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Test Bank for Intermediate Accounting, Fifteenth Edition
23 - 52
Pr. 23-129—Statement of cash flows (direct and indirect methods).
Hartman, Inc. has prepared the following comparative balance sheets for 2014 and 2015:
2015 2014
Cash $ 292,000 $ 153,000
Accounts receivable 149,000 117,000
Inventory 150,000 180,000
Prepaid expenses 18,000 27,000
Plant assets 1,275,000 1,050,000
Accumulated depreciation (450,000) (375,000)
Patent 153,000 174,000
$1,587,000 $1,326,000
Accounts payable $ 153,000 $ 168,000
Accrued liabilities 60,000 42,000
Mortgage payable — 450,000
Preferred stock 525,000 —
Additional paid-in capital—preferred 120,000 —
Common stock 600,000 600,000
Retained earnings 129,000 66,000
$1,587,000 $1,326,000
1. The Accumulated Depreciation account has been credited only for the depreciation expense
for the period.
2. The Retained Earnings account has been charged for dividends of $148,000 and credited for
the net income for the year.
The income statement for 2015 is as follows:
Sales revenue $1,980,000
Cost of sales 1,089,000
Gross profit 891,000
Operating expenses 680,000
Net income $ 211,000
Instructions
(a) From the information above, prepare a statement of cash flows (indirect method) for
Hartman, Inc. for the year ended December 31, 2015.
(b) From the information above, prepare a schedule of cash provided by operating activities
using the direct method.
Statement of Cash Flows
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Solution 23-129
Test Bank for Intermediate Accounting, Fifteenth Edition
23 - 54
Pr. 23-130—A complex statement of cash flows (indirect method).
The net changes in the balance sheet accounts of Eusey, Inc. for the year 2015 are shown below:
Account Debit Credit
Cash $ 95,600
Accounts receivable $ 64,000
Allowance for doubtful accounts 10,000
Inventory 197,200
Prepaid expenses 20,000
Long-term investments 144,000
Land 400,000
Buildings 650,000
Machinery 100,000
Equipment 28,000
Accumulated depreciation:
Buildings 24,000
Machinery 20,000
Equipment 12,000
Accounts payable 183,200
Accrued liabilities 72,000
Dividends payable 128,000
Premium on bonds 36,000
Bonds payable 900,000
Preferred stock ($50 par) 60,000
Common stock ($10 par) 156,000
Additional paid-in capital—common 223,200
Retained earnings 87,200
$1,805,200 $1,805,200
Additional information:
1. Income Statement Data for Year Ended December 31, 2015
Income before extraordinary item $272,000
Extraordinary loss: Condemnation of land 132,000
Net income $140,000
2. Cash dividends of $128,000 were declared December 15, 2015, payable January 15, 2016.
A 5% stock dividend was issued March 31, 2015, when the market value was $22.00 per
share.
3. The long-term investments were sold for $140,000.
4. A building and land which cost $480,000 and had a book value of $350,000 were sold for
$400,000. The cost of the land, included in the cost and book value above, was $20,000.
5. The following entry was made to record an exchange of an old machine for a new one:
Machinery ............................................................................. 160,000
Accumulated Depreciation—Machinery ................................. 40,000
Machinery .................................................................. 60,000
Cash .......................................................................... 140,000
6. A fully depreciated copier machine which cost $28,000 was written off.
7. Preferred stock of $60,000 par value was redeemed for $80,000.
Statement of Cash Flows
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Pr. 23-130 (cont.)
8. The company sold 12,000 shares of its common stock ($10 par) on June 15, 2015 for $25 a
share. There were 87,600 shares outstanding on December 31, 2015.
9. Bonds were sold at 104 on December 31, 2015.
10. Land that was condemned had a book value of $240,000.
Instructions
Prepare a statement of cash flows (indirect method). Ignore tax effects.
Solution 23-130
Test Bank for Intermediate Accounting, Fifteenth Edition
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Solution 23-130 (cont.)
Statement of Cash Flows
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Solution 23-130 (cont.)
Test Bank for Intermediate Accounting, Fifteenth Edition
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IFRS QUESTIONS
True/False
1. Under IFRS, companies are not required to prepare a statement of cash flows if the
transactions are reported elsewhere in the financial statements.
