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Chapter 15 - Statement of Cash Flows
Bessler Company
Comparative Balance Sheet
20X1
20X0
Assets
Cash
$ 23,000
$15,000
Accounts receivable
18,000
14,000
Prepaid expenses
6,000
9,000
Inventory
27,000
15,000
Long-term investments
-0-
18,000
Equipment
60,000
30,000
Accumulated depreciation—equipment
(18,000)
(14,000)
Total assets
$116,000
$87,000
Liabilities and Stockholders' Equity
Accounts payable
$ 21,000
$ 9,000
Bonds payable
37,000
45,000
Common stock
40,000
23,000
Retained earnings
18,000
10,000
Total liabilities and stockholders' equity
$116,000
$87,000
Additional information:
1.
Net income for the year ending December 31, 20X1, 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 20X1 are $120,000.
Required: Prepare a statement of cash flows for the year ended December 31, 20X1, using the indirect method.
Chapter 15 - Statement of Cash Flows
146. A comparative balance sheet for the Bright Corporation is presented below:
BRIGHT CORPORATION
Comparative Balance Sheet
20X1
20X0
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 20X1 is $20,000. Net sales for 20X1 are $250,000.
2.
Cash dividends of $4,000 were declared and paid in 20X1.
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 20X1 using the indirect method.
Chapter 15 - Statement of Cash Flows
147. The following information is available for the Benning Corporation for the year ended Dec. 31, 20X1:
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 20X1 and
20X0:
20X1
20X0
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
Required: Prepare Benning's statement of cash flows for the year ended Dec. 31, 20X1, using the indirect method.
Chapter 15 - Statement of Cash Flows
148. Assuming a statement of cash flows is prepared, indicate the reporting of the transactions and events listed below by
major categories on the statement. Use the following code letters to indicate the appropriate category under which the item
would appear on the statement of cash flows.
Code
Cash Flows From Operating Activities
Add to Net Income
A
Deduct from Net Income
D
Cash Flows From Investing Activities
IA
Cash Flows From Financing Activities
FA
Category
1.
Common stock is issued for cash at an amount above par value.
_____
2.
Merchandise inventory increased during the period.
_____
3.
Depreciation expense recorded for the period.
_____
4.
Building was purchased for cash.
_____
5.
Bonds payable were acquired and retired at their carrying value.
_____
6.
Accounts payable decreased during the period.
_____
7.
Prepaid expenses decreased during the period.
_____
8.
Treasury stock was acquired for cash.
_____
9.
Land is sold for cash at an amount equal to book value.
_____
10.
Patent amortization expense recorded for a period.
_____
Chapter 15 - Statement of Cash Flows
149. Playtown Company's income statement for last year appears below:
Playtown Company
Income Statement
Sales
$100,000
Less: Cost of goods sold
60,000
Gross margin
$ 40,000
Less: Operating expenses
25,000
Income before income taxes
$ 15,000
Less: Income taxes
6,000
Net income
$ 9,000
The beginning and ending balances for last year are available for the following selected accounts:
Ending
balance
Beginning
balance
Accounts receivable
$15,000
$10,000
Inventory
29,000
25,000
Prepaid expenses
6,000
9,000
Accumulated depreciation
(35,000)
(30,000)
Accounts payable
27,000
20,000
Accrued liabilities
3,000
5,000
Income taxes payable
4,000
1,000
Required: Using the direct method, prepare the operating activities section of the statement of cash flows.
150. Freeport Company's income statement for last year appears below:
Chapter 15 - Statement of Cash Flows
Income Statement
Sales
$300,000
Less: Cost of goods sold
200,000
Gross margin
100,000
Less: Operating expenses
60,000
Income before income taxes
40,000
Less: Income taxes
16,000
Net income
$ 24,000
The beginning and ending balances for last year are available for the following accounts:
Ending
Beginning
balance
balance
Accounts receivable
$32,000
$40,000
Inventory
60,000
50,000
Prepaid expenses
12,000
8,000
Accumulated depreciation
(40,000)
(30,000)
Accounts payable
30,000
45,000
Accrued liabilities
16,000
10,000
Income taxes payable
2,000
5,000
Required: Using the direct method, prepare the operating activities section of the statement of cash flows.
151. 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
Chapter 15 - Statement of Cash Flows
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
Deferred taxes payable
28,000
22,000
Bonds payable
100,000
150,000
Common stock
100,000
70,000
Retained earnings
370,000
314,000
Total liabilities and stockholders' equity
$686,000
$629,000
Income Statement
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, prepare 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.
Chapter 15 - Statement of Cash Flows
152. The following information is available for Snider Company:
Receipts from customers
$180,000
Dividends from stock investments
3,000
Proceeds from sale of equipment
18,000
Proceeds from issuance of stock
90,000
Payments for goods
100,000
Payments for operating expenses
70,000
Interest paid
5,000
Taxes paid
4,000
Dividends paid
20,000
Required: Based on the preceding information, compute the net cash provided by operating activities.
153. Dolan Company's income statement showed revenues of $250,000 and operating expenses of $160,000. Accounts
receivable decreased by $60,000 and accounts payable increased by $40,000 during the year.
Required: Compute (A) cash receipts from customers and (B) cash payments for operating expenses using the direct
method.
154. The general ledger of Lopez Company provides the following information:
Beginning
End of Year
of Year
Accounts Receivable
$ 55,000
$ 94,000
Inventory
350,000
210,000
Accounts Payable
40,000
65,000
Net sales for the year were $2,100,000 and cost of goods sold were $1,500,000.
