Chapter 21 The Statement of Cash Flows
129. Kinney reported cost of goods sold of $168,114,150 in its fiscal 2015 income statement.
Assuming that Kinney uses accounts payable strictly for inventory purchases and that all such
purchases are on credit, how much cash did Kinney pay during the year for inventories:
(a) To inventory suppliers?
(b) To employees?
130. Determine the amount of cash received from customers for each of the two independent
situations below.
Sales
Accounts
Situation
revenue
receivable
Chapter 21 The Statement of Cash Flows
incr. (decr.)
Cash received
from customers
1
$300,000
$ 10,000
?
2
300,000
(10,000)
?
131. Following are the income statement and some additional information for Carolina Consulting
Company.
Carolina Consulting Company
Income Statement
For the Year Ended December 31, 2016
Net sales
Cost of goods sold
)
Gross margin
Operating expenses
$2,000
Depreciation expense
900
)
Income before taxes
Income taxes
)
Net income
All sales were on credit and accounts receivable decreased by $900 in 2016 compared to 2015.
Merchandise purchases were on credit with a decrease in accounts payable of $700 during the
year. Ending inventory was $500 larger than beginning inventory. Income taxes payable
increased $300 during the year. All operating expenses were paid for in cash.
Required:
Prepare the cash flows from operating activities section of the statement of cash flows using
the direct method.
Cash flows from operating activities:
Cash paid to suppliers ($1,500 + $500 + $700)
)
Cash paid for operating expenses
)
Cash paid for taxes ($1,600 –$300)
)
132. Partial balance sheets and additional information are listed below for Sowell Company.
Sowell Company
Partial Balance Sheets
as of December 31
Assets
2016
2015
Cash
$40,000
$20,000
Accounts receivable
70,000
85,000
Inventory
40,000
35,000
Liabilities
Accounts payable
$54,000
$62,000
Additional information for 2016:
Net income was $88,000.
Depreciation expense was $19,000.
Required:
Prepare the operating activities section of the statement of cash flows for 2016 using the
indirect method.
133. Partial balance sheets and additional information are listed below for Rickey Company.
Chapter 21 The Statement of Cash Flows
Rickey Company
Partial Balance Sheets
as of December 31
Assets
2016
2015
Cash
$20,000
$40,000
Accounts receivable
85,000
70,000
Inventory
35,000
40,000
Liabilities
Accounts payable
$62,000
$80,000
Additional information for 2016:
Net income was $160,000.
Depreciation expense was $20,000.
Required:
Prepare the operating activities section of the statement of cash flows for 2016 using the
indirect method.
134. The accounting records of Eastlake Industries provided the data below.
Net income
$300,000
Depreciation expense
15,000
Increase in inventory
2,000
Increase in accounts receivable
1,400
Decrease in interest payable
1,600
Amortization of bond premium
3,000
Increase in accounts payable
7,000
Cash dividends paid
20,000
Required:
Prepare a reconciliation of net income to net cash flows from operating activities.
Chapter 21 The Statement of Cash Flows
135. The accounting records of Westlake Industries provided the data below.
Net income
$200,000
Depreciation expense
15,000
Decrease in inventory
12,000
Increase in accounts receivable
1,400
Increase in interest payable
1,600
Amortization of bond discount
3,000
Increase in accounts payable
7,000
Cash dividends paid
20,000
Required:
Prepare a reconciliation of net income to net cash flows from operating activities.
136. Following are the income statement and some additional information for Parson Corporation
for 2016.
Parson Corporation
Income Statement
For the Year Ended December 31, 2016
Net sales
$10,000
Cost of goods sold
(1,500
)
Gross margin
8,500
Operating expenses
$2,000
Depreciation expense
900
(2,900
)
Income before taxes
5,600
Income taxes
(1,600
)
Net income
$4,000
All sales were on credit and accounts receivable increased by $600 in 2016 compared to 2015.
Merchandise purchases were on credit with an increase in accounts payable of $400 during the
year. Ending inventory was $500 larger than beginning inventory. Income taxes payable
increased $300 during the year. All operating expenses were paid for in cash.
Required:
Prepare the cash flows from operating activities section of the statement of cash flows using
the indirect method.
Cash flows from operating activities:
Net income
Adjustment for noncash effects:
Depreciation expense
Increase in accounts receivable
)
Increase in inventory
)
Increase in accounts payable
Increase in taxes payable
Net cash flows from operating activities
137. The accounting records of Harrison Company provided the data below.
Chapter 21 The Statement of Cash Flows
Net loss
$10,000
Depreciation expense
12,000
Increase in salaries payable
1,000
Decrease in accounts receivable
4,000
Increase in inventory
4,800
Amortization of patent
700
Decrease in discount on bonds
500
Required:
Prepare a reconciliation of net income to net cash flows from operating activities.
138. The accounting records of Unlucky Company provided the data below.
Net loss
$40,000
Depreciation expense
12,000
Increase in salaries payable
11,000
Increase in accounts receivable
4,000
Decrease in inventory
4,800
Amortization of patent
700
Decrease in premium on bonds
500
Required:
Prepare a reconciliation of net income to net cash flows from operating activities.
