Statement of Cash Flows
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102. A flood damaged a building and contents. The receipts from insurance companies totaled
$600,000, which was $180,000 less than the book values. The tax rate is 20%.
On the statement of cash flows (indirect method), the receipts from insurance companies
should
a. be shown as an addition to net income of $420,000.
b. be shown as an inflow from investing activities of $420,000.
c. be shown as an inflow from investing activities of $600,000.
d. not be shown.
103. A flood damaged a building and contents. The receipts from insurance companies totaled
$600,000, which was $180,000 less than the book values. The tax rate is 20%.
On the statement of cash flows (indirect method), the flood loss should
a. be shown as an addition to net income of $126,000.
b. be shown as an addition to net income of $180,000.
c. be shown as an inflow from investing activities of $126,000.
d. not be shown.
104. Zook Incorporated, had net income for 2021 of $5,400,000. Additional information is as
follows:
Amortization of patents $ 45,000
Depreciation on plant assets 1,650,000
Long-term debt:
Bond premium amortization 65,000
Interest paid 900,000
Provision for doubtful accounts:
Current receivables 80,000
Long-term nontrade receivables 30,000
What should be the net cash provided by operating activities in the statement of cash
flows for the year ended December 31, 2021, based solely on the above information?
a. $7,220,000.
b. $7,270,000.
c. $7,140,000.
d. $7,240,000.
105. The net income for the year ended December 31, 2021, for Oliva Company was
$2,900,000. Additional information is as follows:
Depreciation on plant assets $600,000
Amortization of leasehold improvements 340,000
Provision for doubtful accounts on short-term receivables 120,000
Provision for doubtful accounts on long-term receivables 100,000
Interest paid on short-term borrowings 80,000
Interest paid on long-term borrowings 60,000
Test Bank for Intermediate Accounting, Seventeenth Edition
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Based solely on the information given above, what should be the net cash provided by
operating activities in the statement of cash flows for the year ended December 31, 2021?
a. $3,960,000.
b. $4,060,000.
c. $4,040,000.
d. $4,200,000.
Statement of Cash Flows
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MULTIPLE CHOICE—CPA Adapted
106. Jamison Corp.’s balance sheet accounts as of December 31, 2021 and 2020 and information
relating to 2021 activities are presented below.
December 31,
2021 2020
Assets
Cash $ 440,000 $ 200,000
Short-term investments 600,000 —
Accounts receivable (net) 1,020,000 1,020,000
Inventory 1,380,000 1,200,000
Long-term investments 400,000 600,000
Plant assets 3,400,000 2,000,000
Accumulated depreciation (900,000) (900,000)
Patent 180,000 200,000
Total assets $6,520,000 $4,320,000
Liabilities and Stockholders’ Equity
Accounts payable and accrued liabilities $1,660,000 $1,440,000
Notes payable (nontrade) 580,000 —
Common stock, $10 par 1,600,000 1,400,000
Additional paid-in capital 800,000 500,000
Retained earnings 1,880,000 980,000
Total liabilities and stockholders’ equity $6,520,000 $4,320,000
Information relating to 2021 activities:
• Net income for 2021 was $1,500,000.
• Cash dividends of $600,000 were declared and paid in 2021.
• Equipment costing $1,000,000 and having a carrying amount of $320,000 was sold in 2021
for $360,000.
• A long-term investment was sold in 2021 for $320,000. There were no other transactions
affecting long-term investments in 2021.
• 20,000 shares of common stock were issued in 2021 for $25 a share.
• Short-term investments consist of treasury bills maturing on 6/30/22.
Net cash provided by Jamison’s 2021 operating activities was
a. $1,500,000.
b. $2,120,000.
c. $2,080,000.
d. $2,160,000.
107. Jamison Corp.’s balance sheet accounts as of December 31, 2021 and 2020 and
information relating to 2021 activities are presented below.
