16–96
173. Use the following financial statements and additional information to (1) prepare a
statement of cash flows for the year ended December 31, 2013 using the indirect method, and
(2) compute the company’s cash flow on total assets ratio for 2013.
Wescott Company
Balance Sheets
At December 31
2013 2012
Assets:
Cash $ 85,600 $
65,200
Accounts receivable, net 72,850
56,750
Merchandise inventory 157,750
144,850
Prepaid expenses 6,080
12,680
Equipment 280,600
245,600
Accumulated depreciation-Equipment (80,600 )
(97,600 )
Total assets $522,280
$427,480
Liabilities:
Accounts payable $ 52,850 $
45,450
Income taxes payable 15,240
12,240
Notes payable (long term) 59,200
79,200
Total liabilities $127,290
$136,890
Equity:
Common stock 200,000
150,000
Paid-in capital in excess of par 53,000
40,000
Retained earnings 141,990
100,590
Total equity $394,990
$290,590
Total liabilities and equity $522,280
$427,480
Wescott Company
Income Statement
For Year Ended December 31, 2013
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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174. 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 2013.
Wescott Company
Balance Sheets
At December 31
2013 2012
Assets:
Cash $ 85,600 $
65,200
Accounts receivable, net 72,850
56,750
16–99
Merchandise inventory 157,750
144,850
Prepaid expenses 6,080
12,680
Equipment 280,600
245,600
Accumulated depreciation-Equipment (80,600 )
(97,600 )
Total assets $522,280
$427,480
Liabilities:
Accounts payable $ 52,850 $
45,450
Income taxes payable 15,240
12,240
Notes payable (long term) 59,200
79,200
Total liabilities $127,290
$136,890
Equity:
Common stock 200,000
150,000
Paid-in capital in excess of par 53,000
40,000
Retained earnings 141,990
100,590
Total equity $394,990
$290,590
Total liabilities and equity $522,280
$427,480
Wescott Company
Income Statement
For Year Ended December 31, 2013
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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175. 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)
Noncash
Operating Investing Financing Investing &
Activities Activities Activities Financing
Paid cash for operating expenses
Issued common stock for cash
Accounts receivable increased in the year
Recorded depreciation expense
Income taxes payable decreased during the year
Sold equipment for cash, yielding a loss
Paid cash for interest expense
Purchased land by issuing common stock
Purchased long-term investment in bonds
Paid cash for retirement of note payable
Fill in the Blank Questions
176. A main purpose of the statement of cash flows is to report all the major cash ________
and cash _______________.
177. 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
______________________________.
178. _____________ activities include the cash effects of transactions and events that
determine net income.
179. ___________________ activities generally include those transactions and events that
affect long-term assets.
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180. ___________________ activities include those transactions that affect long-term
liabilities and equity.
181. Noncash financing and investing activities are disclosed in the ____________ or in a
separate ______________________________.
182. The statement of cash flows is divided into three sections called the _____________,
_____________, and _______________ sections.
183. 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.
184. The cash flow on total assets ratio is computed by dividing _____________ by
____________.
185. Information to prepare the statement of cash flows usually comes from three sources: (1)
_______________, (2) _______________________, and (3) ____________________.
186. All cash transactions eventually affect noncash ___________ accounts.
187. When preparing the operating section of the statement of cash flows using the indirect
method, noncash expenses are _____________ net income.
188. The reporting of investing and financing activities is _________________ under the
direct and indirect methods of preparing the statement of cash flows.
189. The use of a spreadsheet for analysis is especially useful when preparing the statement of
cash flows using the _____________ method.
190. The FASB requires a reconciliation of net income to net cash provided or used by
operating activities when the ______________ method is used.