Statement of Cash Flows
23 – 41
Ex. 23–122 (cont.)
The company also indicates that depreciation expense for the year was $16,700 and that the
deferred tax liability account increased $2,600.
Instructions
Prepare a schedule computing the net cash flow from operating activities that would be shown on
a statement of cash flows:
(a) using the indirect method.
(b) using the direct method.
Solution 23-122
Test Bank for Intermediate Accounting, Fifteenth Edition
23 – 42
Ex. 23-123—Statement of cash flows (indirect method).
The following information is taken from French Corporation’s financial statements:
December 31
2015 2014
Cash $73,000 $ 27,000
Accounts receivable 102,000 80,000
Allowance for doubtful accounts (4,500) (3,100)
Inventory 155,000 175,000
Prepaid expenses 7,500 6,800
Land 100,000 60,000
Buildings 289,000 244,000
Accumulated depreciation (32,000) (13,000)
Patents 20,000 35,000
$710,000 $611,700
Accounts payable $ 90,000 $ 84,000
Accrued liabilities 54,000 63,000
Bonds payable 125,000 60,000
Common stock 100,000 100,000
Retained earnings—appropriated 80,000 10,000
Retained earnings—unappropriated 276,000 302,700
Treasury stock, at cost (15,000) (8,000)
$710,000 $611,700
For 2015 Year
Net income $73,300
Depreciation expense 19,000
Amortization of patents 5,000
Cash dividends declared and paid 30,000
Gain or loss on sale of patents none
Instructions
Prepare a statement of cash flows for French Corporation for the year 2015. (Use the indirect
method.)
Statement of Cash Flows
23 – 43
Solution 23-123
Test Bank for Intermediate Accounting, Fifteenth Edition
23 – 44
Ex. 23-124—Preparation of statement of cash flows (format provided).
The balance sheets for Kinder Company showed the following information. Additional information
concerning transactions and events during 2015 are presented below.
Kinder Company
Balance Sheet
December 31
2015 2014
Cash $ 35,900 $ 10,200
Accounts receivable (net) 38,300 20,300
Inventory 35,000 42,000
Long-term investments 0 15,000
Property, plant & equipment 236,500 150,000
Accumulated depreciation (37,700) (25,000)
$308,000 $212,500
Accounts payable $ 17,000 $ 26,500
Accrued liabilities 21,000 17,000
Long-term notes payable 70,000 50,000
Common stock 130,000 90,000
Retained earnings 70,000 29,000
$308,000 $212,500
Additional data:
1. Net income for the year 2015, $71,000.
2. Depreciation on plant assets for the year, $12,700.
3. Sold the long-term investments for $28,000 (assume gain or loss is ordinary).
4. Paid dividends of $30,000.
5. Purchased machinery costing $21,500, paid cash.
6. Purchased machinery and gave a $60,000 long-term note payable.
7. Paid a $40,000 long-term note payable by issuing common stock.
Instructions
Using the format provided on the next page, prepare a statement of cash flows (using the indirect
method) for 2015 for Kinder Company.
Statement of Cash Flows
23 – 45
Kinder Company
Statement of Cash Flows
For the Year Ended December 31, 2015
Increase (Decrease) in Cash
Cash flows from operating activities
Net income $__________
Adjustments to reconcile net income to net cash
provided by operating activities:
__________________________________ $__________
__________________________________ __________
__________________________________ __________
__________________________________ __________
__________________________________ __________
__________________________________ __________
__________________________________ __________ __________
Net cash provided (used) by operating activities __________
Cash flows from investing activities
___________________________________ __________
___________________________________ __________
___________________________________ __________
Net cash provided (used) by investing activities __________
Cash flows from financing activities
___________________________________ __________
___________________________________ __________
___________________________________ __________
Net cash provided (used) by financing activities __________
Net increase (decrease) in cash $
Cash, January 1, 2015
Cash, December 31, 2015 $
Test Bank for Intermediate Accounting, Fifteenth Edition
23 – 46
Statement of Cash Flows
23 – 47
Ex. 23-125—Classification of cash flows.
Note that X in the following statement of cash flows identifies a dollar amount and the letters (A)
through (F) identify specific items which appear in the major sections of the statement prepared
using the indirect method.
Statement of Cash Flows
Cash flows from operating activities
Net income X
Adjustments to reconcile net income to net cash
provided by operating activities:
Add +X (A)
Deduct –X (B)
Net cash provided by operating activities X
Cash flows from investing activities
Inflows +X (C)
Outflows –X (D)
Net cash provided (used) by investing activities X
Cash flows from financing activities
Inflows +X (E)
Outflows –X (F)
Net cash provided (used) by financing activities X
Net increase (decrease) in cash X
Instructions
For each of the following items, indicate by letter in the blank spaces below, the section or
sections where the effect would be reported. Use the code (A through F) from above. If the item is
not required to be reported on the statement of cash flows, write the word “none” in the blank.
Assume that generally accepted accounting principles have been followed in determining net
income and that there are no short-term securities which are considered cash equivalents.
____ 1. After the retirement of an officer, the insurance policy was canceled, and a cash
settlement was received by the firm. These proceeds were in excess of the book
value of the policy.
____ 2. Sales discounts lapsed and not taken by customers. (Sales are recorded at net
originally.)