December 31,
2021 2020
Assets
Cash $ 440,000 $ 200,000
Short-term investments 600,000 —
Accounts receivable (net) 1,020,000 1,020,000
Inventory 1,380,000 1,200,000
Test Bank for Intermediate Accounting, Seventeenth Edition
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Long-term investments 400,000 600,000
Plant assets 3,400,000 2,000,000
Accumulated depreciation (900,000) (900,000)
Patent 180,000 200,000
Total assets $6,520,000 $4,320,000
Liabilities and Stockholders’ Equity
Accounts payable and accrued liabilities $1,660,000 $1,440,000
Notes payable (nontrade) 580,000 —
Common stock, $10 par 1,600,000 1,400,000
Additional paid-in capital 800,000 500,000
Retained earnings 1,880,000 980,000
Total liabilities and stockholders’ equity $6,520,000 $4,320,000
Information relating to 2021 activities:
• Net income for 2021 was $1,500,000.
• Cash dividends of $600,000 were declared and paid in 2021.
• Equipment costing $1,000,000 and having a carrying amount of $320,000 was sold in 2021
for $360,000.
• A long-term investment was sold in 2021 for $320,000. There were no other transactions
affecting long-term investments in 2021.
• 20,000 shares of common stock were issued in 2021 for $25 a share.
• Short-term investments consist of treasury bills maturing on 6/30/22.
Net cash used in Jamison’s 2021 investing activities was
a. $2,320,000.
b. $1,820,000.
c. $1,680,000.
d. $1,720,000.
108. Jamison Corp.’s balance sheet accounts as of December 31, 2021 and 2020 and
information relating to 2021 activities are presented below.
December 31,
2021 2020
Assets
Cash $ 440,000 $ 200,000
Short-term investments 600,000 —
Accounts receivable (net) 1,020,000 1,020,000
Inventory 1,380,000 1,200,000
Long-term investments 400,000 600,000
Plant assets 3,400,000 2,000,000
Accumulated depreciation (900,000) (900,000)
Patent 180,000 200,000
Total assets $6,520,000 $4,320,000
Liabilities and Stockholders’ Equity
Accounts payable and accrued liabilities $1,660,000 $1,440,000
Notes payable (nontrade) 580,000 —
Common stock, $10 par 1,600,000 1,400,000
Additional paid-in capital 800,000 500,000
Retained earnings 1,880,000 980,000
Total liabilities and stockholders’ equity $6,520,000 $4,320,000
Statement of Cash Flows
23 – 45
Information relating to 2021 activities:
• Net income for 2021 was $1,500,000.
• Cash dividends of $600,000 were declared and paid in 2021.
• Equipment costing $1,000,000 and having a carrying amount of $320,000 was sold in 2021
for $360,000.
• A long-term investment was sold in 2021 for $320,000. There were no other transactions
affecting long-term investments in 2021.
• 20,000 shares of common stock were issued in 2021 for $25 a share.
• Short-term investments consist of treasury bills maturing on 6/30/22.
Net cash provided by Jamison’s 2021 financing activities was
a. $480,000.
b. $520,000.
c. $1,080,000.
d. $1,680,000.
109. Foxx Corp.’s comparative balance sheet at December 31, 2021 and 2020 reported
accumulated depreciation balances of $1,245,000 and $900,000, respectively. Property
with a cost of $75,000 and a carrying amount of $57,000 was the only property sold in
2021. Depreciation charged to operations in 2021 was
a. $327,000.
b. $345,000.
c. $363,000.
d. $402,000.
110. Nagel Co.’s prepaid insurance was $190,000 at December 31, 2021 and $90,000 at
December 31, 2020. Insurance expense was $62,000 for 2021 and $54,000 for 2020.
What amount of cash disbursements for insurance would be reported in Nagel’s 2021 net
cash provided by operating activities presented on a direct basis?
a. $198,000.
b. $162,000.
c. $128,000.
d. $62,000.
111. A company acquired a building, paying a portion of the purchase price in cash and issuing
a mortgage note payable to the seller for the balance.
In a statement of cash flows, what amount is included in investing activities for the above
transaction?
a. Cash payment
b. Acquisition price
c. Zero
d. Mortgage amount
Test Bank for Intermediate Accounting, Seventeenth Edition
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112. A company acquired a building, paying a portion of the purchase price in cash and issuing
a mortgage note payable to the seller for the balance.
In a statement of cash flows, what amount is included in financing activities for the above
transaction?
a. Cash payment
b. Acquisition price
c. Zero
d. Mortgage amount
113. Smiley Corp.’s transactions for the year ended December 31, 2021 included the following:
• Purchased real estate for $1,250,000 cash which was borrowed from a bank.
