Chapter 21 The Statement of Cash Flows
104. Companies may report interest received and dividends received as investing activities using:
a. U.S. GAAP.
b. IFRS.
c. Both U.S. GAAP and IFRS.
d. Neither U.S. GAAP nor IFRS.
105. Selected information from Large Corporation’s accounting records and financial statements for
2016 is as follows ($ in millions):
Cash paid to acquire a patent $28
Treasury stock purchased for cash 25
Proceeds from sale of land and buildings 45
Gain from the sale of land and buildings 26
Investment revenue received 5
Cash paid to acquire office equipment 40
Large prepares its financial statements in accordance with IFRS. In its statement of cash
flows, Large most likely reports net cash outflows from investing activities of:
a. $18 million.
b. $28 million.
c. $38 million.
d. $68 million.
Chapter 21 The Statement of Cash Flows
Matching Pair Questions
106. Listed below are the reporting classifications for a statement of cash flows using the direct
method for reporting operating cash flows. Indicate the reporting classification that would
apply to each of the five transactions described below by placing the number of the reporting
classification in the space provided by each transaction.
CLASSIFICATION
TRANSACTIONS
NUMBER
1. Operating cash outflow
Interest received on cash savings
account.
____
2. Not reported for the statement of
cash flows
Cash purchase of inventory.
____
3. Financing cash outflow
Cash dividends received under the equity
method.
____
4. Operating cash inflow
Principal payment on a note.
____
5. Investing cash inflow
Distribution of a stock dividend.
____
CLASSIFICATION
NUMBER
1. Operating cash outflow
Interest received on cash savings account.
2. Not reported for the statement of
cash flows
Cash purchase of inventory.
3. Financing cash outflow
Cash dividends received under the equity
method.
4. Operating cash inflow
Principal payment on a note.
5. Investing cash inflow
Distribution of a stock dividend.
Chapter 21 The Statement of Cash Flows
107. Listed below are the reporting classifications for a statement of cash flows using the direct
method for reporting operating cash flows. Indicate the reporting classification that would
apply to each of the five transactions described below by placing the number of the reporting
classification in the space provided by each transaction.
CLASSIFICATION
TRANSACTIONS
NUMBER
1. Operating cash inflow
Cash collected on accounts receivable.
____
2. Noncash financing and investing
activity
Cash collection of a nontrade note
receivable.
____
3. Investing cash inflow
Cash purchase of securities issued by
another corporation.
____
4. Investing cash outflow
Issuance of a long-term note payable for
cash.
____
5. Financing cash inflow
Payment of a property dividend.
____
NUMBER
1. Operating cash inflow
Cash collected on accounts receivable.
2. Noncash financing and investing
activity
Cash collection of a nontrade note
receivable.
3. Investing cash inflow
Cash purchase of securities issued by
another corporation.
4. Investing cash outflow
Issuance of a long-term note payable for
cash.
5. Financing cash inflow
Payment of a property dividend.
Chapter 21 The Statement of Cash Flows
108. Listed below are reporting classifications for a statement of cash flows using the indirect
method for reporting operating cash flows. Indicate the reporting classification that would
apply to each of the five transactions described below by placing the number of the reporting
classification in the space provided by each transaction.
CLASSIFICATION
TRANSACTIONS
NUMBER
1. Operating activity, no
adjustment to net income
Increase in inventory account.
____
2. Operating activity, negative
adjustment to net income
Payment of cash dividends.
____
3. Financing cash outflow
Cash sales.
____
4. Investing cash inflow
Prepayment of an insurance premium for
six months.
____
5. Operating activity, positive
adjustment to net income
Cash proceeds from sale of equipment.
____
CLASSIFICATION
TRANSACTIONS
1. Operating activity, no
adjustment to net income
Increase in inventory account.
2. Operating activity, negative
adjustment to net income
Payment of cash dividends.
3. Financing cash outflow
Cash sales.
4. Investing cash inflow
Prepayment of an insurance premium for
six months.
5. Operating activity, positive
adjustment to net income
Cash proceeds from sale of equipment.
109. Listed below are reporting classifications for a statement of cash flows using the indirect
method for reporting operating cash flows. Indicate the reporting classification that would
apply to each of the five transactions described below by placing the letter of the reporting
classification in the space provided by each transaction.
