115. Daniels Company’s comparative balance sheet and income statement for last year appear below:
Balance Sheet
Ending
Beginning
Balance
Balance
Cash
$ 62,000
$ 38,000
Accounts receivable
85,000
66,000
Inventory
31,000
44,000
Prepaid expenses
0
4,000
Long-term investments
260,000
210,000
Plant and equipment
450,000
450,000
Accumulated depreciation
(255,000)
(219,000)
Total assets
$633,000
$593,000
Accounts payable
$ 33,000
$ 45,000
Accrued liabilities
36,000
18,000
Taxes payable
17,000
24,000
Bonds payable
150,000
190,000
Deferred taxes payable
41,000
24,000
Common stock
130,000
100,000
Retained earnings
226,000
192,000
Total liabilities and owners’ equity
$633,000
$593,000
Income Statement
Sales
$610,000
Less cost of goods sold
330,000
Gross margin
280,000
Less operating expenses
180,000
Net operating income
100,000
Less income taxes
30,000
Net income
$ 70,000
The company declared and paid $36,000 in cash dividends during the year.
Required:
Using the indirect method, construct in good form, each of the following activities sections of the company’s statement of cash flows for the year:
a. Operating activities section.
b. Investing activities section.
c. Financing activities section.
Net income
$ 70,000
Add (deduct) Adjusting Items:
Depreciation expense
36,000
Increase in accounts receivable
(19,000)
Decrease in inventory
13,000
Decrease in prepaid expenses
4,000
Decrease in accounts payable
(12,000)
Decrease in taxes payable
( 7,000)
116. Trueblood Company’s comparative balance sheet and income statement for last year appear below:
Balance Sheet
Ending
Beginning
Balance
Balance
Cash
$ 60,000
$ 25,000
Accounts receivable
48,000
61,000
Inventory
56,000
48,000
Prepaid expenses
13,000
19,000
Long-term investments
300,000
210,000
Plant and equipment
470,000
470,000
Accumulated depreciation
(222,000)
(188,000)
Total assets
$725,000
$645,000
Accounts payable
$ 59,000
$ 36,000
Accrued liabilities
42,000
24,000
Taxes payable
7,000
14,000
Bonds payable
80,000
140,000
Deferred taxes payable
38,000
23,000
Common stock
110,000
70,000
Retained earnings
389,000
338,000
Total liabilities and owners’ equity
$725,000
$645,000
Income Statement
Sales
$540,000
Less cost of goods sold
300,000
Gross margin
240,000
Less operating expenses
150,000
Net operating income
90,000
Less income taxes
27,000
Net income
$ 63,000
The company declared and paid $12,000 in cash dividends during the year.
Required:
Using the indirect method, construct in good form, each of the following activities sections of the company’s statement of cash flows for the year:
a. Operating activities section.
b. Investing activities section.
c. Financing activities section.
Net income
$63,000
Add (deduct) adjusting items:
Depreciation expense
34,000
Decrease in accounts receivable
13,000
Increase in inventory
(8,000)
Decrease in prepaid expenses
6,000
117. Gingerich Company’s comparative balance sheet and income statement for last year appear below:
Balance Sheet
Ending
Beginning
Balance
Balance
Cash
$ 45,000
$ 27,000
Accounts receivable
39,000
30,000
Inventory
30,000
44,000
Prepaid expenses
14,000
19,000
Long-term investments
280,000
200,000
Plant and equipment
600,000
600,000
Accumulated depreciation
(322,000)
(291,000)
Total assets
$686,000
$629,000
Accounts payable
$ 19,000
$ 34,000
Accrued liabilities
37,000
25,000
Taxes payable
32,000
14,000
Bonds payable
100,000
150,000
Deferred taxes payable
28,000
22,000
Common stock
100,000
70,000
Retained earnings
370,000
314,000
Total liabilities and owners’ equity
$686,000
$629,000
Income Statement
Investing activities:
Increase in long-term investments
$(90,000)
Net cash flows from investing activities
$(90,000)
Financing activities:
Decrease in bonds payable
$(60,000)
Increase in common stock
40,000
Cash dividends
(12,000)
Net cash flows from financing activities
$(32,000)
Sales
$800,000
Less cost of goods sold
430,000
Gross margin
370,000
Less operating expenses
230,000
Net operating income
140,000
Less income taxes
42,000
Net income
$ 98,000
The company declared and paid $42,000 in cash dividends during the year.