____ 3. Accrued estimated income taxes for the period. These taxes will be paid next year.
____ 4. Amortization of premium on bonds payable.
____ 5. Premium amortized on investment in bonds.
____ 6. The book value of trading securities was reduced to fair value.
____ 7. Purchase of available-for-sale securities.
____ 8. Declaration of stock dividends (not yet issued).
____ 9. Issued preferred stock in exchange for equipment.
Test Bank for Intermediate Accounting, Fifteenth Edition
23 – 48
Ex. 23-125 (cont.)
____ 10. Bad debts (under allowance method) estimated and recorded for the period
(receivables classified as current).
____ 11. Gain on disposal of old machinery.
____ 12. Payment of cash dividends (previously declared in a prior period).
____ 13. Trading securities are sold at a loss.
____ 14. Two-year notes issued at discount for a patent.
____ 15. Amortization of Discount on Notes Receivable (long-term).
____ 16. Decrease in Retained Earnings Appropriated for Self-insurance.
Solution 23-125
Ex. 23-126—Classification of cash flows and transactions.
Give:
(a) Three distinct examples of investing activities.
(b) Three distinct examples of financing activities.
(c) Three distinct examples of significant noncash transactions.
(d) Two examples of transactions not shown on a statement of cash flows.
Solution 23-126
Statement of Cash Flows
23 – 49
Ex. 23-126 (cont.)
(d) Not shown on statement of cash flows:
Stock dividends
Appropriations of retained earnings
Ex. 23-127—Effects of transactions on statement of cash flows.
Any given transaction may affect a statement of cash flows (using the indirect method) in one or
more of the following ways:
Cash flows from operating activities
a. Net income will be increased or adjusted upward.
b. Net income will be decreased or adjusted downward.
Cash flows from investing activities
c. Increase as a result of cash inflows.
d. Decrease as a result of cash outflows.
Cash flows from financing activities
e. Increase as a result of cash inflows.
f. Decrease as a result of cash outflows.
The statement of cash flows is not affected
g. Not required to be reported in the body of the statement.
Instructions
For each transaction listed below, list the letter or letters from above that describe(s) the effect of
the transaction on a statement of cash flows for the year ending December 31, 2015. (Ignore any
income tax effects.)
____ 1. Preferred stock with a carrying value of $44,000 was redeemed for $50,000 on
January 1, 2015.
____ 2. Uncollectible accounts receivable of $3,000 were written off against the allowance for
doubtful accounts balance of $12,200 on December 31, 2015.
____ 3. Machinery which originally cost $3,000 and has a book value of $1,800 is sold for
$1,400 on December 31, 2015.
____ 4. Land is acquired through the issuance of bonds payable on July 1, 2015.
____ 5. 1,000 shares of stock, stated value $10 per share, are issued for $25 per share in
2015.
____ 6. An appropriation of retained earnings for treasury stock of $35,000 is established in
2015.
____ 7. A cash dividend of $8,000 is paid on December 31, 2015.
____ 8. The portfolio of long-term investments (available-for-sale) is at an aggregate market
value higher than aggregate cost at December 31, 2015.
Test Bank for Intermediate Accounting, Fifteenth Edition
23 – 50
Solution 23-127
PROBLEMS
Pr. 23-128—Statement of cash flows (indirect method).
The net changes in the balance sheet accounts of Keating Corporation for the year 2015 are
shown below.
Account Debit Credit
Cash $ 72,000
Short-term investments $121,000
Accounts receivable 83,200
Allowance for doubtful accounts 13,300
Inventory 74,200
Prepaid expenses 22,800
Investment in subsidiary (equity method) 25,000
Plant and equipment 220,000
Accumulated depreciation 130,000
Accounts payable 80,700
Accrued liabilities 21,500
Deferred tax liability 15,500
8% serial bonds 70,000
Common stock, $10 par 90,000
Additional paid-in capital 150,000
Retained earnings—Appropriation for bonded indebtedness 60,000
Retained earnings—Unappropriated 38,000
$643,600 $643,600
An analysis of the Retained Earnings—Unappropriated account follows:
Retained earnings unappropriated, December 31, 2014 $1,300,000
Add: Net income 327,000
Transfer from appropriation for bonded indebtedness 60,000
Total $1,687,000
Deduct: Cash dividends $185,000
Stock dividend 240,000 425,000
Retained earnings unappropriated, December 31, 2015 $1,262,000
1. On January 2, 2015 short-term investments (classified as available-for-sale) costing $121,000
were sold for $155,000.
2. The company paid a cash dividend on February 1, 2015.
3. Accounts receivable of $16,200 and $19,400 were considered uncollectible and written off in
2015 and 2014, respectively.
4. Major repairs of $33,000 to the equipment were debited to the Accumulated Depreciation
account during the year. No assets were retired during 2015.
Statement of Cash Flows
23 – 51
Pr. 23-128 (cont.)
5. The wholly owned subsidiary reported a net loss for the year of $20,000. The loss was
recorded by the parent.
6. At January 1, 2015, the cash balance was $166,000.
Instructions
Prepare a statement of cash flows (indirect method) for the year ended December 31, 2015.
Keating Corporation has no securities which are classified as cash equivalents.
Solution 23-128