CLASSIFICATION
TRANSACTIONS
NUMBER
1. Operating activity, no adjustment to
net income
Payment of semi-annual interest on
bonds payable.
____
2. Financing cash inflow
Acquisition of a building for cash.
____
3. Investing cash outflow
Depreciation expense.
____
4. Operating activity, negative
adjustment to net income
Issuance of bonds at a discount for
cash.
____
5. Operating activity, positive
adjustment to net income
Decrease in account payable.
____
CLASSIFICATION
TRANSACTIONS
NUMBER
1. Operating activity, no adjustment to
net income
Payment of semi-annual interest on
bonds payable.
2. Financing cash inflow
Acquisition of a building for cash.
3. Investing cash outflow
Depreciation expense.
4. Operating activity, negative
adjustment to net income
Issuance of bonds at a discount for
cash.
5. Operating activity, positive
adjustment to net income
Decrease in account payable.
110. Listed below are the reporting classifications for a statement of cash flows using the direct
method for reporting operating cash flows. Indicate the reporting classification that would
apply to each of the five transactions described below by placing the number of the reporting
classification in the space provided by each transaction.
CLASSIFICATION
TRANSACTIONS
NUMBER
1. Investing cash outflow
Acquisition of equipment by issuing bonds
payable.
____
2. Noncash financing and
investing activity
Repayment of long-term debt by issuing preferred
stock.
____
3. Noncash financing and
investing activity
Interest received on trading securities.
____
4. Investing cash inflow
Cash sale of a patent at book value.
____
5. Operating cash inflow
Loan of cash to a supplier in exchange for a six-
month note receivable.
____
CLASSIFICATION
TRANSACTIONS
NUMBER
Acquisition of equipment by issuing bonds
payable.
2. Noncash financing and
Repayment of long-term debt by issuing preferred
3. Noncash financing and
investing activity
Interest received on trading securities.
4. Investing cash inflow
Cash sale of a patent at book value.
111. Listed below are the reporting classifications for a statement of cash flows using the direct
method for reporting operating cash flows. Indicate the reporting classification that would
apply to each of the five transactions described below by placing the number of the reporting
classification in the space provided by each transaction.
CLASSIFICATION
TRANSACTIONS
NUMBER
1. Not reported for the
statement of cash flows
Payment of cash dividends.
____
2. Noncash financing and
investing activity
Purchase of treasury stock.
____
3. Financing cash outflow
Investment of excess cash in an interest–
bearing security classified as a cash
equivalent.
____
4. Financing cash inflow
Appropriation of retained earnings for
expansion of the R&D program.
____
5. Not reported for the
statement of cash flows
Acquisition of equipment under a capital
lease agreement.
____
CLASSIFICATION
TRANSACTIONS
NUMBER
1. Not reported for the
statement of cash flows
Payment of cash dividends.
2. Noncash financing and
investing activity
Purchase of treasury stock.
bearing security classified as a cash
equivalent.
5. Not reported for the
statement of cash flows
Acquisition of equipment under a capital
lease agreement.
Chapter 21 The Statement of Cash Flows
112. Listed below are several transactions that typically produce either an increase or a decrease in
cash. Indicate by letter whether the cash effect of each transaction is reported on a statement of cash
flows as an operating (O), investing (I), or financing (F) activity.