Required:
Using the direct method, construct in good form, each of the following activities sections of the company’s statement of cash flows for the year:
a. Operating activities section.
b. Investing activities section.
c. Financing activities section.
Sales
$800,000
Adjustments to a cash basis:
Increase in accounts receivable
-9,000
$791,000
Cost of goods sold
430,000
Adjustments to a cash basis:
Decrease in inventory
-14,000
Decrease in accounts payable
+15,000
(431,000)
Operating expenses
230,000
Adjustments to a cash basis:
Decrease in prepaid expenses
-5,000
Increase in accrued liabilities
-12,000
Depreciation charges
-31,000
(182,000)
Income tax expense
42,000
Adjustments to a cash basis:
Increase in taxes payable
-18,000
Increase in deferred taxes payable
-6,000
( 18,000)
Net cash flows from operating activities
$160,000
Investing activities:
Increase in long-term investments
$(80,000)
Net cash flows from investing activities
$(80,000)
Financing activities:
Decrease in bonds payable
$(50,000)
Increase in common stock
30,000
Cash dividends
(42,000)
Net cash flows from financing activities
$(62,000)
118. The comparative balance sheets for Bessler Company appear below:
Bessler
Company
Comparat
ive
Balance
Sheet
2006
2005
Assets
Cash
Accounts receivable
Prepaid expenses
Inventory
Long-term investments
Equipment
Accumulated depreciation—equipment
Total assets
$ 23,000
18,000
6,000
27,000
-0-
60,000
(18,000)
$116,000
$15,000
14,000
9,000
15,000
18,000
30,000
(14,000)
$87,000
Liabilities and Stockholders’ Equity
Accounts payable
Bonds payable
Common stock
Retained earnings
Total liabilities and stockholders’ equity
$ 21,000
37,000
40,000
18,000
$116,000
$ 9,000
45,000
23,000
10,000
$87,000
Additional information:
1. Net income for the year ending December 31, 2006, was $20,000.
2. Cash dividends of $12,000 were declared and paid during the year.
3. Long-term investments that had a book value of $18,000 were sold for $16,000.
4. Sales for 2006 are $120,000.
Required:
Prepare a statement of cash flows for the year ended December 31, 2006 using the indirect method.
Statement of
Cash Flows
Ended
Net increase in cash
Cash at end of period
8,000
$23,000
119. A comparative balance sheet for the Bright Corporation is presented below:
BRIGHT CORPORATION
Comparative Balance Sheet
2006
2005
Assets
Cash
$ 39,000
$ 31,000
Accounts receivable (net)
80,000
60,000
Prepaid insurance
22,000
17,000
Land
18,000
40,000
Equipment
70,000
60,000
Accumulated depreciation
(20,000)
(13,000)
Total Assets
$209,000
$195,000
Liabilities and Stockholders’ Equity
Accounts payable
$ 11,000
$ 6,000
Bonds payable
27,000
19,000
Common stock
140,000
115,000
Retained earnings
31,000
55,000
Total liabilities &stockholders’ equity
$209,000
$195,000
Additional information:
1. Net loss for 2006 is $20,000. Net sales for 2006 are $250,000.
2. Cash dividends of $4,000 were declared and paid in 2006.
3. Land was sold for cash at a loss of $10,000. This was the only land transaction during the year.
4. Equipment with a cost of $15,000 and accumulated depreciation of $10,000 was sold for $5,000 cash.
5. $12,000 of bonds were retired during the year at carrying (book) value.
