11-119
Prepare the statement of cash flows for Alpha Technologies using the indirect method.
176.
The income statement, balance sheets, and additional information for Communication
Accessories are provided.
11-120
Revenues
$2,800,000
Gain on sale of land
4,000
Total revenues
2,804,000
Expenses:
Cost of goods sold
1,900,000
Operating expenses
575,000
Depreciation expense
38,000
Interest expense
16,000
Income tax expense
63,000
Total expenses
2,592,000
Net Income
$212,000
Assets
2018
2017
Current Assets:
Cash
$182,000
$187,000
Accounts receivable
83,000
95,000
Inventory
121,000
138,000
Prepaid rent
7,000
5,000
Long-Term Assets:
Investment in stock
195,000
100,000
Land
230,000
260,000
Equipment
305,000
225,000
Accumulated depreciation
(138,000)
(100,000)
Total Assets
$985,000
$910,000
Current Liabilities:
Accounts payable
$40,000
$58,000
Interest payable
1,000
2,000
Income tax payable
12,000
10,000
Long-Term Liabilities:
Notes payable
285,000
205,000
Stockholders’ Equity:
Common stock
350,000
350,000
Retained earnings
297,000
285,000
Total Liabilities and Equity
$985,000
$910,000
Additional Information for 2018:
1. Purchase additional investment in stocks for $95,000.
2. Sell land costing $30,000 for $34,000 resulting in a $4,000 gain on sale of land.
3. Purchase $80,000 in equipment by borrowing $80,000 with a note payable due in three
years. No cash is exchanged in the transaction.
4. The company declares and pays a cash dividend of $200,000.
Required:
Prepare the statement of cash flows using the
indirect
method. Disclose any noncash
transactions in an accompanying footnote.
Net income
operating activities:
Depreciation expense
Gain on sale of land
11-123
177.
Selected financial data for two competitors in the telecommunications industry are as
follows:
($ in millions)
2018
2017
Company A
Net Sales
$71,486
$475,203
Net Income
5,622
10,612
Net Cash Flows from
Operations
4,507
11,609
Total Assets
55,799
55,380
Company B
Net Sales
$39,540
$34,922
Net Income
8,052
7,333
Net Cash Flows from
Operations
12,089
10,104
Total Assets
58,734
53,340
Required:
1. Calculate the return on assets for 2018 for both companies. Which company has the
better return on assets?
2. Calculate the cash return on assets for 2018 for both companies. Which company has
the better cash return on assets?
3. Calculate the cash flow to sales ratio and the asset turnover ratio for 2018 for both
companies. Which company has the better ratios?
(55,799 + 55,380)/2
(58,734 + 53,340)/2
11-125
178.
Cash flows from operating activities for both the indirect and direct methods are
presented for Audio Systems.
Cash Flows from Operating Activities
Net income
$45,000
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation expense
7,000
Decrease in accounts receivable
9,000
Increase in accounts payable
4,000
Decrease in income tax payable
(6,000)
Net cash flows from operating
activities
$59,000
Cash Flows from Operating Activities
Cash received from customers
$93,000
Cash paid for operating expenses
(22,000)
Cash paid for income taxes
(12,000)
Net cash flows from operating activities
$59,000
Required:
Complete the following income statement for Audio Systems. Assume all accounts
payable are for operating expenses.
Operating expenses
Depreciation expense
Income tax expense
Total expenses
Net Income
11-128
179.
The income statement, balance sheets, and additional information for Communication
Accessories are provided.
Communication Accessories
Income Statement
For the Year Ended December 31, 2018
Revenues
$2,800,000
Gain on sale of land
4,000
Total revenues
2,804,000
Expenses:
Cost of goods sold
1,900,000
Operating expenses
575,000
Depreciation expense
38,000
Interest expense
16,000
Income tax expense
63,000
Total expenses
2,592,000
Net Income
$212,000
Communication Accessories
Balance Sheets
December 31
Assets
2018
2017
Current Assets:
Cash
$182,000
$187,000
Accounts receivable
83,000
95,000
Inventory
121,000
138,000
Prepaid rent
7,000
5,000
Long-Term Assets:
Investment in stock
195,000
100,000
Land
230,000
260,000
Equipment
305,000
225,000
Accumulated depreciation
(138,000)
(100,000)
Total Assets
$985,000
$910,000
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable
$40,000
$58,000
11-129
Interest payable
1,000
2,000
Income tax payable
12,000
10,000
Long-Term Liabilities:
Notes payable
285,000
205,000
Stockholders’ Equity:
Common stock
350,000
350,000
Retained earnings
297,000
285,000
Total Liabilities and Equity
$985,000
$910,000
Additional Information for 2018:
1. Purchase additional investment in stocks for $95,000.
2. Sell land costing $30,000 for $34,000 resulting in a $4,000 gain on sale of land.
3. Purchase $80,000 in equipment by borrowing $80,000 with a note payable due in three
years. No cash is exchanged in the transaction.
4. The company declares and pays a cash dividend of $200,000.
Required:
Prepare the statement of cash flows for Communication Accessories using the
direct
method. Disclose any noncash transactions in an accompanying footnote.
Cash received from customers
Cash paid to suppliers
Cash paid for operating expenses
Cash paid for interest
Cash paid for income taxes
11-132
180.
Portions of the financial statements for Security Solutions are provided below.
Security Solutions
Income Statement
For the Year Ended December 31, 2018
Revenues
$960,000
Expenses:
Cost of goods sold
$650,000
Operating expenses
210,000
Depreciation expense
25,000
Income tax expense
20,000
Total expenses
905,000
Net Income
$55,000
Security Solutions
Selected Balance Sheet Data
December 31
Increase in accounts receivable
5,000
Decrease in inventory
10,000
Increase in prepaid rent
4,000
Decrease in salaries payable
6,000
Increase in accounts payable
8,000
Decrease in income tax payable
3,000
Required:
Prepare the operating activities section of the statement of cash flows for Security
Solutions using the
direct
method.
181.
Identify and briefly describe the three categories of cash flows reported in the statement
of cash flows.
182.
Distinguish between the indirect method and the direct method for reporting net cash
flows from operating activities. Which method is more common in practice? Which method
provides a more logical presentation of cash flows?
183.
Highland Park Homes reports net income of $300,000, and yet its net cash flow from
operating activities is a negative $200,000 during the same period. Is this possible?
Explain.
184.
A $10,000 investment on the books of the company is sold for $11,000. How does this
transaction affect operating, investing, and financing activities under the indirect method?
185.
Explain the difference in the calculation of return on assets and cash return on assets.
How can cash-based ratios supplement the analysis of ratios based on income statement
and balance sheet information?