Transactions
_ Sale of preferred stock
____ Sale of equipment
____ Purchase of treasury stock
____ Merchandise sales
____ Issuance of a short-term note payable
____ Purchase of inventory
____ Repayment of note payable
____ Employee salaries
____ Sale of land
____ Issuance of bonds
____ Acquisition of bonds of another corporation
____ Payment of semiannual interest on bonds payable
____ Payment of a cash dividend
____ Purchase of an office building
____ Collection of nontrade note receivable (principal amount)
____ Loan to another firm
____ Retirement of common stock
____ Payment of income taxes
____ Issuance of a long-term note payable
____ Sale of a patent
Chapter 21 The Statement of Cash Flows
Chapter 21 The Statement of Cash Flows
Problems
Use the following to answer questions 113–118:
In its 2015 Annual Report to Shareholders, Henchman & Co. provided the following Statement of
Cash Flows:
Years ended December 31 ($ in millions)
2015
2014
Operating Activities
Cash Inflows
Cash received from customers
Progress payments
$3,102
$ 1,438
Other collections
11,148
7,003
Proceeds from litigation settlement
220
Interest received
17
17
Income tax refunds received
23
15
Other cash receipts
24
10
Cash provided by operating activities
14,534
8,483
Cash Outflows
Cash paid to suppliers and employees
13,251
7,250
Interest paid
333
165
Income taxes paid
126
57
Other cash payments
7
1
Cash used in operating activities
13,717
7,473
Net cash provided by operating activities
817
1,010
Investing Activities
Payment for businesses purchased, net of
(3,061
)
(510
)
cash acquired
Additions to property, plant, and equipment
(393
)
(274
)
Collection of note receivable
148
Proceeds from sale of property, plant, and
86
44
equipment
Proceeds from sale of businesses
18
668
Other investing activities
(2
)
(6
)
Net cash used in investing activities
(3,204
)
(78
)
Chapter 21 The Statement of Cash Flows
Years ended December 31 ($ in millions)
2015
2014
Financing Activities
Proceeds from issuance of long-term debt
1,491
Proceeds from equity security units
690
Borrowings under lines of credit
1,173
Repayment of borrowings under lines of
(1,306
)
(175
)
Credit
Principal payments of long-term debt/
(119
)
(485
)
lease agreements
Proceeds from issuance of stock
825
19
Dividends paid
(158
)
(114
)
Other financing activities
(64
)
_____
Net cash provided by (used in) financing
2,532
(755
)
activities
Increase in cash and cash equivalents
145
177
Cash and cash equivalents at beginning of year
319
142
Cash and cash equivalents at end of year
$ 464
$ 319
113. What method (direct or indirect) does Henchman & Co. use to present its Statement of Cash
Flows? Explain how you can determine which method is used.
114. What was the net change in cash and cash equivalents experienced by Henchman & Co.
during 2015? Was it positive or negative?
Chapter 21 The Statement of Cash Flows
Chapter 21 The Statement of Cash Flows
115. Which type of activity (operating, investing, financing) was most responsible for the cash flow
experienced by Henchman & Co. during 2015?
116. (a.) What is the most significant change in operating cash outflow activity in 2015 relative to
2014?
(b.) What balance sheet accounts would likely have changed during 2015 in relation to the
cash flow change that you identify in (a)?
117. What was most responsible for the negative cash flow from financing activities during 2014?
What amount was paid?
118. What was most responsible for the positive cash flow from financing activities during 2015?
What amount was received?
119. Determine the amount of cash paid to suppliers for each of the four independent situations
below.
Cost of
Inventory
Accounts
Cash paid to suppliers
Situation
goods sold
payable
incr.
(decr.)
incr.
(decr.)
1
$300,000
$6,000
$ 0
$
2
300,000
0
7,000
$
3
400,000
6,000
7,000
$
4
400,000
(6,000)
(7,000)
$
120. Prepare the summary entries necessary to determine the amount of cash received from
customers for each of the four independent situations below.
Sales
Accounts
Cash received
Situation
revenue
receivable
from customers
incr.
(decr.)
1
200,000
10,000
?
2
200,000
(10,000)
?
3
100,000
(15,000)
?
4
100,000
15,000
?
10,000
121. Prepare the summary entries necessary to determine the amount of cash paid to suppliers for
each of the four independent situations below.
Cost of
Inventory
Account
Cash paid
Situation
goods sold
incr. (decr.)
payable
to suppliers
incr.
(decr.)
1
400,000
6,000
0
2
400,000
0
7,000
3
100,000
6,000
7,000
4
100,000
(6,000)
(7,000)
Chapter 21 The Statement of Cash Flows
122. Partial balance sheets and additional information are listed below for Monaco Company.
Monaco Company
Partial Balance Sheets
as of December 31
Assets
2016
2015
Cash
$40,000
$20,000
Accounts receivable
60,000
90,000
Inventory
25,000
40,000
Liabilities
Accounts payable
$60,000
$72,000
Additional information for 2016:
Net income was $270,000.
Depreciation expense was $30,000.
Sales totaled $800,000.
Cost of goods sold totaled $305,000.
Required:
Prepare the summary entry for the amount of cash paid to merchandise suppliers during 2016.
