140. Describe the format of the statement of cash flows, including the reporting of significant
noncash investing and financing activities.
141. Explain the value of separating cash flows into operating activities, investing activities,
and financing activities to financial statement users in analyzing cash flows and the
company’s financial performance and condition.
142. Define the cash flow on total assets ratio and explain how it is used to evaluate cash
flows and to assess company performance.
143. What are the five usual steps involved in the preparation of the statement of cash flows?
144. Explain how the cash flows from operating activities section of the statement of cash
flows is prepared using the indirect method.
145. Explain how cash flows from investing and financing activities are determined.
146. Explain the use of a spreadsheet in the preparation of the statement of cash flows.
147. Explain how the cash flows from operating activities section of the statement of cash
flows is prepared using the direct method.
Problems
148. Use the following company information to prepare a schedule of significant noncash
investing and financing activities:
(a) Sold a building with a book value of $125,000 for $195,000 cash and land with a book
value of $32,000 for $65,000 cash.
(b) Issued 10,000 shares of $10 par value common stock in exchange for equipment with a
market value of $135,000.
(c) Retired a $100,000, 10% bond by issuing another $100,000, 12% bond issue.
(d) Acquired land by issuing a ten-year, 9%, $44,000 note payable.
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149. Based on the following information provided about a company’s operations, calculate its
cost of goods purchased and its cash paid for merchandise.
Cost of goods sold…………………………………… $413,000
Merchandise inventory, beginning year…………….. 70,000
Accounts payable, beginning year………………….. 52,000
Merchandise inventory, end–of–year………………… 67,000
Accounts payable, end-of-year……………………… 48,000
150. Use the following income statement and information about selected current assets and
current liabilities to calculate the net cash provided or used by operating activities using the
indirect method.
PETERS COMPANY
Income Statement
For Year Ended December 31, 2013
Sales $180,000
Cost of goods sold 104,000
Gross profit from sales $ 76,000
Operating expenses:
Salaries and wages expense $25,000
Depreciation expense 5,000
Rent expense 7,200
Interest expense 1,900 39,100
Income from operations $36,900
Gain on sale of land 2,000
Net income $38,900
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Selected beginning and ending balances of current asset and current liability accounts, all of
which relate to operating activities, are as follows:
Balance
Dec. 31, 2013 Dec. 31, 2012
Accounts receivable $27,600 $24,000
Merchandise inventory 18,200 20,000
Prepaid rent 550 400
Accounts payable 27,100 31,000
Salaries and wages payable 10,400 9,000
Interest payable 300 250
151. Based on the following income statement and balance sheet for Rashid Corporation,
determine the cash flows from operating activities using the indirect method.
Rashid Corporation
16–67
Income Statement
For Year Ended December 31, 2012
Sales $504,000
Cost of goods sold $327,600
Depreciation expense 42,000
Other operating expenses 125,500 (495,100 )
Other gains (losses):
Gain on sale of equipment 7,200
Income before taxes $ 16,100
Income tax expense (4,800 )
Net income $ 11,300
Rashid Corporation
Balance Sheets
At December 31
Assets 2012 2011
Cash $ 64,650 $ 55,800
Accounts receivable 21,000 29,000
Inventory 58,000 52,100
Equipment 240,000 222,000
Accumulated depreciation (106,000 ) ( 96,000
)
Total assets $277,650 $262,900
Liabilities:
Accounts payable $ 28,400 $ 23,700
Income taxes payable 1,050 1,200
Total liabilities $ 29,450 $ 24,900
Equity:
Common stock $106,000 $106,000
Paid-in Capital in excess of par value 18,000 18,000
Retained earnings 124,200 114,000
Total equity $248,200 $238,000
Total liabilities and equity $277,650 $262,900
152. Martin, Inc.’s, income statement is shown below. Based on this income statement and the
other information provided, calculate the net cash provided by operations using the indirect
method.
Martin, Inc.
Income Statement
For Year Ended December 31, 2012
Sales $248,000
Cost of goods sold 116,000
Gross profit $132,000
Operating expenses
Wages and salaries expense $ 44,000
Rent expense 16,000
Depreciation expense 30,000
Other operating expenses 18,000 108,000
Income from operations $ 24,000
Gain on sale of equipment 26,000
Income before income taxes $ 50,000
Income taxes expense 17,500
Net income $ 32,500
Additional information:
Increase in accounts receivable $ 4,000
Increase in accounts payable 16,000
Increase in income taxes payable 300
Decrease in prepaid expenses 10,000
Decrease in merchandise inventory 14,000
Decrease in long-term notes payable 20,000
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153. The following information is available for the Ehrens Corporation:
Ehrens Corporation
Balance Sheets
At December 31
2013 2012
Assets:
Cash $ 24,640 $
23,040
Accounts receivable 32,180
29,400
Merchandise inventory 73,125
61,710
Long-term investments 55,900
56,400
Equipment 175,500
145,500
Accumulated depreciation (33,550 )
(31,200 )
Total assets $327,795
$284,850
Liabilities:
Accounts payable $ 65,000 $
40,380
Income taxes payable 10,725
10,200
Bonds payable 48,750
66,000
Total liabilities $124,475
$116,580
Equity:
Common stock 117,000
96,000
Paid-in capital in excess of par 13,000
9,000
Retained earnings 73,320
63,270
Total equity $203,320
$168,270
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Total liabilities and equity $327,795
$284,850
Ehrens Corporation
Income Statement
For Year Ended December 31, 2013
Sales $240,000
Cost of goods sold $80,900
Depreciation expense 29,400
Other operating expenses 48,000
Interest expense 2,000 (160,300 )
Other gains (losses):
Loss on sale of equipment (8,400 )
Income before taxes 71,300
Income taxes expense 27,650
Net income $ 43,650
Additional information:
(1) There was no gain or loss on the sales of the long-term investments, nor on the bonds
retired.
