95
173) In preparation for developing its statement of cash flows for the year ended December 31,
2018, Millennium Solutions, Inc. collected the following information:
($ in
millions)
Payment for the early extinguishment of long-term notes (book value:
$100 million)
$108
Sale of common shares
352
Retirement of common shares
244
Loss on sale of equipment
4
Proceeds from sale of equipment
16
Issuance of short-term note payable for cash
20
Acquisition of building for cash
14
Purchase of marketable securities (not a cash equivalent)
10
Purchase of marketable securities (considered a cash equivalent)
2
Cash payment for 3-year insurance policy
6
Collection of note receivable with interest (principal amount, $22)
26
Declaration of cash dividends
66
Distribution of cash dividends declared in 2017
60
Required:
1. Prepare the investing activities section of Millennium’s statement of cash flows for 2018.
2. Prepare the financing activities section of Millennium’s statement of cash flows for 2018.
174) Partial balance sheets for ABC Company and additional information are provided below.
ABC Company
Partial Balance Sheets
as of December 31
2018
2017
$100,000
$75,000
(25,000)
(20,000)
180,000
$100,000
20,000
0
40,000
30,000
Additional information for 2018:
July 1:
Issued 8,000 shares of common stock
for cash.
July 1:
Purchased new equipment for cash.
December
31:
Paid cash dividends of $20,000.
Required:
Prepare the financing activities section of the statement of cash flows for 2018.
Cash flows from financing
activities:
Issuance of common stock
$100,000
Payment of cash dividends
(20,000
Net cash flows from financing
activities
$80,000
98
175) The Murdock Corporation reported the following balance sheet data for 2018 and 2017:
2018
2017
Cash
$77,375
$22,955
Available-for-sale debt securities
(not cash equivalents)
15,500
85,000
Accounts receivable
80,000
68,250
Inventory
165,000
145,000
Prepaid insurance
1,500
2,000
Land, buildings, and equipment
1,250,000
1,125,000
Accumulated depreciation
(610,000)
(572,000)
Total assets
$979,375
$876,205
Accounts payable
$76,340
$148,670
Salaries payable
20,000
24,500
Notes payable (current)
25,000
75,000
Bonds payable
200,000
0
Common stock
300,000
300,000
Retained earnings
358,035
328,035
Total liabilities and shareholders’
equity
$979,375
$876,205
Additional information for 2018:
(1.) Sold available-for-sale debt securities costing $69,500 for $74,000.
(2.) Equipment costing $20,000 with a book value of $5,000 was sold for $6,000.
(3.) Issued 6% bonds payable at face value, $200,000.
(4.) Purchased new equipment for $145,000 cash.
(5.) Paid cash dividends of $20,000.
(6.) Net income was $50,000.
Required:
Prepare a statement of cash flows for 2018 in good form using the indirect method for cash flows
from operating activities.
176) The following are comparative balance sheets and an income statement for Wentworth
Company.
Wentworth Company
Balance Sheets
as of December 31
Assets
2018
2017
Cash
$21,500
$120,000
Accounts receivable
195,000
105,000
Inventory
180,000
225,000
Long-term investments
0
60,000
Totals
$396,500
$510,000
Liabilities and shareholders’
equity
Accounts payable
$75,000
$120,000
Operating expenses payable
24,000
15,000
Bonds payable
70,000
100,000
Common stock
125,000
125,000
Retained earnings
102,500
150,000
Totals
$396,500
$510,000
Wentworth Company
Income Statement
For the Year Ended December 31, 2018
Sales
$560,000
Cost of goods sold:
Beginning inventory
$225,000
Purchases
330,000
Goods available for sale
555,000
Less: ending inventory
180,000
Cost of goods sold
375,000
Gross profit
185,000
Operating expenses
180,000
Income from operations
5,000
Other expenses:
Loss on sale of long-term investment
(7,500)
Net loss
($2,500)
Cash dividends of $45,000 were paid in 2018.
Required:
Prepare a statement of cash flows for 2018 using the direct method.
177) The statement of cash flows has been a required financial statement since 1988, but is the
reporting of cash flows a relatively new concept? Explain.
178) Why is the statement of cash flows required as part of the set of external financial
statements?
179) Do “cash flows from operating activities” report all the elements of the income statement
on a cash basis? Explain.
180) Do the statement of cash flows and its related disclosure note report only transactions that
cause an increase or decrease in cash? Explain.
181) Why are “cash equivalents” included as part of cash in the statement of cash flows?
182) What are the general guidelines for an investment to be considered a cash equivalent?
183) Transactions that involve merely purchases or sales of cash equivalents generally are not
reported on a statement of cash flows. Describe an exception to this generalization. What is the
essential characteristic of the transaction that qualifies as an exception?
184) Is depreciation a source of cash? Explain.
Use the information below to answer the following question(s).
In its 2018 Annual Report to Shareholders, Sisters Corporation included the following
information on cash flows from operations:
185) Explain why Sisters Corporation subtracts equity income from its net income in its
measurement of cash flows.
186) Did accounts receivable increase or decrease during 2018? Explain.
187) What activities are included in the statement of cash flows under the section titled “Cash
flows from investing activities”?
188) What activities are included in the statement of cash flows under the section titled “Cash
flows from financing activities”?
189) The sale of stock and the sale of bonds are reported as financing activities. Are payments of
dividends to shareholders and payments of interest to bondholders also reported as financing
activities? Explain.