139. Partial balance sheets for Yarborough Company and additional information are found below.
Yarborough Company
Partial Balance Sheets
as of December 31
Assets
2016
2015
Equipment
$100,000
$75,000
Accumulated depreciation
(25,000
)
(20,000
)
Shareholders’ equity
Common stock, $5 par
$150,000
$100,000
Paid-in capital—excess of par
20,000
0
Retained earnings
40,000
30,000
Additional information for 2016:
July 1: Issued 10,000 shares of common stock for cash.
July 1: Purchased new equipment for cash.
Dec. 31 Paid cash dividends of $30,000.
Required:
Prepare the investing activities section of the statement of cash flows for 2016.
140. In preparation for developing its statement of cash flows for the year just ended, D-Rose
Distributors collected the following information:
Reduction in premium on bonds
Net cash flows from operating activities
Chapter 21 The Statement of Cash Flows
($ in millions)
Purchase of treasury bills (considered a cash equivalent) 6
Sale of preferred stock 150
Gain on sale of land 4
Proceeds from sale of land 25
Issuance of bonds payable for cash 140
Purchase of equipment for cash 30
Purchase of GE stock 35
Declaration of cash dividends 134
Payment of cash dividends declared in previous year 130
Purchase of treasury stock 120
Payment for the early extinguishment of
long-term notes (carrying (book) value: $100 million) 110
Required:
1. In D–Rose’s statement of cash flows, what were net cash inflows (or outflows) from
investing activities?
2. In D–Rose’s statement of cash flows, what were net cash inflows (or outflows) from
financing activities?
Answer:
141. In preparation for developing its statement of cash flows for the year ended December 31,
2016, Millennium Solutions, Inc., collected the following information:
Chapter 21 The Statement of Cash Flows
($ 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 2015 60
Required:
1. In Millennium’s statement of cash flows, what were net cash inflows (or outflows) from
investing activities for 2016?
2. In Millennium’s statement of cash flows, what were net cash inflows (or outflows) from
financing activities for 2016?
Answer:
142. Partial balance sheets for ABC Company and additional information are provided below.
ABC Company
Partial Balance Sheets
as of December 31
Assets
2016
2015
Equipment
$100,000
$75,000
Accumulated depreciation
(25,000
)
(20,000
)
Shareholders’ equity
Common stock, $10 par
180,000
$100,000
Paid-in capital—excess of par
20,000
0
Retained earnings
40,000
30,000
Additional information for 2016:
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 2016.
Cash flows from financing activities:
Issuance of common stock
Payment of cash dividends
)
143.The Murdock Corporation reported the following balance sheet data for 2016 and 2015:
2016
2015
Cash
$ 77,375
$ 22,955
Available-for-sale 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
Chapter 21 The Statement of Cash Flows
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 2016:
(1.) Sold available-for-sale 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 2016 in good form using the indirect method for cash
flows from operating activities.
Answer:
Net cash flows from investing activities
Net cash flows from financing activities
Chapter 21 The Statement of Cash Flows
144. The following are comparative balance sheets and an income statement for Wentworth
Company.
Wentworth Company
Balance Sheets
as of December 31
Assets
2016
2015
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, 2016
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
Chapter 21 The Statement of Cash Flows
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 2016.
Required: Prepare a statement of cash flows for 2016 using the direct method.
Chapter 21 The Statement of Cash Flows
Essay
Instructions:
The following answers point out the key phrases that should appear in students’ answers. They are not
intended to be examples of complete student responses. It might be helpful to provide detailed
instructions to students on how brief or in-depth you want their answers to be.
145. 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.
146. Why is the statement of cash flows required as part of the set of external financial statements?
147. Do “cash flows from operating activities” report all the elements of the income statement on a
cash basis? Explain.
148. Do the statement of cash flows and its related disclosure note report only transactions that
cause an increase or decrease in cash? Explain.
149. Why are “cash equivalents” included as part of cash in the statement of cash flows?
150. What are the general guidelines for an investment to be considered a cash equivalent?
151. 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?
152. Is depreciation a source of cash? Explain.
Chapter 21 The Statement of Cash Flows
Use the following to answer questions 153 and 154:
In its 2016 Annual Report to Shareholders, Sisters Corporation included the following information on
cash flows from operations:
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(in $ thousands)
2016
2015
Operating activities:
Net income
$ 10,680
$30,100
Adjustments to reconcile to net cash provided
by operating activities:
Depreciation and amortization
25,734
20,051
Deferred income taxes
5,156
9,885
Equity income
(486
)
(864
)
Changes in operating assets and liabilities:
Receivables
17,888
(33,018
)
Inventories
39,331
(10,173
)
Accounts payable and accrued expenses
(23,737
)
13,515
Prepaids and other-net
(10,913
)
5,893
Net Cash Provided by Operating Activities
63,653
35,389
153. Explain why Sisters Corporation subtracts equity income from its net income in its
measurement of cash flows.
154. Did accounts receivable increase or decrease during 2016? Explain.
155. What activities are included in the statement of cash flows under the section titled “Cash flows
from investing activities”?
156. What activities are included in the statement of cash flows under the section titled “Cash flows
from financing activities”?
157. 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.