• Sold available-for-sale securities for $1,000,000.
• Paid dividends of $1,200,000.
• Issued 500 shares of common stock for $500,000.
• Purchased machinery and equipment for $250,000 cash.
• Paid $900,000 toward a bank loan.
• Reduced accounts receivable by $200,000.
• Increased accounts payable $400,000.
Smiley’s net cash used in investing activities for 2021 was
a. $1,500,000.
b. $750,000.
c. $500,000.
d. $250,000.
114. Smiley Corp.’s transactions for the year ended December 31, 2021 included the following:
• Purchased real estate for $1,250,000 cash which was borrowed from a bank.
• Sold available-for-sale securities for $1,000,000.
• Paid dividends of $1,200,000.
• Issued 500 shares of common stock for $500,000.
• Purchased machinery and equipment for $250,000 cash.
• Paid $900,000 toward a bank loan.
• Reduced accounts receivable by $200,000.
• Increased accounts payable $400,000.
Smiley’s net cash used in financing activities for 2021 was
a. $450,000.
b. $350,000.
c. $900,000.
d. $850,000.
Statement of Cash Flows
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115. Peavy Corp.’s transactions for the year ended December 31, 2021 included the following:
• Acquired 50% of Gant Corp.’s common stock for $300,000 cash which was borrowed
from a bank.
• Issued 5,000 shares of its preferred stock for land having a fair value of $480,000.
• Issued 600 of its 11% debenture bonds, due 2026, for $588,000 cash.
• Purchased a patent for $330,000 cash.
• Paid $180,000 toward a bank loan.
• Sold available-for-sale securities for $1,194,000.
• Had a net increase in returnable customer deposits (long-term) of $132,000.
Peavy’s net cash provided by investing activities for 2021 was
a. $414,000.
b. $564,000.
c. $864,000.
d. $894,000.
116. Peavy Corp.’s transactions for the year ended December 31, 2021 included the following:
• Acquired 50% of Gant Corp.’s common stock for $300,000 cash which was borrowed
from a bank.
• Issued 5,000 shares of its preferred stock for land having a fair value of $480,000.
• Issued 600 of its 11% debenture bonds, due 2026, for $588,000 cash.
• Purchased a patent for $330,000 cash.
• Paid $180,000 toward a bank loan.
• Sold available-for-sale securities for $1,194,000.
• Had a net increase in returnable customer deposits (long-term) of $132,000.
Peavy’s net cash provided by financing activities for 2021 was
a. $708,000.
b. $840,000.
c. $888,000.
d. $1,020,000.
Multiple Choice Answers—CPA Adapted
Test Bank for Intermediate Accounting, Seventeenth Edition
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DERIVATIONS — Computational
Statement of Cash Flows
23 – 49
DERIVATIONS — Computational (cont.)
No. Answer Derivation
Test Bank for Intermediate Accounting, Seventeenth Edition
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DERIVATIONS — Computational (cont.)
No. Answer Derivation
Statement of Cash Flows
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DERIVATIONS — CPA Adapted
No. Answer Derivation
BRIEF EXERCISES
BE. 23-117—Direct and indirect methods.
Compare the direct method and the indirect method by explaining each method.
Test Bank for Intermediate Accounting, Seventeenth Edition
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EXERCISES
Ex. 23-118—Effects of transactions on statement of cash flows.
Indicate for each of the following what should be disclosed on a statement of cash flows (indirect
method). If not disclosed, write “Not shown.” There may be more than one answer for some
items. For an item that is added to net income, write “Add,” and for an item that is deducted from
net income, write “Deduct.” Show financing and investing outflows in parentheses. For example,
an answer might be: Deduct $4,700 or Investing ($31,000). If the item is a noncash transaction
that should be disclosed separately, write “Noncash $40,000.”
(a) The deferred tax liability increased $10,000.
(b) The balance in Investment in Hoyt Co. Stock increased $12,000 as a result of using the
equity method.
(c) Issuance of a stock dividend increased common stock $40,000 and paid-in capital $16,000.
(d) Amortization of bond discount, $1,600.
(e) Machinery that cost $100,000 and had accumulated depreciation of $48,000 was sold for
$55,000.