(2) Old equipment with an original cost of $37,550 was sold for $2,100 cash.
(3) New equipment was purchased for $67,550 cash.
(4) Cash dividends of $33,600 were paid.
(5) Additional shares of stock were issued for cash.
Prepare a complete statement of cash flows for calendar-year 2013 using the indirect method.
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154. The following information is available for the Eldridge Company:
Eldridge Company
Balance Sheets
At December 31
2013 2012
Assets:
Cash $ 29,568 $
27,648
Accounts receivable 38,616
35,280
Merchandise inventory 87,750
74,052
Long-term investments 67,080
67,680
Machinery 210,600
174,600
Accumulated depreciation (40,260 )
(37,440 )
Total assets $393,354
$341,820
Liabilities:
Accounts payable $ 78,000 $
48,456
Income taxes payable 12,870
12,240
Bonds payable 58,500
79,200
Total liabilities $149,370
$139,896
Equity:
Common stock 140,400
115,200
Paid-in capital in excess of par 15,600
10,800
Retained earnings 87,984
75,924
Total equity $243,984
$201,924
Total liabilities and equity $393,354
$341,820
Eldridge Company
Income Statement
For Year Ended December 31, 2013
Sales $288,000
Cost of goods sold $97,080
Depreciation expense 35,280
Other operating expenses 57,600
Interest expense 2,400 (192,360 )
Other gains (losses):
Loss on sale of equipment (10,080 )
Income before taxes 85,560
Income taxes expense 33,180
Net income $ 52,380
Additional information:
(1) There was no gain or loss on the sales of the long-term investments, nor on the bonds
retired.
(2) Old machinery with an original cost of $45,060 was sold for $2,520 cash.
(3) New machinery was purchased for $81,060 cash.
(4) Cash dividends of $40,320 were paid.
(5) Additional shares of stock were issued for cash.
Prepare a complete statement of cash flows for calendar-year 2013 using the indirect method.
155. Use the following company information to calculate its net cash provided or used by
investing activities:
(a) Equipment with a book value of $125,000 and an original cost of $220,000 was sold at a
gain of $22,000.
(b) Paid $49,000 cash for a new truck.
(c) Sold land costing $30,000 for $26,000 cash, realizing a $4,000 loss.
(d) Purchased treasury stock for $53,000 cash.
(e) Long-term investments in stock are sold for $41,000 cash, realizing a gain of $3,500.
156. Use the following information to calculate the net cash provided or used by financing
activities for the Brooks Corporation:
(a) Net income, $10,000
(b) Sold common stock for $4,000 cash
(c) Paid cash dividend of $3,000
(d) Paid bond payable, $8,000
(e) Purchased equipment for $12,000 cash
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157. Based on the information provided below, complete the following worksheet to be used
to prepare the statement of cash flows using the indirect method.
(a) Net income for the year was $30,000.
(b) Dividends of $10,000 were declared and paid.
(c) Stylish’s only noncash expense was depreciation which totaled $50,000.
(d) The company purchased plant assets for $70,000.
(e) Notes payable in the amount of $40,000 were issued during the year for cash.
Stylish Corporation
Spreadsheet for Statement of Cash Flows – Indirect Method
For Year Ended December 31, 2013
Analysis of Changes
12/31/12 Debit Credit 12/31/13
Balance Sheet – Debits
Cash 70,000
60,000
Accounts receivable 180,000
190,000
Merchandise inventory 200,000
230,000
Plant assets 500,000
570,000
950,000
1,050,000
Balance Sheet – Credits
Accumulated depreciation 100,000
150,000
Accounts payable 170,000
160,000
Notes payable 350,000
390,000
Capital stock 200,000
200,000
Retained earnings 130,000
150,000
950,000
1,050,000
Statement of Cash Flows
Operating activities
Net income
Increase in accounts receivable
Increase in merchandise inventory
16–79
Decrease in accounts payable
Depreciation expense
Investing activities
Cash paid to purchase plant assets
Financing activities
Cash paid for dividends
Cash received from note payable
Stylish Corporation
Spreadsheet for Statement of Cash Flows – Indirect Method
For Year Ended December 31, 2013
Analysis of Changes
12/31/12 Debit Credit 12/31/13
Balance Sheet – Debits
Cash 70,000
60,000
Accounts receivable 180,000 f 10,000
190,000
Merchandise inventory 200,000 g 30,000
230,000
Plant assets 500,000 d 70,000
570,000
950,000
1,050,000
Balance Sheet – Credits
Accumulated depreciation 100,000 c
50,000 150,000
Accounts payable 170,000 h 10,000
160,000
Notes payable 350,000 e
40,000 390,000
Capital stock 200,000
200,000
Retained earnings 130,000 b 10,000 a
30,000 150,000
950,000
1,050,000
Statement of Cash Flows
Operating activities
Net income a 30,000
Increase in accounts receivable
f 10,000
Increase in merchandise inventory
g 30,000
Decrease in accounts payable
h 10,000
Depreciation expense c
50,000
Investing activities
Cash paid to purchase plant assets
d 70,000
Financing activities
Cash paid for dividends
b 10,000
Cash received from note payable e
40,000
250,000 250,000