123. Partial balance sheets and additional information are listed below for Ensign Company.
Ensign Company
Partial Balance Sheets
as of December 31
Assets
2016
2015
Chapter 21 The Statement of Cash Flows
Cash
$20,000
$40,000
Accounts receivable
90,000
60,000
Inventory
20,000
25,000
Liabilities
Accounts payable
$72,000
$58,000
Additional information for 2016:
Net income was $170,000.
Depreciation expense was $30,000.
Sales totaled $400,000.
Cost of goods sold totaled $145,000.
Required:
Prepare the summary entry for the amount of cash paid to merchandise suppliers during 2016.
124. Partial balance sheets and additional information are listed below for Funk Company.
Funk Company
Partial Balance Sheets
as of December 31
Assets
2016
2015
Cash
$40,000
$20,000
Accounts receivable
94,000
90,000
Inventory
25,000
40,000
Liabilities
Accounts payable
$58,000
$72,000
Additional information for 2016:
Net income was $170,000.
Depreciation expense was $30,000.
Sales totaled $800,000.
Cost of goods sold totaled $325,000.
Required:
Prepare the summary entry for the amount of cash received from customers during 2016.
Chapter 21 The Statement of Cash Flows
125. Partial balance sheets and additional information are listed below for Julius Company.
Julius Company
Partial Balance Sheets
as of December 31
Assets
2016
2015
Cash
$20,000
$40,000
Accounts receivable
90,000
60,000
Inventory
40,000
25,000
Liabilities
Accounts payable
$72,000
$58,000
Additional information for 2016:
Net income was $70,000.
Depreciation expense was $30,000.
Sales totaled $600,000.
Cost of goods sold totaled $325,000.
Required:
Prepare the summary entry for the amount of cash received from customers during 2016.
Chapter 21 The Statement of Cash Flows
Use the following to answer questions 126–129:
In its 2015 Annual Report to Shareholders, Kinney Inc. reported the following Consolidated Statement
of Cash Flows:
For the years ended December 31,
2015
2014
Cash flow from operating activities:
Cash received from customers
$197,942,040
$211,773,952
Cash paid to suppliers and employees
( 191,276,791)
(200,474,336)
Interest paid, net
(1,563,990)
(2,098,523)
Income taxes paid
(406,650)
(542,250)
Cash provided by operations
4,694,609
8,658,843
Cash flow from investing activities:
Capital expenditures and acquisitions
3,003,579)
(1,667,382)
Expenditures for other assets
(43,560)
(137,420)
Cash used in investing activities
(3,047,139)
(1,804,802)
Cash flow from financing activities:
Principal payments of long-term debt and lease
agreements
(2,062,485)
(6,370,175)
Addition to long-term debt and lease liability
5,817,348
1,434,847
Changes in restricted unexpended IRB cash
(2,748,970)
–
Purchase of common stock and other capital
transactions
(1,605,906)
(908,231)
Payment of dividends
(855,558)
(1,021,968)
Cash provided by (used in) financing activities
(1,455,571)
(6,865,527)
Net increase (decrease) in cash
191,899
(11,486)
Cash at beginning of year
192,615
204,101
Cash at end of year
$ 384,514
$ 192,615
2015
2014
Reconciliation of net income to net cash
provided by operations:
Net income
$1,747,833
$2,382,027
Depreciation and amortization
3,505,504
3,525,087
Deferred income taxes
205,000
344,766
Changes in assets and liabilities, net of
acquisitions:
Decrease (increase) in receivables
(2,897,353)
4,120,668
Decrease (increase) in inventories
(355,508)
6,041,490
Increase (decrease) in prepaid expenses
361,648
(94,350)
Increase (decrease) in controlled
disbursements
373,394
83,718
Increase (decrease) in accounts payable
1,768,676
(8,164,148)
Increase (decrease) in accrued expenses
(14,585)
417,616
Other, net
1,969
Cash provided by operations
$4,694,609
$8,658,843
126. Assuming the decrease in accrued expenses during fiscal year 2015 included a $20,000
Chapter 21 The Statement of Cash Flows
reduction due to taxes, compute the income tax expense for Kinney in that year.
127. Kinney reported cost of goods sold of $168,114,150 in its fiscal 2015 income statement.
Compute its net inventory purchases during the year.
128. Assuming the decrease in accrued expenses during fiscal year 2015 included a $14,000
reduction due to interest on debt, compute the interest expense (net) for Kinney in that year.