6. Equipment was acquired for common stock. The fair market value of the stock at the time of the exchange was $25,000.
Required:
Prepare a statement of cash flows for the year ended 2006 using the indirect method.
BRIGHT CORPORATION
Statement of Cash Flows
For the Year Ended December 31, 2006
Net loss
$(20,000)
Add (deduct) adjusting items:
Depreciation
$17,000
Loss on sale of land
10,000
Increase in accounts payable
5,000
Increase in accounts receivable
(20,000)
Increase in prepaid insurance
(5,000)
Net cash flows from operating activities
(13,000)
Cash flows from investing activities
Proceeds from the sale of land
12,000
Proceeds from the sale of equipment
5,000
Net cash flows from investing activities
17,000
Cash flows from financing activities
Retirement of bonds payable
(12,000)
Issuance of bonds payable
20,000
Payment of dividends
(4,000)
Net cash flows from financing activities
4,000
Increase in cash
8,000
120. The following information is available for the Benning Corporation for the year ended Dec. 31, 2006:
Collection of principal on long-term loan to a supplier
$35,000
Acquisition of equipment for cash
10,000
Proceeds from sale of long-term investment at book value
27,000
Issuance of common stock for cash
20,000
Depreciation expense
25,000
Redemption of bonds payable at carrying (book) value
24,000
Payment of cash dividends
9,000
Net income
35,000
Purchase of land by issuing bonds payable
40,000
In addition, the following information is available from the comparative balance sheet for Benning at the end of 2006 and 2005:
2006
2005
Cash
$107,000
$14,000
Accounts receivable (net)
20,000
15,000
Prepaid insurance
17,000
13,000
Total current assets
$144,000
$42,000
Accounts payable
$ 25,000
$19,000
Salaries payable
4,000
7,000
Total current liabilities
$ 29,000
$26,000
Instructions
Prepare Benning’s statement of cash flows for the year ended Dec. 31, 2006 using the indirect method.
BENNING CORPORATION
Statement of Cash Flows
For the Year Ended December 31, 2006
Cash flows from operating activities
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation
$25,000
Increase in accounts receivable
(5,000)
Increase in prepaid insurance
(4,000)
Increase in accounts payable
6,000
Decrease in salaries payable
(3,000)
Net cash provided by operating activities
54,000
Cash flows from investing activities
Collection of long-term loan
35,000
Proceeds from the sale of investments
27,000
Purchase of equipment
(10,000)
Net cash provided by investing activities
52,000
Cash flows from financing activities
Issuance of common stock
20,000
Redemption of bonds
(24,000)
Payment of dividends
(9,000)
Net cash used by financing activities
(13,000)
Increase in Cash
93,000
Cash at beginning of period
14,000
Cash at end of period
$107,000
Noncash investing and financing activities
Purchase of land by issuing bonds
$40,000
121. a. Sales = $804,420; Accounts receivable increased by $49,700. Adjust sales to cash basis to determine
cash receipts from sales.
b. Cost of goods sold = $1,520,000; inventory decreased by $78,000; accounts payable decreased by $28,500.
Adjust cost of goods sold to cash basis to determine cash payments for inventory.
c. The Income statement shows $12,500 in income taxes. The balance sheet shows an increase in taxes payable
of $2,525. Adjust income tax expense to cash basis to determine the cash paid for income taxes.
d. Operating expenses total $104,750; Depreciation expense = $37,200; Prepaid expenses increased by $17,400;
Accrued wages decreased by $5,600. Adjust the operating expenses to cash basis to determine the cash
payments for operating expenses.
122. a. Sales = $930,000; Accounts receivable decreased by $40,000. Adjust sales to cash basis to determine
cash receipts from sales.
b. Cost of goods sold = $650,000; inventory increased by $15,000; accounts payable increased by $28,000.
