14–32 Test Bank – Chapter 14 – The Statement of Cash Flows
12. The August 1 and August 31 balances in accounts receivable are $21,000 and $18,000,
respectively. During August, the company collected $56,000 from its customers and incurred
$37,000 of expenses, all paid in cash. Calculate the amount of cash flows from operations for
August.
13. During the current year, Martini Foods reported sales of $250,000, and wrote off $7,000 of
accounts receivable as uncollectible under the direct write-off method. On January 1 and
December 31 of the current year, Richard Young had accounts receivable of $26,000 and
$14,000, respectively. Determine the amount of cash collected from customers during the
current year.
14. List two distinct examples of significant noncash transactions and two distinct examples of
transactions not reported in connection with a statement of cash flows
Test Bank – Chapter 14 – The Statement of Cash Flows 14–33
15. During 2017, equipment was sold for $57,000. This equipment cost $90,000 and had a book
value of $47,000. Accumulated depreciation for equipment was $184,000 at 12/31/17 and
$147,000 at 12/31/16. Show how the results of the three items will appear on the statement of
cash flows using the indirect method from this information.
16. Wilson Corporation reported cost of goods sold of $100,000. On January 1, Wilson Corporation
had inventory and accounts payable of $21,000 and $33,000, respectively. On December 31,
inventory and accounts payable were $28,000 and $20,000, respectively. Calculate cash
payments to suppliers of inventory.
17. Parton Inc.. reported accounting service revenue of $450,000 for 2017. On January 1, 2017,
Parton Inc. had $38,000 of accounts receivable and $0 of cash deposits received from
customers. On December 31, 2017, accounts receivable and deposits received were $49,000
and $6,000, respectively. Calculate the amount of cash collected from clients during 2017.
14–34 Test Bank – Chapter 14 – The Statement of Cash Flows
18. Lawson Co. sold equipment that cost $40,000 and a current book value of $18,000, for $20,000
cash. Lawson purchased additional equipment during the year. Data from the company’s
balance sheets at December 31, 2017 and 2016 are:
12/31/17
12/31/16
Equipment
$650,000
$520,000
Accumulated depreciation
106,000
82,000
Show how the results of the transactions will appear on the statement of cash flows using the
indirect method.
19. Relevant account balances for Jeremy Supply Co. are:
Accounts
12/31/17
1/01/17
Accounts receivable
$16,000
$ 9,000
Inventory
6,000
3,000
Accounts payable
11,000
20,000
Income information:
Revenue
$ 48,000
Cost of goods sold
$27,000
Operating expenses
18,000
Depreciation
5,000
50,000
Net loss
$ (2,000)
Determine the amount of cash provided (used) by operations for 2017.
Test Bank – Chapter 14 – The Statement of Cash Flows 14–35
20. Benton Company reported insurance expense of $301,000 during the current year. On January
1 and December 31 of the current year, prepaid insurance was $28,000 and $41,000,
respectively. Calculate cash paid for insurance premiums for the current year.
21. The following are relevant account balances from Winthrop Company’s comparative balance
sheet and 2017 income statement.
December 31, 2017
January 1, 2017
Accounts receivable
$15,000
$19,000
Prepaid insurance
5,000
3,000
Unearned revenue
8,000
11,000
Salaries payable
9,000
6,000
Winthrop’s 2017 income statement includes the following:
Sales revenue
$89,000
Insurance expense
4,000
Salaries expense
31,000
Determine the amount of cash collected from customers during 2017.
22. The following are relevant account balances from Winthrop Company’s comparative balance
sheet and 2017 income statement.
December 31, 2017
January 1, 2017
Accounts receivable
$15,000
$19,000
Prepaid insurance
5,000
3,000
Unearned revenue
8,000
11,000
Salaries payable
9,000
6,000
Winthrop’s 2017 income statement includes the following:
Sales revenue
$89,000
Insurance expense
4,000
Salaries expense
31,000
Determine the amount of cash paid for insurance during 2017.
14–36 Test Bank – Chapter 14 – The Statement of Cash Flows
23. The following are relevant account balances from Winthrop Company’s comparative balance
sheet and 2017 income statement.
December 31, 2017
January 1, 2017
Accounts receivable
$15,000
$19,000
Prepaid insurance
5,000
3,000
Unearned revenue
8,000
11,000
Salaries payable
9,000
6,000
Winthrop’s 2017 income statement includes the following:
Sales revenue
$89,000
Insurance expense
4,000
Salaries expense
31,000
Determine the amount of cash paid for salaries during 2017.
24. During 2017, Bacon Co. reported a net operating loss of $19,000. The only asset or liability
changes during 2017 were a decrease in accounts receivable of $11,000 and an increase in
accumulated depreciation of $42,000. Calculate cash flows from operations during 2017
(indicate outflow or inflow).
25. The following are relevant account balances from Hampton’s comparative balance sheet and
2017 income statement. Hampton’s balance sheets:
December 31, 2017
January 1, 2017
Cash
$ 6,000
$ 9,000
Accounts receivable
8,000
12,000
Merchandise inventory
29,000
18,000
Prepaid rent
6,000
4,000
Equipment
100,000
80,000
Accumulated depreciation
(28,000)
(13,000)
Total assets
$121,000
$110,000
Accounts payable
$ 9,000
$ 25,000
Dividends payable
6,000
4,000
Common stock
38,000
32,000
Retained earnings
68,000
49,000
Total liabilities and shareholders’ equity
$121,000
$110,000
Other information:
No equipment was sold or retired during 2017. Hampton’s net income for 2017 was $33,000.
