash at an amount above par value.
FA
2.
Merchandise inventory increased during the period.
D
3.
Depreciation expense recorded for the period.
A
4.
Building was purchased for cash.
IA
5.
Bonds payable were acquired and retired at their carrying value.
FA
6.
Accounts payable decreased during the period.
D
7.
Prepaid expenses decreased during the period.
A
8.
Treasury stock was acquired for cash.
FA
9.
Land is sold for cash at an amount equal to book value.
IA
10.
Patent amortization expense recorded for a period.
A
balance
balance
Accounts receivable
$15,000
$10,000
Inventory
29,000
25,000
Prepaid expenses
6,000
9,000
Accumulated depreciation
(35,000)
(30,000)
Accounts payable
27,000
20,000
Accrued liabilities
3,000
5,000
Income taxes payable
4,000
1,000
Required: Using the direct method, prepare the operating activities section of the statement of cash
flows.
17. Freeport Company’s income statement for last year appears below:
Income Statement
Sales
$300,000
Less: Cost of goods sold
200,000
Gross margin
100,000
Less: Operating expenses
60,000
Income before income taxes
40,000
Less: Income taxes
16,000
Net income
$ 24,000
The beginning and ending balances for last year are available for the following accounts:
Sales revenue
Adjustments to a cash basis:
Cost of goods sold
Adjustments to a cash basis:
Increase in inventory
Operating expenses
Adjustments to a cash basis:
Decrease in accrued liabilities
Adjustments to a cash basis:
Net cash flows from operating activities
$16,000