(f) Issued 10,000 shares of common stock ($10 par) with a market price of $15 per share for
machinery. (Show the amount, too.)
(g) Amortization of patents, $3,000.
(h) Cash dividends paid, $60,000.
Statement of Cash Flows
23 – 53
Ex. 23-119—Effects of transactions on statement of cash flows.
Indicate for each of the following what should be disclosed on a statement of cash flows (SCF)
(indirect method). If not disclosed, write “Not shown.” If an item is a noncash transaction that
should be shown separately, write “noncash.” If an item is added to net income, write “Add,” and
if an item is deducted from net income, write “Deduct.” Show financing and investing outflows in
parentheses. For example, an answer might be: Deduct $4,700 or Investing ($31,000). There is
more than one answer for some items.
(a) For 2021, income before taxes and an unusual loss was $460,000. A tornado damaged a
building and its contents. The proceeds from insurance companies totaled $120,000, which
was $50,000 less than the book values. The tax rate was 30%. (Show the calculation of the
net income shown on the SCF, and indicate how other items should be shown on the SCF.)
(b) Amortization of bond premium, $1,100.
(c) The balance in Retained Earnings was $875,000 on December 31, 2020 and $1,310,000 on
December 31, 2021. Net income was $1,170,000. A stock dividend was declared and
distributed which increased common stock $325,000 and paid-in capital $170,000. (Show
calculation of the cash dividend and indicate how it and the stock dividend would be shown
on the SCF.)
(d) Equipment, that cost $115,000 and had accumulated depreciation of $53,000, was sold for
$66,000.
(e) The deferred tax liability increased $18,000.
(f) Issued 3,000 shares of preferred stock, $50 par, with a market value of $115 per share for
land. (Show the amount also.)
Test Bank for Intermediate Accounting, Seventeenth Edition
23 – 54
Solution 23-119 (cont.)
Ex. 23-120—Calculations for statement of cash flows.
During 2021 equipment was sold for $73,000. This equipment cost $120,000 and had a book
value of $70,000. Accumulated depreciation for equipment was $325,000 at 12/31/20 and
$310,000 at 12/31/21.
Instructions
What three items would be shown on a statement of cash flows (indirect method) from this
information? Show your calculations.
Ex. 23-121—Calculations for statement of cash flows.
Milner Co. sold a machine that cost $79,000 and had a book value of $45,000 for $48,000. Data
from Milner’s comparative balance sheets are:
12/31/21 12/31/20
Machinery $800,000 $670,000
Accumulated depreciation 190,000 136,000
Instructions
What four items should be shown on a statement of cash flows (indirect method) from this
information? Show your calculations.
Statement of Cash Flows
23 – 55
Solution 23-121
Ex. 23-122—Cash flows from operating activities (indirect and direct methods).
Presented below is the income statement of Cowan, Inc.:
Sales revenue $380,000
Cost of goods sold 225,000
Gross profit $155,000
Operating expenses 95,000
Income before income taxes 60,000
Income taxes 24,000
Net income $ 36,000
In addition, the following information related to net changes in working capital is presented:
Debit Credit
Cash $12,000
Accounts receivable 25,000
Inventories $19,400
Salaries payable (operating expenses) 8,000
Accounts payable 14,000
Income taxes payable 3,000
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.
Test Bank for Intermediate Accounting, Seventeenth Edition
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Solution 23-122
Statement of Cash Flows
23 – 57
Ex. 23-123—Statement of cash flows (indirect method).
The following information is taken from French Corporation’s financial statements:
December 31
2021 2020
Cash $63,000 $ 27,000
Accounts receivable 102,000 80,000
Allowance for doubtful accounts (4,500) (3,100)
Inventory 160,000 175,000
Prepaid expenses 7,500 6,800
Land 100,000 60,000
Buildings 294,000 244,000
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 2021 Year
Net income $78,300
Depreciation expense 19,000
Amortization of patents 5,000
Cash dividends declared and paid 35,000
Gain or loss on sale of patents none
Instructions
Prepare a statement of cash flows for French Corporation for the year 2021. (Use the indirect
method.)
Test Bank for Intermediate Accounting, Seventeenth Edition
23 – 58
Solution 23-123