2. A statement of cash flows prepared according to IFRS requirements must be prepared using
the direct method for operating activities.
3. Under IFRS, noncash investing and financing activities are excluded from the statement of
cash flows.
4. In certain circumstances under IFRS, bank overdrafts are considered part of cash and cash
equivalents.
5. IFRS requires that noncash investing and financing activities be excluded from the statement
of cash flows.
Answers to True/False:
Multiple Choice Questions
6. Which of the following is false with regard to IFRS and the statement of cash flows?
a. The IASB is strongly in favor of requiring use of the direct method for operating activities.
b. In certain circumstances under IFRS, bank overdrafts are considered part of cash and
cash equivalents.
c. IFRS requires that noncash investing and financing activities be excluded from the
statement of cash flows.
d. All of the above statements are false with regard to IFRS and the statement of cash flows.
7. Ocean Company follows IFRS for its external financial reporting. Which of the following
methods of reporting are acceptable under IFRS for the items shown?
Interest paid Dividends paid
a. Operating Investing
b. Investing Financing
c. Financing Investing
d. Operating Financing
Statement of Cash Flows
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8. Ocean Company follows IFRS for its external financial reporting. Which of the following
methods of reporting are acceptable under IFRS for the items shown?
Interest received Dividends received
a. Operating Investing
b. Investing Financing
c. Financing Investing
d. Operating Financing
9. Wave, Inc. follows IFRS for its external financial reporting. The statement of cash flows
reports changes in cash and cash equivalents, which of the following is not considered cash
or a cash equivalent under IFRS?
a. Coin.
b. Bank overdrafts.
c. Commercial paper.
d. Accounts receivable.
10. Surf Company follows IFRS for its external financial reporting. The following amounts were
available at December 31, 2013:
Interest paid $22,000
Dividends paid 16,000
Taxes paid 37,000
Under IFRS, what is the maximum amount that could be reported for cash used by operating
activities for Surf Company for the year ended December 31, 2013?
a. $59,000
b. $38,000
c. $53,000
d. $75,000
11. Surf Company follows IFRS for its external financial reporting. The following amounts were
available at December 31, 2015:
Interest received $25,000
Dividends received 16,000
Under IFRS, what is the maximum amount that could be reported for cash provided by
operating activities for Surf Company for the year ended December 31, 2015?
a. $-0-
b. $25,000
c. $16,000
d. $41,000
12. Surf Company follows IFRS for its external financial reporting. The following amounts were
available at December 31, 2015:
Interest paid $25,000
Dividends paid 16,000
Taxes paid on operations 37,000
Under IFRS, what is the maximum amount that could be reported for cash used by financing
activities for Surf Company for the year ended December 31, 2015?
a. $62,000
b. $41,000
c. $53,000
d. $78,000
Test Bank for Intermediate Accounting, Fifteenth Edition
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13. In the “On the Horizon” feature in the text, which of the following is discussed regarding
convergence of U.S. GAAP with IFRS?
a. Noncash investing and financing activities will be disclosed only in the notes.
b. Bank overdrafts will be classified as part of financing activities.
c. The statement of cash flows will present only changes in cash and will exclude changes in
cash equivalents.
d. All of the above are in “On the Horizon” regarding converging U.S. GAAP and IFRS.
14. Which of the following is true regarding the statement of cash flows and IFRS?
a. Cash and cash equivalents are defined differently under IFRS than under U.S. GAAP.
b. Companies preparing a complete set of financial statements under IFRS may exclude the
statement of cash flows if the cash flow activity is reported in the notes to the financial
statements.
c. Under IFRS most companies choose to use the direct method of reporting cash flows from
operating activities.
d. Under IFRS noncash investing and financing activities are excluded from the statement of
cash flows and instead are presented in the notes to the financial statements.
Answers to Multiple Choice:
Short Answer
15. Briefly describe some of the similarities and differences between U.S. GAAP and IFRS with
respect to cash flow reporting.
Statement of Cash Flows
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may present this information in the cash flow statement.
16. What are some of the key obstacles for the FASB and IASB in their convergence project for
the statement of cash flows?
