221)
A corporation reported average total assets in Year 1 of $397,350 and $440,800 in Year 2. Its net
operating cash flow for Year 1 was $35,667 and $35,790 for Year 2. Calculate the cash flow on
total assets ratio for both years. Comment on the results.
222)
A company reported average total assets of $501,000 in Year 1 and $611,000 in Year 2. Its net
operating cash flow in Year 1 was $41,500 and $55,250 in Year 2. Calculate its cash flow on total
assets ratio for both years. Comment on the results.
223)
A company reported net income of $318,000, operating cash flows of $218,000, total cash flows of
$184,000, and average total assets of $898,000. Calculate its cash flow on total assets ratio.
224)
Use the following income statement and information about changes in noncash current assets and
liabilities to (1) prepare only the cash flows from operating activities section of the statement of
cash flows using the indirect method and (2) compute the company’s cash flow on total assets ratio
for the year assuming that average total assets are $525,250.
Davey Company
Income Statement
For Year Ended December 31
Sales
$880,000
Cost of goods sold
487,000
Gross profit
$393,000
Operating expenses:
Salaries expense
$144,000
Rent expense
76,000
Depreciation expense
45,000
Amortization expense
22,000
Utilities expenses
12,000
299,000
Income from operations
$ 94,000
Loss on sale of equipment
14,000
Income before taxes
$ 80,000
Income tax expense
28,500
Net Income
$ 51,500
Changes in current asset and current liability accounts for the year that relate to operations follow.
Increase in accounts receivable
$ 32,000
Increase in accounts payable (all accounts
payable transactions are for inventory)
13,500
Decrease in prepaid expenses
9,200
Decrease in merchandise inventory
14,000
Decrease in long-term notes payable
20,000
20X2
20X1
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
100,59
0
Total equity
$394,990
$290,590
Total liabilities and equity
158
$522,280
$427,480
225)
Use the following financial statements and additional information to (1) prepare a statement of
cash flows for the year ended December 31, 20X2 using the indirect method, and (2) compute the
company’s cash flow on total assets ratio for 20X2.
Derby Company
Balance Sheets
At December 31
)
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
Total liabilities and equity
$522,280
$427,480
Derby Company
Income Statement
For Year Ended December 31, 20X2
)
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.
226)
Use the following financial statements and additional information to (1) prepare a complete
statement of cash flows for the year ended December 31, 20X2. 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 20X2.
Derby CompanyBalance Sheet
sAt December 31
20X2
20X1
Assets:
Cash
$ 85,600
$ 65,200
Accounts receivable, net
72,850
56,750
Merchandise inventory
160
157,750
144,850
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
100,59
0
Total equity
$394,990
$290,590
Total liabilities and equity
$522,280
$427,480
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
)
Derby Company
Income Statement
For Year Ended December 31, 20X2
)
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.
161
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.
227)
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.
SHORT ANSWER QUESTIONS
228)
A main purpose of the statement of cash flows is to report all the major cash ________ and cash
________.
229)
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 ________.
230)
activities include the cash effects of transactions and events that determine net income.
231)
________ activities generally include those transactions and events that affect long-term assets.
232)
activities include those transactions that affect long-term liabilities and equity.
233)
Noncash financing and investing activities are disclosed in a ________ or in a separate ________.
234)
The statement of cash flows is divided into three sections called the ________, ________, and
________ sections.
235)
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.
236)
The cash flow on total assets ratio is computed by dividing ________ by ________.
237)
Information to prepare the statement of cash flows usually comes from three sources: (1)
________, (2) ________, and (3) ________.
238)
All cash transactions eventually affect noncash ________ accounts.
239)
When preparing the operating section of the statement of cash flows using the indirect method,
noncash expenses are ________ net income.
240)
The reporting of investing and financing activities is ________ under the direct and indirect
methods of preparing the statement of cash flows.
241)
The use of a spreadsheet for analysis is especially useful when preparing the statement of cash
flows using the ________ method.
242)
The FASB requires a reconciliation of net income to net cash provided or used by operating
activities when the ________ method is used.