Adjust cost of goods sold to cash basis to determine cash payments for purchases.
c. Income statement shows $25,500 in income taxes. The balance sheet shows an decrease in taxes payable of
$2,500. Adjust income tax expense to cash basis to determine the cash paid for income taxes.
d. Operating expenses total $100,000; Depreciation expense = $4,000; Prepaid expenses decreased by $13,000;
Accrued liabilities increased by $6,000. Adjust operating expenses to cash basis to determine cash payments for
operating expenses.
123. The general ledger of the Garcia Company provides the following information:
End of Year
Beginning of Year
Accounts Receivable
$ 65,000
$ 94,000
Inventory
340,000
210,000
Accounts Payable
40,000
65,000
The company’s net sales for the year was $2,000,000 and cost of goods sold amounted to $1,700,000.
Instructions
Make the necessary direct approach adjustments to find the following:
(a). Cash receipts from customers (adjustment of sales to cash basis)
(b). Cash payments to suppliers (adjustment of Cost of Goods Sold to cash basis)
Sales
$2,000,000
+ Decrease in Accounts Receivable
29,000
$2,029,000
Cost of Goods Sold
$1,700,000
+ Increase in Inventory
130,000
+ Decrease in Accounts Payable
25,000
$1,855,000
124. The income statement of Price Inc. for the year ended December 31, 2006, reported the following
condensed information:
Revenue from fees
$600,000
Operating expenses
360,000
Income from operations
240,000
Income tax expense
60,000
Net income
$180,000
Price’s balance sheet contained the following comparative data at December 31:
2006
2005
Accounts receivable
$50,000
$45,000
Accounts payable
35,000
41,000
Income taxes payable
6,000
3,000
Price has no depreciable assets. Accounts payable pertains to operating expenses.
Required:
Prepare the operating activities section of the statement of cash flows using the direct method.
PRICE INC.
Statement of Cash Flows
For the Year Ending December 31, 2006
Sales ($600,000 – $5,000)
$595,000
Operating expenses ($360,000 + $6,000)
(366,000)
Income taxes ($60,000 – $3,000)
( 57,000)
Net cash flows from operating activities
$172,000
125. The income statement of Stuart Company is shown below:
STUART COMPANY
Income Statement
For the Year Ended December 31, 2006
Sales
$8,200,000
Cost of goods sold
5,400,000
Gross profit
2,800,000
Operating expenses
Selling expenses
$500,000
Administrative expense
700,000
Depreciation expense
90,000
Amortization expense
30,000
1,320,000
Net income
$1,480,000
Additional information:
1. Accounts receivable increased $400,000 during the year.
2. Inventory increased $250,000 during the year.
3. Prepaid expenses increased $200,000 during the year.
4. Accounts payable to merchandise suppliers increased $100,000 during the year.
5. Accrued expenses payable increased $180,000 during the year.
Required:
Prepare the operating activities section of the statement of cash flows for the year ended December 31, 2006, for Stuart Company, using the direct
method.
STUART COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2006
Sales
$7,800,000
(1)
Operating expenses
(1,220,000) (3)
Net cash provided by operations
$1,030,000
(1)
Sales
$8,200,000
(2)
Cost of goods sold
$5,400,000
Add: Increase in inventory
250,000
$5,550,000
(3)
Operating expenses exclusive of depreciation and
amortization
$1,200,000
Add: Increase in prepaid expenses
200,000
$1,220,000
126. Cash flows from operating activities can be calculated using the indirect or direct method. Briefly describe
how the two methods differ yet arrive at the same information about the net cash flows from operating
activities.
127. When preparing a statement of cash flows using the indirect method, why is depreciation added back to net
income within the operating activities section?
128. How is it possible for a company to suffer a net loss for a given year, yet produce a positive net cash flow
from operating activities?
129. Smithson is a small, privately-held company and therefore has no current requirement to issue financial
statements using GAAP. The accountant has been utilizing a cash budgeting system in which a schedule of
predicted cash sources and cash needs is prepared at the end of each week for the following week.
130. If an asset is sold at a gain, why is the gain deducted from net income when computing the net cash flows
from operating activities under the indirect method?