Chapter 15 - Statement of Cash Flows
Required: Compute the following:
A.
Cash receipts from customers.
B.
Cash payments to suppliers.
155. The income statement of Stuart Company is shown below:
STUART COMPANY
Income Statement
For the Year Ended December 31, 20X0
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, 20X0,
for Stuart Company, using the direct method.
Chapter 15 - Statement of Cash Flows
156. The income statement of Bingham Inc. for the year ended December 31, 20X1, reported the following condensed
information:
Service revenue
$600,000
Operating expenses
360,000
Income from operations
$240,000
Income tax expense
60,000
Net income
$180,000
Bingham's balance sheet contained the following comparative data at December 31:
20X1
20X0
Accounts receivable
$50,000
$40,000
Accounts payable
35,000
50,000
Income taxes payable
6,000
3,000
Bingham has no depreciable assets. Accounts payable pertains to operating expenses.
Require: Prepare the operating activities section of the statement of cash flows using the direct method.
Chapter 15 - Statement of Cash Flows
157. The income statement of Grimes Company is shown below:
GRIMES COMPANY
Income Statement
For the Year Ended December 31, 20X1
Sales
$ 8,000,000
Cost of goods sold
5,400,000
Gross profit
$ 2,600,000
Operating expenses
Selling expenses
$500,000
Administrative expense
700,000
Depreciation expense
90,000
Amortization expense
30,000
(1,320,000)
Net income
$ 1,280,000
Additional information:
1.
Accounts receivable increased $500,000 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 $150,000 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, 20X1, for Grimes Company, using the direct method.
158. Clover Company had the following information for the years 20X1 and 20X0:
Chapter 15 - Statement of Cash Flows
Clover Company
Income Statement
For the Year Ended December 31, 20X1
Sales
$4,200,000
Cost of goods sold
2,150,000
Gross profit
$2,050,000
Operating expense:
Selling expense
$580,000
Administrative expense
440,000
Depreciation expense
40,000
1,060,000
Net income
$ 990,000
Clover Company
Balance Sheet
December 31, 20X1
20X1
20X0
Assets
Cash
$ 16,000
$ 22,000
Accounts receivable
325,000
412,000
Inventory
127,000
205,000
Property, plant and equipment
300,000
300,000
Accumulated depreciation
120,000
100,000
Total assets
$888,000
$1,039,000
Liabilities
Accounts payable
$ 46,000
$ 59,000
Accrued expenses
65,000
42,000
Stockholders' equity
777,000
938,000
Total liabilities and equity
$888,000
$1,039,000
Required: Prepare the operating activities section of the statement of cash flows using the direct method.
Chapter 15 - Statement of Cash Flows
159. Best Wishes Company had the following information for the year ended December 31, 20X0:
Best Wishes Company
Income Statement
For the Year Ended December 31, 20X0
Sales
$470,000
Cost of goods sold
254,000
Gross profit
$216,000
Operating expenses
Selling expense
$110,000
Administrative expense
73,000
Amortization expense
14,000
197,000
Net income
$ 19,000
Additional information:
a. Accounts receivable increased by $12,000.
b. Inventories increased by $28,000.
c. Prepaid expenses increased by $1,200.
d. Accounts payable to merchandise suppliers increased by $19,000.
e. Accrued expenses payable increased by $9,000.
Required: Prepare the operating activities section of the statement of cash flows for the year
ended December 31, 20X0, for Best Wishes Company, using the direct method.
Chapter 15 - Statement of Cash Flows
160. The statement of cash flow classifies the cash flows into three categories. Describe each of these categories.
161. When preparing a statement of cash flows using the indirect method, why is depreciation added back to net income
within the operating activities section?
162. 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?
163. 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?
You decide
164. There are five basic steps that are followed in preparing a statement of cash flows. List the five steps and briefly
describe what takes place in each step.
165. 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.
Chapter 15 - Statement of Cash Flows
Use the following major cash flow activities to classify the activities listed below:
a.
Operating Activity, Source of Cash
b.
Operating Activity, Use of Cash
c.
Investing Activity, Source of Cash
d.
Investing Activity, Use of Cash
e.
Financing Activity, Source of Cash
f.
Financing Activity, Use of Cash
g.
Non-cash Investing & Financing Activity
166. Land is exchanged for common stock
167. Reported profitable operations (Net Income)
168. Issued long-term debt
169. Payment of cash dividends
170. Sold equipment used in the business for cash
171. Payment of Operating Expenses
172. Collection of Sales Revenue
173. Purchased land for cash
174. Issued Common Stock for cash
175. Paid off long-term debt
Chapter 15 - Statement of Cash Flows
For each of the following items, indicate by using the appropriate code letter, how the item should be reported in the
statement of cash flows, using the indirect method.
a.
Added to net income
b.
Deducted from net income
c.
Cash outflow--investing activity
d.
Cash inflow--investing activity
e.
Cash outflow--financing activity
f.
Cash inflow--financing activity
g.
significant noncash investing and financing activity
176. Decrease in accounts payable during a period.
177. Declaration and payment of a cash dividend.
178. Loss on sale of land.
179. Decrease in accounts receivable during a period.
180. Redemption of bonds for cash.
181. Proceeds from sale of equipment at book value.
182. Issuance of common stock for cash.
183. Purchase of a building for cash.
184. Acquisition of land in exchange for common stock.
185. Increase in merchandise inventory during a period.