Calculate depreciation expense for 2017.
Test Bank – Chapter 14 – The Statement of Cash Flows 14–37
26. The following are relevant account balances from Hampton’s comparative balance sheet and
2017 income statement. Hampton’s balance sheets:
December 31, 2017
January 1, 2017
Cash
$ 6,000
$ 9,000
Accounts receivable
8,000
12,000
Merchandise inventory
29,000
18,000
Prepaid rent
6,000
4,000
Equipment
100,000
80,000
Accumulated depreciation
(28,000)
(13,000)
Total assets
$121,000
$110,000
Accounts payable
$ 9,000
$ 25,000
Dividends payable
6,000
4,000
Common stock
38,000
32,000
Retained earnings
68,000
49,000
Total liabilities and shareholders’ equity
$121,000
$110,000
Other information:
No equipment was sold or retired during 2017. Hampton’s net income for 2017 was $33,000.
Calculate the amount of dividends paid during 2017.
27. The following are relevant account balances from Hampton’s comparative balance sheet and
2017 income statement. Hampton’s balance sheets:
December 31, 2017
January 1, 2017
Cash
$ 6,000
$ 9,000
Accounts receivable
8,000
12,000
Merchandise inventory
29,000
18,000
Prepaid rent
6,000
4,000
Equipment
100,000
80,000
Accumulated depreciation
(28,000)
(13,000)
Total assets
$121,000
$110,000
Accounts payable
$ 9,000
$ 25,000
Dividends payable
6,000
4,000
Common stock
38,000
32,000
Retained earnings
68,000
49,000
Total liabilities and shareholders’ equity
$121,000
$110,000
Other information:
No equipment was sold or retired during 2017. Hampton’s net income for 2017 was $33,000.
14–38 Test Bank – Chapter 14 – The Statement of Cash Flows
Determine the cost of the equipment purchased during 2017.
28. The following are relevant account balances from Hampton’s comparative balance sheet and
2017 income statement. Hampton’s balance sheets:
December 31, 2017
January 1, 2017
Cash
$ 6,000
$ 9,000
Accounts receivable
8,000
12,000
Merchandise inventory
29,000
18,000
Prepaid rent
6,000
4,000
Equipment
100,000
80,000
Accumulated depreciation
(28,000)
(13,000)
Total assets
$121,000
$110,000
Accounts payable
$ 9,000
$ 25,000
Dividends payable
6,000
4,000
Common stock
38,000
32,000
Retained earnings
68,000
49,000
Total liabilities and shareholders’ equity
$121,000
$110,000
Other information:
No equipment was sold or retired during 2017. Hampton’s net income for 2017 was $33,000.
Calculate the cash proceeds from the issuance of common stock during 2017.
29. Information from the 2016 and 2017 accounting records of Roman Corp. follows:
12/31/17
12/31/16
Net cash provided by operations
$38,000
$7,000
Net cash provided (used) by investing activities
(19,000)
16,000
Net cash provided (used) by financing activities
43,000
(9,000)
Cash balance
?
23,000
Calculate the December 31, 2017 ending cash balance.
SHORT ESSAY QUESTIONS
1. How is the statement of cash flows linked to the other financial statements?
Test Bank – Chapter 14 – The Statement of Cash Flows 14–39
2. How do ‘cash equivalents’ fit into the statement of cash flows?
3. How does the direct method of preparing the statement of cash flows differ from the indirect
method?
4. In the operating activities section of a statement of cash flows prepared using the indirect
method certain items are added to net income. Why is depreciation added?
14–40 Test Bank – Chapter 14 – The Statement of Cash Flows
5. In the operating activities section of a statement of cash flows prepared using the indirect
method certain items are added to, or subtracted from, net income. Why are changes in current
accounts added or subtracted?
6. International financial reporting standards require a statement of cash flows. Why is this and
what are some of the unique issues that multinational companies must understand when
interpreting these statements?
Solution:
Test Bank – Chapter 14 – The Statement of Cash Flows 14–41
7. Why is cash generated from operating activities more important than cash generated from other
sources?
8. Presented below is a partial statement of cash flows for Santiago Company for 2017.
Net income
$44,000
Adjustments to net income:
Add: Depreciation
7,000
Decrease in accounts receivable
12,000
Increase in salaries payable
5,000
Less: Gain on sale of equipment
(1,000)
Increase in inventories
(2,000)
Decrease in accounts payable
(5,000)
Net cash inflows from operating activities
$60,000
Mr. Santiago, the president of the company, is puzzled by why the cash from operating activities
in the statement presented above is $60,000, as compared to the company’s income statement
for the same period that shows net income of $44,000. Provide justification why the two
amounts might not be equal.
Solution:
14–42 Test Bank – Chapter 14 – The Statement of Cash Flows
9. How are changes in foreign currency valuations reported on a statement of cash flows?
10. Explain the ways in which management can ‘window dress’ the statement of cash flows.