Statement of Cash Flows
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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 2021 are presented below.
Kinder Company
Balance Sheet
December 31
2021 2020
Cash $ 30,900 $ 10,200
Accounts receivable (net) 43,300 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 2021, $61,000.
2. Depreciation on plant assets for the year, $12,700.
3. Sold the long-term investments for $33,000 (assume gain or loss is ordinary).
4. Paid dividends of $20,000.
5. Purchased machinery costing $26,500, 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 2021 for Kinder Company.
Test Bank for Intermediate Accounting, Seventeenth Edition
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Kinder Company
Statement of Cash Flows
For the Year Ended December 31, 2021
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, 2021
Cash, December 31, 2021 $
Statement of Cash Flows
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Solution 23-124
Test Bank for Intermediate Accounting, Seventeenth Edition
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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 in the body of 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. Decrease in Retained Earnings Appropriated for Self-insurance.
____ 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.
Statement of Cash Flows
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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).
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.
Test Bank for Intermediate Accounting, Seventeenth Edition
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Ex. 23-126 (cont.)
(c) Significant noncash transactions:
Acquiring assets by issuing stock or debt
Capital leases
Conversion or refinancing of debt
Exchanges of nonmonetary assets
(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, 2021. (Ignore any
income tax effects.)
____ 1. Preferred stock with a carrying value of $44,000 was redeemed for $50,000 on
January 1, 2021.
____ 2. Uncollectible accounts receivable of $3,000 were written off against the allowance for
doubtful accounts balance of $12,200 on December 31, 2021.
____ 3. Machinery which originally cost $3,000 and has a book value of $1,800 is sold for
$1,400 on December 31, 2021.
____ 4. Land is acquired through the issuance of bonds payable on July 1, 2021.
____ 5. 1,000 shares of stock, stated value $10 per share, are issued for $25 per share in
2021.
____ 6. An appropriation of retained earnings for treasury stock of $35,000 is established in
2021.
Statement of Cash Flows
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Ex. 23-127 (cont.)
____ 7. A cash dividend of $8,000 is paid on December 31, 2021.
____ 8. The portfolio of long-term investments (available–for-sale) is at an aggregate market
value higher than aggregate cost at December 31, 2021.
PROBLEMS
Pr. 23-128—Statement of cash flows (indirect method).
The net changes in the balance sheet accounts of Keating Corporation for the year 2021 are
shown below.
Account Debit Credit
Cash $ 87,000
Short-term investments $121,000
Accounts receivable 78,200
Allowance for doubtful accounts 13,300
Inventory 74,200
Prepaid expenses 22,800
Investment in subsidiary (equity method) 25,000
Plant and equipment 210,000
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, 2020 $1,300,000
Add: Net income 307,000
Transfer from appropriation for bonded indebtedness 60,000
Total $1,667,000
Deduct: Cash dividends $165,000
Stock dividend 240,000 405,000
Retained earnings unappropriated, December 31, 2021 $1,262,000
Test Bank for Intermediate Accounting, Seventeenth Edition
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Pr. 23-128 (cont.)
1. On January 2, 2021 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, 2021.
3. Accounts receivable of $16,200 and $19,400 were considered uncollectible and written off in
2021 and 2020, 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 2021.
5. The wholly owned subsidiary reported a net loss for the year of $25,000. The loss was
recorded by the parent.
6. At January 1, 2021, the cash balance was $166,000.
Instructions
Prepare a statement of cash flows (indirect method) for the year ended December 31, 2021.
Keating Corporation has no securities which are classified as cash equivalents.
Statement of Cash Flows
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Solution 23-128 (cont.)
Pr. 23-129—Statement of cash flows (direct and indirect methods).
Hartman, Inc. has prepared the following comparative balance sheets for 2020 and 2021:
2021 2020
Cash $ 282,000 $ 153,000
Accounts receivable 139,000 117,000
Inventory 150,000 180,000
Prepaid expenses 18,000 27,000
Plant assets 1,295,000 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 $138,000 and credited for
the net income for the year.
The income statement for 2021 is as follows:
Sales revenue $1,980,000
Cost of sales 1,089,000
Gross profit 891,000
Operating expenses 690,000
Net income $ 201,000
Test Bank for Intermediate Accounting, Seventeenth Edition
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Pr. 23-129 (cont.)
Instructions
(a) From the information above, prepare a statement of cash flows (indirect method) for
Hartman, Inc. for the year ended December 31, 2021.
(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 (cont.)
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 2021 are shown below:
Account Debit Credit
Cash $ 100,600
Accounts receivable $ 64,000
Allowance for doubtful accounts 10,000
Inventory 197,200
Prepaid expenses 20,000
Long-term investments 144,000
Land 405,000
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) 70,000
Common stock ($10 par) 156,000
Additional paid-in capital—common 223,200
Retained earnings 67,200
$1,805,200 $1,805,200
Additional information:
1. Net income for 2021 $160,000
Test Bank for Intermediate Accounting, Seventeenth Edition
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Pr. 23-130 (cont.)
2. Cash dividends of $128,000 were declared December 15, 2021, payable January 15, 2022.
A 5% stock dividend was issued March 31, 2021, 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 $70,000 par value was redeemed for $90,000.
8. The company sold 12,000 shares of its common stock ($10 par) on June 15, 2021 for $25 a
share. There were 87,600 shares outstanding on December 31, 2021.
9. Bonds were sold at 104 on December 31, 2021.
10. Land that was condemned had a book value of $240,000. Proceeds received totaled
$108,000.
Instructions
Prepare a statement of cash flows (indirect method). Ignore tax effects.
Statement of Cash Flows
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Solution 23-130 (cont.)
Test Bank for Intermediate Accounting, Seventeenth Edition
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Solution 23-130 (cont.)
Statement of Cash Flows
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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. The definition of cash equivalents used in IFRS is similar to that used in GAAP.
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 these statements are false with regard to IFRS and the statement of cash flows.
Test Bank for Intermediate Accounting, Seventeenth Edition
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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
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, 2021:
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, 2021?
a. $59,000
b. $38,000
c. $53,000
d. $75,000
Statement of Cash Flows
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11. Surf Company follows IFRS for its external financial reporting. The following amounts were
available at December 31, 2021:
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, 2021?
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, 2021:
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, 2021?
a. $62,000
b. $41,000
c. $53,000
d. $78,000
13. In the “On the Horizon” feature in the text, which of the following is discussed regarding
convergence of 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 these choices are in “On the Horizon” regarding converging 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 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.
Test Bank for Intermediate Accounting, Seventeenth Edition
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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.